Understand your rights as an employer.
When hiring employees, set clear expectations for both sides regarding intellectual property rights. — Getty Images/SDI Productions

Just as your physical property is protected from damage and theft, your ideas, thoughts, projects and attitudes are also protected. Intellectual property comes in many forms, but the ultimate goal is to safeguard the mental creations of artists, writers and entrepreneurs.

For business owners, it’s important to understand your rights as an employer compared to your employees’ rights when it comes to intellectual property.

[Read: How to File a Patent]

There are four main types of intellectual property: patents, copyright laws, trademarks and trade secrets. It’s important to review full breakdowns of the similarities and differences of each, but before diving into how an employee, company relationship can impact intellectual property, it’s important to have a cursory understanding of each.

  • Patent: Patents apply to inventions, so inventors can control the manufacturing, use and sale of their idea.
  • Copyright: Copyright laws apply to a wide range of works, including literary, dramatic, musical and artistic works.
  • Trademark: Trademark laws protect words, phrases and logos associated with companies.
  • Trade secrets: Trade secrets protect devices or techniques used to create a product or service.

IP and employment relationships

Employment relationships, intellectual property and ownership of newly developed ideas may feel like a gray area, but there are some very clear laws defining it all. Typically, employers are entitled to all intellectual property created at/for their business, unless there exists a contract stating otherwise.

The key takeaway here, however, is that employers need to have predefined agreement with all employees regarding intellectual property.

Generally, there are two scenarios:

  • In scenario A, a worker employed by a company creates a new product or improves upon the business idea. This employee’s direct role, however, is one where they don’t work directly on a product or system that will eventually be patented by the business. In this scenario, the employee technically owns whatever innovation has been created, and the business is afforded a nonexclusive license to use that innovation without paying any royalties to the employee. The employee, however, can license their idea to other businesses independent of the employer. This is the case even if the employee used an employer’s resources to create the product or service improvement.
  • The major exception to this rule comes in scenario B. Imagine the same worker is creating a new product or improving upon a business idea. If that worker is directly related to the process and creation of a new, patentable idea for the business, then the employer owns any intellectual property created by that employee. This is viewed as the employee simply doing his or her job: They’re creating a better process or product for the business.

The key takeaway here, however, is that employers need to have predefined agreement with all employees regarding intellectual property. Depending on how you want to handle the issue, you need to protect your company from sprouting competitors with products adjacent to your original business idea.

Patent exception

While in many cases an employer can end up owning intellectual property created by an employee, there are some scenarios where employees can claim compensation. In fact, employees can share compensation for inventions of "outstanding benefit" for the employer.

[Read: Everything You Need to Know About Intellectual Property]

Intellectual property is important, and if you run a small business where your employees are creating things related to your company, it is important to have an agreement in writing beforehand to define who owns what.

Many media companies, for example, require employees to acknowledge anything written or created during their time of employment belongs to the business and not the individual. This is often a requirement of employment, which means it protects the business at all costs from these types of claims. Regardless of your business’s industry and number of employees, it’s important to think critically about how you will approach intellectual property related to your employees.

CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.

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