inventions

Does your employer own the entire contents of your head?

December 6, 2013: 9:21 AM ET

Companies are taking non-compete agreements to a whole new level, asking employees to sign away the rights to all their ideas -- past, present, and future

FORTUNE -- Dear Annie: I read your column on whether (or when) non-compete agreements are negotiable, but I have a much weirder question. I just got a great job offer from a company where I've always wanted to work, but one thing is giving me pause. The HR people haven't asked me to sign a non-compete, exactly, but they do want me to sign something they're calling an "assignment agreement," which basically says the company owns the rights to all my ideas or inventions, both now and in the future.

This makes me nervous because, for the past five or six years, I've been developing something in my spare time that I think has great commercial potential, and I'm getting close to applying for a patent. Does this agreement mean my employer owns my invention, even though it has nothing to do with my job? That just seems bizarre. Or am I reading this wrong? -- Lost in Los Gatos

Dear L.L.G.: I'm sorry to report that you're probably reading it just fine. Assignment contracts, also called preassignment agreements, are often buried in dense thickets of legalese in non-compete contracts, but since non-competes are illegal in California, you've been presented with the stand-alone version. Typically, it means you're signing over the entire contents of your brain to your employer.

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More and more new hires are being asked to sign these contracts "across all industries and in all kinds of jobs," notes Orly Lobel, a law professor at the University of San Diego and cofounder of its Center for Intellectual Property Law and Markets. She also wrote a new book you might want to check out, called Talent Wants to Be Free: Why We Should Learn to Love Leaks, Raids, and Free Riding.

"Assignment agreements used to be mostly confined to people specifically hired to create or invent, but not anymore," Lobel says. These days, "the trend is toward companies trying to control all creativity, including skills, ideas, discoveries, and techniques -- tacit knowledge that isn't subject to patent or copyright under the traditional scope of the law."

The worst part, from your point of view, is that these contracts often stretch into the indefinite future. "Many of them contain a 'trailer clause,' which essentially means, 'Even if you invent something years after you leave here, we will own it anyway,'" Lobel says.

Outlandish as that seems, the agreements have teeth. Talent Wants to Be Free goes into some detail about what Lobel calls "strategic litigation," where companies have sued former employees, especially those who quit to start their own businesses. Such lawsuits can be enough to kill a new company. "Even the threat of litigation is a big red flag to investors," Lobel notes. "Venture capitalists won't come near you."

Your situation does have one bright spot: You live in California. Along with several other states -- including Delaware, Illinois, Kansas, Minnesota, Washington, and North Carolina -- the Golden State has passed laws putting a few limits on employers' right to claim ownership of employees' brainpower.

In particular, California courts have relied on the same statutes that ban non-compete agreements to overturn assignment contracts considered too restrictive or far-reaching. Not only that, but state law says that, as long as you developed your invention in your spare time and without using any of your employer's resources or proprietary information, your assignment agreement -- including any trailer clauses -- can't be enforced. (And yes, your employer no doubt knows that, but may be hoping that you don't.)

Sometimes, however, it's hard to prove when something was invented, and that's been a major point of contention in a few big lawsuits. So, to protect yourself in the event of legal action down the road, Lobel recommends that you keep meticulous records. "Document where you are in your project right now, meaning how much of it you completed before taking this job," she says. "You can mail the information to yourself, so you have a postmark that shows the date. Or get your work product up to now notarized, so you have both the date and an impartial witness.

"Then start a diary, keeping track of your hours so you can show that, after you were hired, you worked on your invention on your own time, evenings and weekends. Don't forget to use entirely separate tools and devices, like a separate laptop from the one you use for your day job."

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Lobel notes that you might be ill at ease with the idea of starting a new job while taking precautions against future antagonism -- "It's the same reason lots of people don't like prenuptial agreements" -- but, as things stand, you have little choice.

"To me, the issue is not companies vs. employees, it's companies vs. companies," she adds. "It's all about how businesses compete. After all, employers also have to recruit people, and they want the best employees they can get. So in the long run, these restrictive, inefficient contracts don't help them either. Public policy has to move toward allowing the free flow of talent."

In a few places, it's already going that way. Even so, good luck.

Talkback: Have you ever been asked to sign an assignment agreement? Leave a comment below.

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