What is California Labor Code Section 2870?
This code states that inventions of an employee are not assigned to the employer if they are wholly developed on the employee’s own time and if they are done so without the uses of employer’s equipment, supplies, facilities or trade secret information of the employer.
How Does California Labor Code Section 2870 Work?
This code does not apply to inventions that:
- Relate at the time of conception or reduction to practice of the invention, to the employer’s business or actual or anticipated research of the employer
- Result from work done by the employee in his capacity as an employee’ of the employer.
All the provisions in employment agreements that attempt to modify this scheme are unenforceable. If a California employee is required by the employment agreement to assign an invention, then the employer must provide written notification to the employee stating that this agreement does not include inventions that qualify under the provisions of Section 2870. This notice usually appears in California employee invention assignment agreements. Employers attempt to ensure that results of the efforts made by the employee on company time belong to the employer and so a majority of employment contracts provide for this. The law supports this, and the courts have made such decisions regularly. In high tech companies, questions of who owns an idea arise since usually a concept might arise during working hours and then an employee decides to exploit it at his own time. In situations where the law is vague, most businesses try to clarify the rights in contracts which specify the rights to ownership that each party may claim. In California, there are severe restrictions in this area of drafting which is the topic of this paper.
CALIFORNIA CODES, LABOR CODE SECTION 2870-2872:
- (a) Any provision in an employment agreement stating that an employee should assign any of his rights in an invention to his employer shall not apply to an invention which the employee develops totally on his time without using the employer’s equipment, supplies, facilities, or trade secret information except for the inventions which:
- Relate at the time of conception or reduction to practice of the invention to the employer’s business, or actual or anticipated research or development of the employer
- Result from any work done by the employee for the employer.
(b) In case a provision in an employment agreement requires an employee to assign an invention that is excluded from being required to be assigned under the subdivision, the provision is unenforceable since it is against the public policy of the state.
- No employer shall require a provision that is made unenforceable by Section 2870 as a condition for employment or continued employment. This article shall not restrict the right of an employer to provide in the employment contracts for disclosure of all employee’s inventions made jointly or individually during the term of his employment.
The employer may carry out a review process to determine these issues as they arise as required by the contracts between the employer and the US or any of its agencies. This law forbids the provisions in an agreement that conflicts with the statute and does not allow the waiver of the protection of such requirements by the employee. The employers should take note of the broad protection that the exceptions at 2870 (a) 1 and 2 give them. If an employee outside the office develops an invention which relates to the employer’s existing business, the employer can claim it if he can prove it. If the employee is working on a concept which results from any work he performs for the employer, then the employer owns it. This protection of the statute has a critical loophole. If a product comes from a trade secret of the employer and uses employer’s facilities or supplies, then it is owned by the employer. This means that even if the employee develops a concept at his own time and does not use any equipment of the employer but still uses trade secrets of the employer, then the employer may own the results.
Practicalities
Practical cost benefits are essential in analyzing the rights and remedies. An employee who develops a variation of a product or concept of an employer must assume that the employer might claim ownership rights unless the idea is in an unrelated field and was not part of a larger project that the employer assigned. Working from home and using one’s equipment is not enough since it can be later claimed that the concept was derived from trade secrets or is a variation of an existing product. When starting up, most companies cannot afford the cost of litigation that a claim like that entails and the employer will be tempted to seek immediate relief while the new company is weak since a waiver of rights accrues if aggressive action is not taken. Companies hiring new employees need to be careful that a claim for violation of the work for hire rule might occur during the hiring. Also, companies hiring from competitors need to restrict the activities of the new employees to make sure that the competitor cannot sue both the company and the new employees as defendants in a theft of trade secrets. The employer and the employee should remember that anything the employee develops and is related to the employer’s business is likely to be examined carefully by an employer losing the employee. The efforts to clarify the definitions of what is produced when and where in the contract might not be helpful in the above statute.
