I continue to be shocked every time I see contracts neglected as part of a company’s innovation policy. And, I mean basic things like the obligation to keep secrets, the obligation to simply cooperate with perfecting an employer’s proprietary rights, and the obligation to transfer IP rights in anything an employee creates to the employer and then actually following through with an assignment contract. Creating clear contractual duties can go a long way toward preventing problems by creating a culture of compliance where people recognize their obligations and take them seriously. Good policy is a guide for the honest and a deterrent for the dishonest; a dishonest person will be dishonest regardless, but good policy presents you as a hardened target to an employee with ill intent.

I recently encountered a startup company that had a senior-level employee leave with cutting edge technology and no clear duty to assign it to the company. The employee created an invention that could have made millions for the company. Unfortunately, after some heated disagreement over his cut the employee decided to leave and commercialize the invention himself. The problem is that under US patent law an inventor is the default owner of whatever he invents, and this employee’s relationship with the company was consummated with a handshake. He was never asked to sign a contract of any kind, so he had no explicit contractual duty to assign his inventions to the company. This leaves the company in a very difficult situation. While there may be an argument for an implied-in-fact contractual duty, or at least an implied license under the Shop Rights doctrine, asserting their rights entails the cost and uncertainty of litigation and they are a startup with limited resources.

This problem may or may not have been prevented by requiring the employee to sign a formal contract as a condition of employment creating a contractual obligation to transfer ownership of his inventions to the company. But, one thing is certain; it would have put the company in a stronger defensive position, and would have made enforcement much less costly.

Stay tuned for more of the Top 10 IP Mistakes.