Trade secrets play a vital role in differentiating the goods or services provided by two organisations. This creates a primary objective to protect these along with any other intellectual property of the employer against any unlawful or unauthorised use. To ensure the aforementioned, employers implement a confidentiality clause and an IP assignment clause into the contract of employment or enforce the same through a separate agreement. A well drafted confidentiality and IP assignment clause ensures not only the protection of the trade secrets of the employer but also the immediate transfer of ownership with respect to all the IP rights upon the creation of such IP. It should also provide that such clauses shall survive the termination of the contract of employment.
This article shall provide details into the key factors which must be taken into consideration at the time of drafting of the confidentiality and IP assignment clause. It provides a list of items one needs to include as well as the practical drafting patterns with respect to the confidentiality and IP assignment clause applicable on the employees.
Why have the combined confidentiality and IP assignment clause?
The combined clause ensures that any agreement between the employer and employee provides for a comprehensive clause covering all aspects pertaining to the protection of the trade secret and intellectual property of the employer. These clauses ensure minimisation of risk arising out of legal dispute and any other financial risks. Thus, implementing a combined confidentiality and IP assignment clause is vital in any contract of employment unless a separate agreement has been entered. Therefore, non-disclosure obligations and an IP assignment clause in employment contract assist the employer on the following aspects:
- Protects business value: Trade secrets and proprietary knowledge provide a competitive edge to any organisation and failure to safeguard such knowledge is likely to diminish the employer’s business value;
- Ensures rights: IP assignment clause ensures that the employer retains all the ownership to the intellectual property reducing potential risk arising out of legal disputes; and
- Operational transparency: The combined clause acts as a standardised clause allowing operation consistency between all the stakeholders such as payroll, legal teams and HR.
Statutory and doctrinal structure (India)
The confidentiality and IP assignment clause implemented by an organisation shall be subject to legal compliance.
Copyright and Section 17
- Under Section 17 of the Copyright act 1957, the ownership pertaining to the copyright vests with the author of the work. In case of employment, this author shall be the employee unless the contrary is indicated in an agreement. Thus, an assignment of IP mitigates the risk by ensuring the rights are retained by the employer.
Inventions of patents and of employees
- Patent rights are crucial to any employer and as such an IP assignment clause protects the employer from any dispute arising out of such patent. The ownership of patent is not automatically transferred to the employers and therefore the language of assignment needs to be clear on rights over the inventions.
Confidentiality and trade secrets
- Trade secrets are not governed by any statutory provisions in India, but rather through the contract and precedents passed by the competent authority. Thus, the inclusion of confidentiality clause ensures that the employee does not disclose the confidential information to third party protecting the trade secret of the employer.
Ethical rights and legal restrictions
- While preparing the IP assignment clause, specifically in reference to the Copyright Act, 1957, employer must strategise the methodology used to govern the moral rights, as such rights cannot be waived in some aspects.
Essential drafting goals
A confidentiality and IP assignment clause must ensure the implementation of the following provisions:
- Scope of Confidential Information;
- Automatic assignment of IP created during work;
- Applicability on the inventions created outside of the work, and using the company resources should be discussed;
- Survivability of the confidentiality and IP assignment clause after the termination of employment.
- Timeline for the period for which the confidentiality and IP assignment clause shall be applicable on the employee.
Key definitions to include
The key terms in a confidentiality and IP assignment clause are produced herein below. Employer must ensure enactment of a complete and uniform definition in order to prevent legal risk all the while ensuring operational transparency.
- Confidential Information Confidential Information is information which is not available in the public domain such as trade secrets, customer lists, prices, technical information, customers code, prototypes, business plans, model specifications and any other. However, as an industry practice such confidential information does not include information available on the public domain, information which has been independently developed, or information which has to be disclosed under the applicable laws.
- Intellectual Property- covers patents, designs, copyrights, and database rights, trade marks (where applicable), trade secrets, domain names and applications and registrations. A comprehensive definition of term intellectual property includes both the registered and unregistered intellectual property.
- Work Product: The term defines the creations, code, documentation, inventions, process, and improvement, design, algorithms, and products created by employee either alone or in cooperation with others as an employee.
- Course of Employment: – In Work made in course of employment India, course of employment shall be determined as work performed in course of the duties of the worker and by the employee during the work hours, material, confidential information or other information attained as the result of the work of the employee.
- Pre-Existing IP – Employee must be disclosed and listed inventions or works that the employee owned before employment.
Writing the confidentiality clause
The confidentiality clause should at minimum contain the following three provisions impose obligations, establish exceptions and remedies in case of breach.
1. Core obligations
- The confidentiality clause must be drafted in a manner which protects the employer from breach of confidential information during the course of employment and for a reasonable duration after the employment.
- The Confidential Information as shared by the employer must only be used to fulfil the duties assigned by the employer.
- Restrict the employee from making copies, duplicate or transfer Confidential Information, without authorisation of the employer.
- Mandate notice to the employer if the confidential information has been disclosed due to statutory requirements.
2. Exceptions and carve-outs
- If the information is available in the public domain;
- If the information that has been developed independently by the employee; and
- If disclosure is mandated as per applicable laws.
3. Return and deletion
Provide a clause mandating that in the event of termination or other obligations, the employee shall either return or destroy all materials and copies pertaining to the confidential information.
4. Duration
A confidentiality clause may remain operational on the employee post termination for a period of 12-36 months. However, such period must be reasonable and subject to the job role and sensitivity of information.
5. Remedies
- The injunctive relief, damages, profits and specific performance; and
- The clause may include broader relief by stating that monetary damages may not suffice and that the employer shall be entitled to equitable relief which is not monetary.
Drafting the IP assignment component
The IP assignment clause should include provision which shall apply to both present and future scenarios and must comprise of the following:
1. Present assignment of existing and future IP
Employee transfers to the employer all right, title and interest in Work Product and any Intellectual Property which are register or unregistered and were produced during the course of employment or as a result of Confidential Information.
2. Future task and collaboration
- Ensure that such clause includes a declaration whereby the employee forfeits their right to the intellectual property created in the future; and
- Implement an indemnity clause to ensure protection against financial liability for any instance of non-cooperation by employee.
3. Scope of the IP assignment clause
The IP assignment clause derives its scope from the following grounds: (a) during employment; (b) with the resources of employer; (c) in connection with business of employer or product of Confidential Information; and (d) with employer confidential information or material.
4. Consideration
Ensure that the clause provides that the assignment of the IP is made in consideration for employment and remuneration to ensure documentation is strong evidence in the instance of any dispute.
5. Waivers and moral rights
The clause should include waiver of any rights of the employee subject to the applicable laws. Provided that the moral rights cannot be waived by the employee. Thus, the employer must ensure careful preparation of such clauses.
Special problems and customized provisions
Preexisting inventions and side projects
Employee must be mandated to disclose a comprehensive list of existing IP at the time of signing of contract of employment. It must also provide the requirement that employee shall not use third-party IP without disclosing to employer in employer projects.
Working at home and personal computers
Ensure that the work from home or use of personal laptop is included in the IP assignment clause to ensure that the work done on personal devices belongs to the employer when the employer resources, time or confidential information are utilised.
Non-compete and non-solicit (caution)
The employer may also incorporate clauses such as the non-compete and non-solicit clauses in its contract of employment. However, the enforceability of such clauses are subject to the court interpretation and must be reasonable in nature.
Enforceability considerations under Indian law
Enforcement of such clauses can be ensured by incorporating the following:
- The clause must be clear and precise as a broad restriction may be held unenforceable by the court of law;
- Establish in the clause that such restriction is imposed while providing the employee adequate consideration;
- Ensure that the language of the clause is proactive and protective of employer interest rather than punitive on the employee; and
- Determine reasonableness based on the applicable laws and the scope of employment.
Drafting patterns and sample clause language
Below are practical drafting patterns. Use them as templates, adapting language and scope to role, sector and risk.
A. Definitions (core block)
“Confidential Information” means all non-public information of [Employer], whether disclosed orally, in writing or by electronic means, including but not limited to trade secrets, technical information (including inventions, algorithms, source code and designs), business plans, customer lists and pricing, financial information, know-how and any information designated in writing as confidential, excluding information (i) in the public domain other than by reason of breach of this Agreement, (ii) independently developed by the Employee without use of Employer Confidential Information (burden of proof on Employee), or (iii) required to be disclosed by law provided the Employee gives prompt written notice to Employer.
“Work Product” means all works, inventions, discoveries, ideas, improvements, software (including source and object code), designs, documentation and other tangible or intangible results created, developed, reduced to practice or generated by the Employee, alone or jointly, during the period of employment, whether or not patentable or registrable.
“Intellectual Property” means all copyright, patent, design, database, trade secret and other proprietary rights, together with applications and registrations in any jurisdiction.
B. Confidentiality covenant
The Employee shall: (a) hold all Confidential Information in strict confidence during and after termination for a period of [●] years; (b) use Confidential Information solely for the performance of Employee’s duties; (c) not disclose Confidential Information to any third party except as authorised by Employer in writing; and (d) immediately return or destroy all materials containing Confidential Information on termination and certify such return or destruction.
C. IP assignment and cooperation
The Employee hereby assigns to Employer with full title guarantee all right, title and interest in and to any Work Product and Intellectual Property created or developed by the Employee during employment, whether created during or outside normal working hours, if such Work Product (i) relates to the business or activities of Employer, (ii) results from access to Employer’s Confidential Information, or (iii) is developed using Employer’s time, materials, equipment or facilities. The Employee shall execute all documents and take all actions reasonably necessary to secure and maintain such rights, including executing patent and copyright assignments and participating in prosecution and enforcement, at Employer’s expense.
D. Pre-existing IP disclosure
The Employee represents that the schedule attached at Schedule A lists all Pre-Existing IP owned or controlled by the Employee. Employee shall not incorporate any third-party IP into Work Product without prior written consent and shall disclose any such incorporation immediately.
E. Open-source and third-party code
Use of any open-source software or third-party code in Work Product requires prior written approval by Employer. Employee warrants that no contribution to Work Product will subject Employer or Work Product to third-party licensing terms that conflict with Employer’s proprietary rights.
F. Moral rights and waivers
To the extent permitted by law, the Employee waives and agrees not to assert any moral rights in respect of Work Product and consents to the alteration, publication and exploitation of Work Product by Employer in any manner.
G. Remedies and injunctive relief
Employee acknowledges that unauthorised disclosure or misappropriation of Confidential Information or breach of assignment obligations will cause irreparable harm to Employer for which monetary damages will be inadequate; Employer is therefore entitled to injunctive relief and equitable remedies in addition to damages.
Practical drafting checklist
Before finalising the confidentiality and IP assignment clause, the following must be taken into account:
- Definitions are precise and aligned with employer’s requirement;
- Scope of IP covered under the assignment clause and the restrictions imposed such as made during employment, using resources, or derived from Confidential Information;
- Employee’s existing IP disclosure requirement;
- Assignment clause includes indemnity and cost allocation for patent prosecution;
- Confidentiality and IP assignment clause survival clause post termination of employment;
- Clause comprehensively addressing residual knowledge; and
- HR, IT and legal teams have defined procedure during termination of employment to ensure prevention of risk.
Concluding drafting principles
Drafting of a confidentiality and IP assignment clause for employees is a process which includes reviewing of internal processes, requirements and other operational aspects to ensure that the objective of the clause is reached with legal clarity and not a broad prohibition. The key areas to review are as follows:
- Be precise and operationally sound clause;
- Assignment of IP is subject to objective;
- Protect the business while ensuring employee rights on non-confidential skills; and
- Align contractual obligations with operational.
A well drafted confidentiality and IP assignment clause ensures that there is mitigation of legal, operational and financial risk arising out of the IP and confidential information. It also ensure the enforcement of such clause by providing list of restriction which ensures that such clauses are not broad in nature and are legally compliant.
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