A new law in New York limits the ability of employers to call on employees to sign over the rights in their inventions. Enacted on September 15 and immediately effective, New York Labor Law Section 203-F generally bars employers in the state from requiring employees to assign inventions – and/or other intellectual property – over to the company that they developed “entirely on [their] own time without using the employer’s equipment, supplies, facilities, or trade secret information.” At the same time, the law renders unenforceable any employment agreement that “purports to require an employee to assign an invention otherwise excluded from being required to be assigned.”
Not a total ban, Section 203-F includes two exceptions for “inventions that either: (a) relate at the time of conception or reduction to practice of the invention to the employer’s business, or actual or demonstrably anticipated research or development of the employer; or (b) result from any work performed by the employee for the employer.” In other words, employers may still require employees to assign the rights in inventions that relate to the business, or research and development, or are based on work performed for the employer.
While the second exception is relatively straightforward in barring employees from simply replicating inventions that they created/worked on at their day job and claiming rights in them, there is a fair amount of gray area when it comes to the first exception. For instance, Troutman Pepper’s Tracey Diamond, Blake Brettschneider, Irina Vainberg, and Nicole Sullivan stated in a recent note that “the statute does not define the term ‘demonstrably anticipated” in subsection (a). They say that they expect that an employer “will need to show its intention to conduct research or development in an area logically connected to an invention at issue, [and] therefore, employers should develop a robust system to document this intent.”
More broadly, the Troutman Pepper attorneys state that Section 203-F “leaves open what constitutes an employee’s ‘own time, as well as an employer’s ‘equipment, supplies, [and] facilities,’” something that is particularly relevant in light of the prevalence of hybrid workplaces, which “often blur the lines between employees’ personal and professional lives.” In addition to the number of employees across sectors that still work remotely – or remotely at least part of the time – in the wake of the pandemic, this could be an issue in academia, in particular, they assert, “where scientist-employees often perform work outside of the employer’s facilities.”
Also at issue, according to Mintz’s Geri Haight, Evan Piercey, and Talia Weseley is the fact that “we do not yet know what – if any – practical implications” the new law will have, “largely due to the potentially broad carve-outs exempting employee inventions that relate to the employer’s business.” In practice, disputes are “most likely to boil down to how courts define and determine the ‘relatedness’ of an employee’s invention to an employer’s business,” they assert in a recent note of their own, stating that “one possibility is that New York courts may cite to an employer’s trade secrets as the barometer by which they will determine relatedness.”
On one hand, if New York courts take a broad view of what relates to an employer’s business, they assert that “the impact of the new law on employees’ rights to inventions developed on their own time and with their own resources may be more limited.” On the other hand, if courts determine “relatedness” by focusing on an employer’s trade secrets, New York “may see fewer employer safeguards with respect to employee inventions that relate in some capacity to the employer’s work.” (This is because New York has not adopted the Uniform Trade Secrets Act and instead relies on a narrower definition of what constitutes a trade secret, Mintz states.)
With so many questions still lingering as to how New York will implement the new law, Haight, Piercey, and Weseley claim that “all eyes will be on potential litigation that may help define the scope of the provision for other employers.”
In light of the newly-implemented law, Diamond, Brettschneider, Vainberg, and Sullivan encourage companies to: (1) “clearly define and protect employer trade secrets as well as actual and anticipated research and development to capture ownership of employee inventions with robust confidentiality agreements and practices; (2) if applicable, appropriately label employer equipment, supplies, and demarcate work time from employees’ own time, particularly when employees work remotely; (3) take special measures to limit third party access to confidential information, track employee access to such information, and ensure that, upon termination, employees return all confidential information, and are aware of ongoing obligations related to maintaining confidentiality of employer information; and (4) implement an employee invention disclosure policy requiring employees to disclose relevant inventions during the term of their employment, if such a policy is not in place already,” among other measures.
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