Does Your Employer Own Your Side Hustle’s IP?
Written By Adam Yohanan
Let’s talk about how your employer is trying to take ownership of your side hustle’s IP.
When you signed your employment agreement, it probably said that your employer will own all of the IP that you create during the term of your employment, regardless of whether or not you are clocked in.
Obviously, this could be a huge problem, but it’s not nearly as bad as you think. These provisions are often unenforceable.
Sometimes IP assignment provisions are enforceable, and sometimes they are not.
The good news is that, in most states, there is a simple test to determine whether or not these provisions are enforceable.
Although every U.S. state has its own state laws, the states often copy each other word for word. In this area of law, many but not all states have the exact same rule.
Check the governing law at the end of your employment agreement to determine the relevant state law. The rules below apply to New York, Delaware, and many more key states.
Employer IP assignments are generally unenforceable unless at least one of six things is true:
The IP relates to the business.
The IP relates to provable current or anticipated R&D.
The IP results from work performed for the employer.
The employer’s equipment or supplies are used to develop the IP.
The employer’s facilities are used to develop the IP.
The employer’s trade secrets are used to develop the IP.
If none of those six things are true, you own the IP. You can use the IP in your side hustle.
If one or more of those six things is true, your employer owns the IP. You cannot use it in your side hustle.
Employer IP assignments are not entirely enforceable or unenforceable.
That is because enforceability depends on which piece of IP you are dealing with. The IP assignment could be enforceable with respect to one invention but not another invention.
For example, on Wednesday morning you might invent something using your employer’s equipment and facilities. The employer would clearly own this.
However, on Wednesday night when you get home, you might invent something else that has nothing to do with your employer’s current or future business and does not make use of any employer property. In this case, you own the invention, and the IP assignment provision is unenforceable as applied to that particular invention.
Many entrepreneurs with W2 jobs look at the plain language of their employment agreements and they freak out because they interpret the IP assignment clause literally.
Many entrepreneurs with W2 jobs look at the plain language of their employment agreements and they freak out because they interpret the IP assignment clause literally.
You do not need to do that. You can have it both ways.
Be careful of ambiguous situations and unknown facts about what businesses your employer is engaged in or will become engaged in.
You might say to yourself, “I know I didn’t steal any confidential information to make my invention; I know my invention has nothing to do with my work for my employer; I know I didn’t use any equipment, supplies, or facilities to make my invention; and I’m not aware of my employer being involved or planning to get involved in any similar businesses. So I should be in the clear, right?”
Not necessarily. That last part, about your employer being involved in related businesses, is the toughest to determine. You don’t necessarily know all the businesses that your employer is involved in or planning to become involved in.
In addition, you may judge that your invention is unrelated to your employer, but someone else — like your employer or a judge — might have a different view, especially if you become successful.
Secure the IP. Secure the bag.
Adam Yohanan is a transactional business lawyer with extensive experience representing companies, investors, and entrepreneurs in a wide range of high stakes business transactions.
Adam handles the small and large transactions in the life of a businesses, including mergers & acquisitions, entity formations, partnerships and joint ventures, investing and fundraising, commercial contracts, and dissolutions. His office can be reached at 212-859-5041.
Haley Kopp is a corporate lawyer focused on representing start-ups and small companies in formations, venture capital, angel investor financings, mergers and acquisitions, and general corporate matters.
Haley's diverse experience gives her a practical approach to solving complex business issues, whether guiding companies through financing rounds or corporate transactions. Her office can be reached at (619) 512-3652.
This guide is meant for educational and informational purposes only and should not be considered legal advice. It is essential to consult with an attorney or other advisors regarding all legal and other important matters.
