intellectual property issues for employment lawyers: current issues and...

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8 2001 American Bar Association http://www.bnabooks.com/ababna/tech/2001/dunn.doc

INTELLECTUAL PROPERTY ISSUES FOR EMPLOYMENT LAWYERS: Current Issues and Developments

By David Dunn, Partner Hogan & Hartson, LLP 1/

This presentation presents current issues and developments in

intellectual property law of interest and concern to employment lawyers. It begins

with a short discussion of the framework of intellectual property laws. It then

addresses the issue of who owns what and how employers can protect their rights

and interests in intellectual property created by their employees. In that regard, it

focuses on protection of copyrighted material and trade secrets. Finally, it

addresses two sets of some recent cases that raise issues of specific concern, and

hopefully interest to employment lawyers and intellectual property lawyers.

Central to this presentation is the premise that, at the outset of the

employment relationship, the employer and employee should enter into a

comprehensive agreement that defines their respective rights and interests in any

intellectual property created by the employee during the employment term. Such

agreements need to be drafted with care and with consideration of the specific

environment of the employer's business and its relationship with the employee or

class of employees who are covered. There are, as we will see developing pitfalls for

employers who seek such agreements, but the consequences of not doing so are more

severe than the risks in insisting upon them.

1/ The author gratefully acknowledges the assistance of Melissa Henke, a law clerk for Hogan & Hartson in the preparation of these materials.

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I. The Overall Statutory Framework

Intellectual Property generally includes four distinct concepts, each of

which is protected by a different statutory and in some cases common law scheme.

Those are patents, trademarks, copyrights and trade secrets. Caution should be

given that the following discussion is very much a summary and that many of the

terms and concepts referred to here are terms of art, that cannot be

comprehensively addressed in summary fashion. 2/

A. Patents. Patents are available to cover "[a]ny new and useful

process, machine, manufacture, or composition of matter, or any new and useful

improvement thereof." 35 U.S.C. § 101. Patent owners get the exclusive right, for

the term of the patent, to exclude others from making, using or selling the patented

article or invention. Patentable inventions are those that are original, useful, novel,

and not obvious to those who have ordinary skill in the art.

As a general matter, patents are deemed to be the intellectual property

of the inventor. In the absence of an agreement to assign a patent, that means the

employee or employees who are the inventor(s) will be the patent owners.

Two exceptions to this general rule are noteworthy. First, inventions

of an employee who is "employed to invent" specifically will be subject to implied

2/ For more detailed discussion of the scope of protections provided for each category of intellectual property, see D. Peter Harvey, IP Maintenance: Protecting Intellectual Property Assets Through Registration, Proper Use and Contractual Provisions, 614 Prac. L. Inst. Pat. 45 (2000); Brian G. Brunswold & D. Patrick O'Reilly, Intellectual Property Rights –What Are They and How Does a Company Secure Them, SF 24 A.L.I.-A.B.A. 359 (2000).

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obligations to assign the patent to the employer. But, employers should rely on this

legal principal only at their peril, and as a last resort. Second, an employee not

"employed to invent" who nonetheless develops a patent using the employers

facilities and on its time will be deemed to have granted "shop rights" which are, in

effect a license to use or practice the patent. But "shop rights" do not include

ownership, the right to assign or the right to license others to use the patent. "Shop

rights" are non-exclusive.

B. Trademarks. A trademark can be any combination of "word,

symbol or device" that is used to identify goods of a particular source and

distinguish them from goods originating with others. 15 U.S.C. § 1127. Service

marks are similar; they identify services of one particular source. Id. Historically,

trademarks arose by actual use in commerce, but federal law permits registration of

an "intent to use" a mark that has not yet come into use. Because trade or service

marks by definition identify sources of goods or services, they will generally belong

to the employer when they are used to identify goods manufactured by employees,

or services provided by them. Care should be taken, however, to see to it that

employees use and protect trademarks properly; the principal risk to holders of the

mark is that they will be lost, because they fail to achieve or lose identification with

the employer or business as the particular source for goods or services. In certain

situations, such as entertainment businesses, issues may arise as to whether the

mark indicates the activity or performance of a particular employee, or of the

employer's business. In that regard, agreement should be made in advance that

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any marks of the employer are property of the employer, and will not be used in a

post-employment context by the employee.

C. Copyrights. Copyright protects "original works of authorship fixed

in any tangible medium of expression." It includes literary and dramatic works,

audio visual works and computer programs. There are several key issues that

govern copyrightability, the most important of which is that copyright protects the

means of expression of an idea. As is often said, ideas are not copyrightable.

With respect to works created by employees, the critical concept in

copyright is that of "works made for hire." Generally, "copyright ownership vests in

the author or authors of the work." 17 U.S. C. § 201(a). The author is the actual

creator of the work. But a critical exception arises in connection with works created

by an employee in the scope and course of his/her employment. For such works, the

employer is presumed to be the "author" of such works, unless the parties have

expressly agreed in writing otherwise. 17 U.S. § 101(a). Where the author is not an

employee, but is an independent contractor, the presumptive rule reverses, and the

contractor is the author, unless the parties expressly agree that the commissioning

party is to possess the copyrights. 17 U.S.C. § 101(a)(2). This rule applies only to

certain specified commissioned works.

Thus, in the absence of a written agreement, critical issues are: (1)

What is an employee? And (2) Was the work at issue created in the scope of

employment? These questions themselves are the subject of a developed and

complex body of law. Generally, the law looks to The Restatement (Second) of

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Agency, Section 220(2) on the question of whether a hired party is an employee, and

Section 228 for the factors governing whether the work was created in the scope of

employment.

Two other concepts should be noted with respect to copyright rights.

First, is the notion of a derivative work. Derivative works are separate works that

incorporate elements of a preexisting work of authorship, but transform or adapt it

in a significant way. The right to make or authorize others to make derivative

works is owned by the copyright owner. 17 U.S.C. § 106. A good example of a

derivative work is a motion picture based upon a short story.

Second is the concept of "fair use." Fair use is a codification based

upon the First Amendment, and permits use without permission of the author of

portions of copyrighted works, for uses such as news reporting, comment, criticism,

education. Fair use, although codified at 17 U.S.C. § 107, is always a factual and

case-by-case analysis, often of considerable complexity, that involves balancing the

rights of the owner with the interests of the claimed fair user.

D. Trade Secrets. Trade secrets are different from patents,

copyrights or trademarks in several respects. First, they are not the subject of

federal legislation, but are matters of state law. The rights to protect a trade secret

from use by others – at least by others who discover it fairly – are very limited, and

generally non-existent.

There are two principal operative definitions of "trade secrets".

Comment b of Section 757 of the Restatement (Second) of Torts defines a trade

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secret as "any formula, pattern, device or compilation of information which is used

in one's business, and which gives him an opportunity to obtain advantage over

competitors who do not use it."

Section 1 of the Uniform Trade Secrets Act defines a trade secret as

"information, including formula, pattern, compilation, program, device, method,

technique, or process that derives independent economic value, actual or potential,

from not being generally known to, and not being readily acertainable by proper

means by other persons " and are subject to "efforts which are reasonable under the

circumstances to maintain its secrecy." See also Restatement of the Law of Unfair

Competition § 39.

Secrecy is the hallmark of a trade secret. It is absolutely critical that

an employer identify, publish and enforce steps to limit the distribution or

dissemination of information it identifies as trade secrets. In the information age,

that becomes harder and harder to do.

II. Securing Ownership and Protection of Intellectual Property

Generally, the single best way to secure and define ownership rights in

intellectual property, and to assure that such property will be used properly is to

obtain a comprehensive written agreement from any employee who may obtain

access to, or be involved in developing intellectual property of the company in the

course of employment.

A sample of such a comprehensive agreement is attached as Appendix

1 to this presentation. Please note, such agreements are dangerous and powerful

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weapons. They are subject to a variety of important caveats and restrictions, some

of which are discussed here, but some of which are not.

It is important to note that general knowledge and skill, even when

acquired as a result of expensive training or experience provided by an employer are

not themselves protectible interests. The same is true for information that is

available or ascertainable by legitimate means to persons employed in a particular

job or industry. For that reason, our model agreement expressly disclaims any

assertion of protection or restriction on such matters.

It is also noteworthy that eight states have adopted statutes governing

inventions made by employees, and restricting the scope of agreements employers

can extract with respect thereto. A list of those state statutes, and a brief summary

of their provisions is set out at Appendix 2.

III. Protecting Intellectual Property With Post-Employment Restrictions.

One classic means of protection for various intellectual property rights,

and particularly for trade secrets is the post-employment covenant not to compete.

Closely related to covenants not to compete are non-solicitation agreements

applicable to fellow employees or to customers. As we will see, however, care must

be taken in drafting the provisions of a covenant not to compete or a non-solicitation

agreement. Such agreements are the subject of developed law in most states – and

that law varies widely. See, Brian M. Malsberger, et al., American Bar Association,

Covenants Not to Compete: A State-by-State Survey (2d ed. 1996).

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As a general proposition, covenants not to compete have long been

disfavored in the law for two reasons. First, "robust and uninhibited competition

should not give way merely because a particular employer wishes to insulate

himself from competition." American Broad. Co. v. Wolf, 52 N.Y.2d 394, 404, 420

N.E.2d 363, 368 (1981). Second, there are "powerful considerations of public policy

which militate against sanctioning the loss of a man's livelihood". Purchasing

Assoc's, Inc. v. Weitz, 13 N.Y.2d 267, 272, 196 N.E.2d 245, 247 (1963).

The New York formulation of when a covenant not to compete will be

enforceable has been stated as follows: An enforceable covenant must be

"reasonably limited in scope and duration, and only 'to the extent necessary (1) to

prevent an employee's solicitation or disclosure of trade secrets, (2) to prevent an

employee's release of confidential information, or (3) in those cases where the

employee's services to the employer are deemed special or unique." 3/ Earthweb,

Inc. v. Schlack, 71 F. Supp. 2d 299, 312 (S.D.N.Y. 1999), aff'd 2000 U.S. App. LEXIS

1254 (2d Cir. Jan. 31, 2000) (quoting Ticor Title Ins. Co. v. Cohen, 173 F.3d 63, 70

(2d Cir. 1999)).

As we shall see in more painful detail, some states authorize courts to

"blue pencil" covenants that are found overbroad as to scope or duration, but others

will simply refuse to enforce such agreements altogether. Even in states that

3/ "Unique and extraordinary" really means to refer to very special talents, and most commonly includes actors, musicians, professional atheletes, and not skilled and valuable employees.

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permit redrawing, courts may decline to do so, as the Earthweb court did, on the

ground that the agreement as a whole overreaches. 71 F.Supp.2d at 313.

One difficulty created for drafters off covenants not to compete is to

determine what duration is appropriate and how long is too long. In states that do

not "blue pencil" overbroad agreements, this issue can be critical, and a covenant of

too long duration can be fatal. Ironically, the nature and speed of technological

developments may significantly limit the scope of a permissible covenant. In the

Earthweb case, for example, the Court found a one-year covenant too long, relying

upon the "dynamic nature of the industry, its lack of geographical borders" and the

employee's "cutting edge" position, which depended on keeping up with daily

changes in the Internet. Id..

IV. The Inevitable Disclosure Doctrine.

A small group of cases have actually enjoined employees from going to

work for competitors even in the absence of a covenant not to compete. The leading

case is Pepsico, Inc. v. Redmond, 54 F.3d 1262 (7th Cir. 1995). That case involved a

high ranking employee with detailed knowledge of strategic plans, recruited by his

former boss, to go to work for his employer's direct competitor in a business that

was marked by intense competition. In frequently quoted language, the court

described the former employer's situation as that’s of "a coach, one of whose players

has left, playbook in hand, to join the opposing team before the big game." Id. at

1270.

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Pepsico is of interest because it involved the threat of disclosure of

confidential information, and the court's finding of the inevitability of disclosure.

An easier case is represented by Doubleclick, Inc. v. Henderson, No. 116914/97,

71997 WL 731413 (N.Y. Sup. Ct. Nov. 7, 1997). This case involved high ranking

employeees who agreed to form a competing business and planned that business

while still employed by Doublclick. The court had no trouble issuing a preliminary

injunction and finding plaintiff was likely to succeed on claims of both actual and

inevitable disclosure of trade secrets, as well as breach of fiduciary duty and unfair

competition. Despite rather egregious facts, it is noteworthy that the court in

Doubleclick rejected the company's request for a one-year injunction, based on the

"speed with which the Internet advertising industry apparently changes" and

barred defendants from launching a competitive venture for only six months. 1997

WL 731413, at *8.

V. D'Sa and Dymock

All of this brings us around to Richard D'Sa and Frederick Dymock.

Their cases present the polar opposites of Pepsico and Doubleclick.

D'Sa was employed by Playhut, Inc. in March 1999, pursuant to an

oral agreement of indefinite term. Later, Playhut presented D'Sa with an employee

confidentiality agreement that he refused to sign within a specified time. Playhut

terminated D'Sa for refusing to sign the agreement. D'Sa sued for wrongful

discharge. The trial court granted summary judgment for Playhut. D'Sa appealed

and the California Court of Appeal reversed. D'Sa v. Playhut, Inc., 85 Cal. App. 4th

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927 (Ct. App. 2000). The California Court of Appeal found that D'Sa stated a cause

of action under the tort cause of action for public policy wrongful discharge.

As relevant, the D'Sa court found that the California Business and

Professional Code Section 16600 invalidates employment agreement provisions that

prohibit or penalize an employee from working for a competitor unless necessary to

protect the employer's trade secrets. The court found, however, that the Playhut

agreement D'Sa refused to sign had other provisions aimed at protecting trade

secrets, and therefore refused to construe the covenant as falling within the

exception to this Code provision because other provisions of the agreement

protected trade secrets, and those provisions did not contain the one-year limit of

the covenant not to compete. Id. at 935.

The D'Sa court had no trouble finding that California had a "strong

public policy" against covenants not to compete. The court also found that the

agreement was not saved from violating that public policy because it contained

choice of law and severability provisions that might have permitted enforcement of

other provisions of the agreement. The court categorically concluded its decision as

follows:

We reject the concept that a worker, compelled by economic necessity to secure employment, can . . . be coerced into signing sweeping agreements to not compete with their employers upon leaving the employment in the uninformed hope the agreement will not be enforced by the courts. We foresee situations in which the uninformed employee will forego legitimate employment rather than assume the risk of expensive, time-consuming litigation by the former employer.

Id.

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Federick Dymock worked for his employer for 17 years. He was then

asked to sign a non-solicitation agreement that would have barred him for five

years after leaving his employment from soliciting his employer's customers or

employees, or those who were targets of the Company's marketing at any time

during his employment. He refused and was fired. Dymock sued for wrongful

discharge. The trial court dismissed his complaint. The Court of Appeals of Oregon

reversed. Dymock v. Norwest Safety Protective Equip., Inc., No. CA A105112, 2001

WL 123352, 172 Or. App. 399 (2001).

Oregon law makes void and unenforceable any "noncompetition

agreement entered into between an employer and employee" except upon initial

employment or subsequent "bona fide advancement of the employee with the

employer." Or. Rev. Stat. § 653.295(6).

In order to reverse and find that Dymock had a claim, the court first

had to find that the customer and employee nonsolicitation agreement Dymock

refused to sign was a "noncompetition agreement." The scope and breadth of the

agreement aided the court considerably in finding that it "falls squarely" within the

statutory prohibition. 2001 WL 123352, at *3.

Next, the court had to find that Dymock was "pursuing private

statutory rights that are directly related to the employment." Id. This also caused

the court to pause only briefly. It found that the statute that makes a

noncompetition agreement unenforceable unless entered under specific conditions

embodied an "employment-related right – the right not to be subjected to

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noncompetition agreements that are unsupported by the requisite consideration."

Id. It seems a rather quantum leap to find that a statutory provision limiting the

enforceability of agreements contain and embody affirmative rights.

Three prior state supreme court decisions appear contrary to the

rulings and rationale of D'Sa and Dymock. The first such case is Madden v. Omega

Optical, Inc.,165 Vt. 306, 683 A.2d 386 (1996). Madden and four others were

terminated by Omega after they refused to sign a new confidentiality, Disclosure

and Noncompetition Agreement. Plaintiffs had between one and six years

employment, and were at-will employees.

The plaintiffs in Madden argued that their terminations violated

public policy because the agreements they were asked to sign were unenforceable.

The Vermont Supreme Court held that "[t]he termination of an employee who

refused to sign an allegedly unenforceable noncompetition agreement is not so

contrary to our society's concern for providing equity and justice that it violates

clear and compelling public policy . . . ." 165 Vt. at 313-14, 683 A.2d at 391. The

court went on to note that if the agreement was unenforceable, there was no risk in

not signing it. And if plaintiffs' concern was the potential impact on their careers,

that was a private interest, outside the public policy exception to the at-will

employment doctrine. Id.

At least one might argue that the Madden plaintiffs failed because

they could not rely upon any Vermont statute that invalidated the proffered

agreements. But Wayne Tatge could point to a statute, and it didn't help him in

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Wisconsin. In Tatge v. Chambers & Owen, Inc., 219 Wis.2d 99, 579 N.W.2d 217

(1998) the Supreme Court of Wisconsin refused to authorize a public-policy

wrongful discharge claim for a termination for refusal to sign a noncompetition

agreement 13 years after his employment commenced. Wisconsin has a statute that

permits enforcement only of restriction on competition that "are reasonably

necessary for the protection of the employer or principal." Wis. Stat § 103.465. The

Tatge court found a "clear public policy" to "protect the employee from compliance

with the terms of an unreasonable restrictive covenant." 219 Wis.2d at 116, 579

N.E.2d at 224. But that policy the Court found, did not speak to an employee

refusing to sign an agreement he or she thought was unreasonable. And, it did not

matter whether the agreement might ultimately be found to be enforceable, which

the court emphasized would depend upon a detailed inquiry into the facts and

circumstances. The Vermont Supreme Court agreed with the Court of Appeals that

if it allowed such a wrongful discharge claim "all restrictive covenant cases would

become wrongful discharge cases." 219 Wis. 2d at 118, 579 N.W.2d at 225.

Finally, last December the Connecticut Supreme Court refused to

permit a cause of action for wrongful termination in violation of public policy based

on refusal to sign an allegedly unlawful noncompetition agreement. Simcic v. G &

W Management, Inc., No. CV00737005, 2000 WL 1872002 (Conn. Super. Dec. 5,

2000). Connecticut has, for 85 years refused to enforce noncompetition agreements

unless they are reasonably necessary to protect the employer's business. But that is

a rule of common law, not statute. What is most interesting about the Simcic case

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is not its holding, but its rationale, which starkly contrasts that of the California

court in D'Sa and the Oregon court in Dymock. In Simcic, the Connecticut Supreme

Court held:

To permit legal actions for wrongful termination of at will employees based on refusals to sign noncompetition agreements strikes at the core of the employment relationship and would impair managerial decisions regarding confidentiality, security, and investment in the hiring and training of employees. An employee faced with a demand to sign an unreasonable noncompetition agreement as a condition of employment has alternatives available. The employee can sign the agreement and bring a declaratory judgment action to test its enforceability. The employee can sign the agreement and ignore it, compelling the employer to demonstrate its reasoanbleness.

Id., at *3. V. What Law Will Really Govern Given the wildly divergent views of public policy that are reflected

between the California decision in D'Sa and the Connecticut decision in Simcic, one

critical issue that needs to be considered is: What state's law will govern the issue

of the validity of a covenant not to compete? As one commentator recently put the

question: "If an employee, living in Indiana, signs a non-compete agreement with

his employer . . . in Illinois, but incorporated in Delaware, and later transfers to its

New York office, and then quits while a resident of New Jersey, subsequently

obtaining employment with a competitor in Philadelphia, query: What law

applies?" 4/ The answer is: It depends on who sues whom and for what.

4/ T. Boesch, What's Really at Issue in Restrictive Covenant Ltigiation: A Comment Inspired by Staidl, 2 Empl. Rts. & Empl. Pol'y J. 439, 444-45 (1998).

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In Nordson Corp. v. Plasschaert, 674 F.2d 1371 (11th Cir. 1982), the

Eleventh Circuit faced a suit by an Ohio company against a Georgia employee over

a non-compete that was enforceable under Ohio law and void under Georgia law.

The Court of Appeals affirmed the decision to respect the contract's designation of

Ohio law, finding that (1) the choice of Ohio law was reasonable; (2) the provision at

issue was contrary to fundamental public policy of Georgia against restraints of

competition; but (3) Georgia did not have a materially greater interest than Ohio in

the issue. Id. at 1375. 5/ But other cases, on analogous facts have reached the

opposite result, and have applied the law of the forum/employee resident state to

invalidate covenants lawful under the law of a state rationally selected by the

parties to govern their agreement See, Cherry Bekaert & Holland v. Brown, 582

So.2d 502 (Ala. 1991); DeSantis v. Wackenhut Corp., 793 S.W.2d 670 (Tex. 1990).

As a general proposition, states are prepared to declare their policies

concerning covenants not to compete to be "fundamental", and thereby find that

their policy trumps more hospitable rules of other states. Thus, an employer's

agreement may be hostage to analysis under the law of all states where he has

employees – and even of states where his employees later choose to move. Again, a

Georgia case provides the extreme example. Jospeh Pokalsky was employed by

Enron, a Texas company in Texas. Pokalsky had signed employment agreements

5/ The Eleventh Circuit cited, but then effectively ignored, an earlier Georgia Supreme Court case that appears to hold the opposite, refusing to apply designated Tennessee law to an agreement between a Tennessee company and a Georgia employee. Nasco, Inc. v. Gimbert, 239 Ga. 675 (1977).

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containing noncompetition provisions and a provision designating Texas law as

governing.

On the day Pokalsky resigned from Enron, he and Southern, his new

employer sued Enron in Georgia seeking a declaratory judgment that the restrictive

covenant in his employment agreement was unenforceable. Shortly thereafter ,

Enron sued in Texas. Pokalsky and Southern then sought and obtained an

interlocutory injunction precluding Enron from taking any action to enforce the

agreement and ordering Enron to dismiss its Texas action. Enron appealed, and

the orders were affirmed. Enron Capital & Trade Resources Corp. v. Pokalsky, 227

Ga. App. 727, 490 S.E.2d 136 (Ct. App. 1997). The appellate court found that

application of Georgia law to invalidate this agreement between a Texas company

and its Texas employee was appropriate on grounds that it contravened Georgia

public policy.

Georgia is very flexible about finding ways to apply its law and its

public policies to invalidate covenants. In Hulcher Svcs., Inc. v. R.J. Corman

Railroad Co., 247 Ga. App. 486 (Ct. App. 2000), it appeared that the employer had

won the race to the courthouse. One May 16, 2000, it obtained an interlocutory

order enforcing its covenant against a former employee from a Federal district court

in Texas. But, the next day, the Georgia state court in which the employee had

sued held a hearing and issued a final judgment invalidating the covenant. On

appeal, the Georgia Court of Appeal had no problem affirming. It extensively

discussed the concurrent jurisdiction of the two courts, the lack of finality of the

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Texas interlocutory order and the strong public policy of Georgia that had been

identified in the Enron case. As to the Texas order, the court noted that it was not

final and had not been placed in evidence although the trial judge in Georgia was

given a copy.

Thomas Kovanic won a similar race to judgment. Mr. Kovanic

accepted a position with a New Jersey company that bought out his employer,

knowing that he would have to work out of their New Jersey office. He signed a

covenant not to compete that was valid under New Jersey law. Then he changed

his mind. He sought a new job in California, and then sued his employer in

California before it could sue him in New Jersey. Unsurprisingly, the California

federal court applied California law and granted a preliminary injunction against

enforcement of the covenant. Kovanic v. Globespan, Inc., 2000 WL 33174414 (E.D.

Cal. 2000).

What can an employer do to protect itself against suits in totally

unforeseen jurisdiction. Ironically, the Georgia Court of Appeals, in its Hulcher

opinion identified one solution. It noted that Georgia generally recognizes forum

selection clauses in employment agreements. See Iero v. Mohawk Finishing Prods.,

Inc. 243 Ga. App. 670, 534 S.E.2d 136 (Ct. App. 2000). A forum selection clause

limits litigation to a single forum identified in the Agreement. But that might not

have saved Enron, since their he subsequent employer – which is not a party to the

contract – sued. It would be unlikely to have been bound by a forum selection

clause in a contract to which it was not a party.

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Conclusion

Intellectual property rights issues between employers and employees

raise complex issues, governed by a variety of statutory schemes and policy

considerations. In terms of establishment of ownership of rights, a comprehensive,

carefully drawn written agreement should be entered, at the time of employment,

with any employees possibly involved in creating intellectual property for the

employer. Confidential information and trade secrets should be identified and

should be the subject of established and enforced procedures for maintaining

secrecy.

Enforcement of post-employment noncompetition covenants has

become more and more problematic, and difficult to predict. Alternatives should be

considered, and risks involved in potential second-guessing by hostile courts should

be evaluated. Consider not only choice of law provisions, but forum selection

clauses in any such agreements. Choose the law of a state with a logical connection

not only to the employer, but to the employment relationship. Hope for the best.

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APPENDIX I

EMPLOYEE AGREEMENT ON IDEAS, INVENTIONS AND CONFIDENTIAL INFORMATION

THIS AGREEMENT is entered into between _______________ ("Company") and myself, the undersigned employee of Company. Company now has and expects to develop confidential and proprietary materials and highly sensitive information of immeasurable value which I recognize must be carefully protected for Company to be successful. To induce Company to employ me and in consideration of my em-ployment by Company, the sufficiency of which I expressly acknowledge, Company and I hereby agree, intending to be legally bound, as follows: 1. Company Confidential Materials and Information

The following materials and information, whether having existed, now existing, or to be developed or created during the term of my employment by Company (herein referred to collectively as the "Company Confidential Information") are covered by this Agreement:

1.1. Software. All information relating to existing software products, whether owned or licensed by Company, and software in various stages of research and development which are not generally known to the public or within the computer industry or trade in which Company competes (such as know-how, design specifications, algorithms, technical formulas, engineering data, benchmark test results, methodologies, procedures, techniques, and information processing processes) and the physical embodiments of such information (such as drawings, specification sheets, design notes, source code, object code, load modules, schematics, flow charts, logic diagrams, procedural diagrams, coding sheets, work sheets, documentation, annotations, printouts, studies, manuals, proposals and any other written or machine-readable manuals, proposals and any other written or ma-chine readable expressions of such information as are fixed in any tangible media).

1.2. Other Products and Services. All information relating to consulting, training and other proprietary products or services, whether existing or in various stages of research and development, which are not generally known to the public or within the computer industry or trade in which Company competes (such as know-how, specifications, technical data, engineering data, processes, techniques, methodologies, and strategies) and the physical embodiments of such information (such as drawings, schematics, specification sheets, instructor manuals, course materials, training aids, video cassettes, transparencies, slides, taped recordings of presentations, proposals, printouts, studies, contracts, maintenance manuals, documentation, and any other written or machine-readable expressions of such information as are fixed in any tangible media).

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1.3. Business Procedures. All information concerning or relating to the way Company conducts its business which is not generally known to the public (such as internal business procedures, controls, plans, licensing techniques and practices, supplier, subcontractor and prime contractor names and contracts and other vendor information, computer system passwords and other computer security controls, financial information, distributor information, information supplied by clients and customers of Company and employee data) and the physical embodiments of such information (such as check lists, samples, services and operational manuals, contracts, proposals, print-outs, correspondence, forms, listings, ledgers, financial statements, financial reports, financial and operational analyses, financial and operational studies, management reports of every kind, databases, employment records pertaining to employees other than myself, and any other written or machine-readable expressions of such information as are fixed in any tangible media).

1.4. Marketing Plans and Customer Lists. All information pertaining to Company's marketing plans and strategies; forecasts and projections; marketing practices, procedures and policies; financial data; discounts; margins; costs; credit terms; pricing practices, procedures and policies; goals and objectives; quoting practices, procedures and policies; and customer data including customer lists, contracts, representatives, requirements and needs, specifications, data provided by or about prospective existing or past customers and contract terms applicable to such customers, and the physical embodiments of such information (such as license agreements, customer lists, print-outs, databases, marketing plans, marketing re-ports, strategic business plans, marketing analyses and management reports, seminar and class attendee rosters, trade show or exhibit attendee listings, listings of potential customers and leads, and any other written or machine-readable expressions of such information as are fixed in any tangible media).

1.5. Not Generally Known. Any information in addition to the foregoing which is not generally known to the public or within the industry or trade in which Company competes which gives Company any advantage over its competitors, and the physical embodiments of such information in any tangible form, whether written or machine-readable in nature. 2. General Knowledge

The general skills, knowledge and experience gained during my employment with Company, and information publicly available or generally known within the industry or trade in which Company competes, is not considered Company Confidential Information. Also, upon termination of my employment with Com-pany, I shall not, subject to the provisions of Section 3.8 below, be restricted from working with a person or entity which has independently developed information or materials similar to Company Confidential Information as long as I comply with my continuing obligations under this Agreement.

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3. Employee Obligations During my employment with Company, I acknowledge and agree that I will

have access to Company Confidential Information and materials and will occupy a position of trust and confidence with respect to Company's affairs and business. I agree to take the following steps to preserve the confidential and proprietary nature of Company Confidential Information and materials.

3.1. Non-Disclosure. During and after my employment with Company, I will not use, disclose or transfer any of the Company Confidential Information or materials other than as authorized by Company within the scope of my duties with Company, and will not use in any way other than in Company's business any Company Confidential Information, including information or material received by Company from others and intended by Company to be kept in confidence by its recipients. I understand that I am not allowed to sell, license or otherwise exploit any products (including software in any form) which embody or otherwise exploit in whole or in part any Company Confidential Information or materials.

3.2. Disclosure Prevention. I will take all reasonable precautions to prevent the inadvertent or accidental exposure of Company Confidential Information.

3.3. Removal of Material. I will not remove any Company Confidential Information from Company's premises or make copies of such materials except for use in Company's business.

3.4. Return All Materials. I will return to Company all Company Confidential Information, materials and copies of the foregoing at any time upon the request of Company, in any event and without such request, prior to the termination of my employment by Company. I agree not to retain any copies of any Company Confidential Information materials after my termination of employment for any reason.

3.5. No "Moonlighting". During my employment with Company, I agree not to accept or continue in any job, consulting work, directorship, or employment other than with Company, without the written approval of senior management of Company.

3.6. No Solicitation of Employees. Both during my employment and for twelve (12) months after my employment with Company is terminated, I agree not to solicit, directly or indirectly, any of Company's key employees for employment with a person or entity involved in marketing or developing products or services competitive with Company's products or services. Key employees include supervisory personnel, executives, personnel in charge of any department, section or subdivision within Company and project, contract managers (or directors) and senior personnel on any individual project or projects.

3.7. Computer Security. During my employment with Company, I agree only to use computer resources (both on and off Company's premises) for which I have been granted access and then only to the extent authorized. I agree to comply with Company's policies and procedures concerning computer security.

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3.8. Non-Competition. (a) I hereby covenant and agree that at no time during my employment

with Company and for a period of two years immediately following the termination of my employment with Company, whether voluntary or involuntary, will I act in any way, directly or indirectly, to solicit, divert or take away any customer or any supplier of Company, or otherwise compete with Company in the sale or licensing, directly or indirectly, as principal, agent or otherwise, of any products competitive with the products, or services competitive with the services, developed or marketed by Company in any geographic area where Company markets such products and/or services. I acknowledge that this covenant has a unique, very substantial and immeasurable value to Company, that I have sufficient assets and skills to provide a livelihood for myself while such covenant remains in force and that, as a result of the foregoing, in the event that I breach such covenant, monetary damages would be an insufficient remedy for Company and equitable enforcement of the covenant would be proper.

(b) In the event that the restrictions against engaging in competitive activity contained in Subsection (a) above shall be determined by any court of competent jurisdiction to be unenforceable by reason of their extending for too great a period of time or over too great a geographical area or by reason of their being too extensive in any other respect, Subsection (a) shall be interpreted to extend only over the maximum period of time for which it may be enforceable and over the maximum geographical area as to which it may be enforceable and to the maximum extent in all other respects as to which it may be enforceable, all as determined by such court in such action.

3.9. Family Members. I agree that during my employment with Company, neither my spouse nor any other family member shall work for or be employed by a direct competitor of Company.

3.10 E-Mail. I understand that Company maintains an electronic mail system and related facilities for the purpose of business communications. I acknowledge that Company retains the right to review any and all electronic mail communications, with or without notice, at any time. 4. Prior Proprietary Information

I agree not to disclose to Company or use in Company's business any information or material relating to the business of any third person and intended by that person not to be disclosed to Company. 5. Ideas and Inventions

Company shall have the unlimited and exclusive rights in any drawings, designs, specifications, notes, improvements, discoveries or other work developed by me in the performance of my work for Company, whether now existing or later developed for Company.

I hereby assign to Company all my right, title and interest in any inventions and ideas, patentable or not, that I make or conceive, alone or with others, during

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the period of time in which I am employed by Company, and that relate in any way to the actual or prospective business of Company. I agree to disclose routinely to Company all inventions and ideas covered by this Agreement, and I will, upon request, execute specific assignments and take any action necessary to enable Company to secure patents, copyrights or otherwise secure its proprietary rights in such inventions or ideas. 6. Written Materials

6.1 Ownership. I acknowledge and agree that all writings, including without limitation, software program code, logic diagrams, flow charts, decision charts, drawings, procedural diagrams, coding sheets, documentation manuals of any kind produced by me in the course of my work for Company are works produced for hire and the property of Company (unless such works are in the public domain under the Federal Procurement Regulations), including without limitation any copyrights on those writings; but to the extent any such writing may not, by operation of law or otherwise, be a work made of hire, I hereby assign to Company the ownership of copyright in such works, whether published or unpublished. I further agree upon request to execute such specific assignments or instruments and take any action necessary to enable Company to secure its copyright rights in such works.

6.2 Moral Rights. I understand that the term "moral rights" means any rights of paternity or integrity, including any right to claim authorship of a copyrightable work, to object to a modification of such copyrightable work, and any similar right existing under the judicial or statutory law of any country in the world or under any treaty, regardless of whether or not such right is denominated or generally referred to as a "moral right." I forever hereby waive and agree never to assert any moral rights I may have in any copyrightable work that is assigned to Company as a result of Section 6.1 hereof, even after any termination of my employment with Company. 7. Publications

I agree not to submit any writing for publication or deliver any speech that contains any information relating to the business of Company, unless I receive advance written clearance from an authorized representative of Company. 8. Publicity

I hereby grant to Company the right to use my name and likeness, without additional consideration, on, in and in connection with technical, marketing and/or disclosure materials published by or for Company. 9. Conflicting Obligations and Rights

I agree to inform Company of any apparent conflicts between my work for Company and (a) any obligations I may have to preserve the confidentiality of another's proprietary information or materials or (b) any rights I claim to any inventions or ideas before using the same on Company's behalf. Otherwise, Company may conclude that no such conflict exists and I agree thereafter to make

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no such claim against Company. Company shall receive such disclosures in confidence and consistent with the objectives of avoiding any conflict of obligations and rights or the appearance of any conflict of interest. 10. Nature of Relationship

Nothing herein shall be construed as constituting an agreement, understanding or commitment of any kind that Company shall continue to employ me, nor shall this Agreement limit in any way Company's right to terminate my employment at any time for any reason whatsoever. I hereby acknowledge and agree that my employment with Company is and shall be "employment at will." Without limiting the generality of the foregoing, I acknowledge that I will be subject to immediate dismissal for any breach of this Agreement. 11. Enforcement

I acknowledge that in the event of the unauthorized use or disclosure of any of Company Confidential Information or materials by me, Company's business interests will be irreparably injured, the full extent of Company's damages will be impossible to ascertain, monetary damages will not be an adequate remedy for Company, and Company will be entitled to enforce this Agreement by an injunction or other equitable relief, without the necessity of posting bond or security, which I expressly waive. I understand that Company may waive some of the requirements expressed in this Agreement, but that such a waiver to be effective must be made in writing by Company senior management and should not in any way be deemed a waiver of Company's right to enforce any other requirements or provisions of this Agreement. I agree that each of my obligations specified in this Agreement is a separate and independent covenant that shall survive any termination of this Agreement and that the unenforceability of any of them shall not preclude the enforcement of any other covenants in this Agreement. 12. General Terms

This is my entire agreement with Company with respect to its subject matter and its date, superseding any prior oral or written, express or implied negotiations and agreements, and its terms will be governed by the laws of the District of Columbia without regard to conflict of laws provisions. The agreement may not be changed in any respect except by a written agreement signed by both myself and an officer of Company. If any provision of the agreement is held to be invalid, illegal or unenforceable for any reason, the validity, legality and enforceability of the remaining provisions will not in any way be affected or impaired thereby.

By my signature below, I acknowledge that I have reviewed this agreement carefully and understand that the covenants and obligations it contains are binding on me.

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Print Name: Date Signed: Address: Social Sec. No:

Accepted and agreed to on behalf of Company

By:

Name:

Title:

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APPENDIX 2

State

Summary – 3/1/2001 Cite

CA Any provision in an employment agreement that provides that an employee shall assign or offer to assign any rights in an invention to his/her employer shall not apply to an invention that the employee develops entirely on his or her own time without using the employer's equipment, supplies, facilities, or trade secret information except for those inventions that either (i) relate at the time of conception or reduction to practice to the employer's business or actual or demonstrably anticipated research or development of the employer or (ii) result from any work performed by the employee for the employer. Any provision that purports to do so shall be unenforceable and against the state's public policy. Employee bears burden of proof that his invention qualifies under this section. If an employment agreement is entered into on or after 1/1/80 that contains an invention assignment provision, the employer must also, at the time the agreement is made, provide written notification of the employee that the agreement does not apply to those inventions noted above.

West’s Ann.Cal.Labor Code §2870 West’s Ann.Cal.Labor Code §2872

DE Same as California except: Statute doesn't include the notice requirement. An employer may not require a provision of an employment agreement made unenforceable under this section as a condition of employment or continued employment.

19 Del.C. §805

IL Any provision in an employment agreement that provides that an employee shall assign or offer to assign any rights in an invention to his/her employer shall not apply to an invention that the employee develops entirely on his or her own time without using the employer's equipment, supplies, facilities, or trade secret information unless (a) the invention relates (i) to the employer's business or (ii) to the employer's actual or demonstrably anticipated research or development, or (b) the invention results from any work performed by the employee for the employer. Any provision that purports to do so shall be unenforceable and against the state's public policy. Employee bears burden of proof that his invention qualifies under this section. An employer may not require a provision of an employment agreement made unenforceable under this section as a condition of employment or continued employment. However, this statutes does not preempt existing common law that applies to any shop rights of employers with respect to employees who have not signed an employment agreement. If an employment agreement is entered into on or after 1/1/84 that contains an invention assignment provision, the employer must also, at the time the agreement is made, provide written notification of the employee that the agreement does not apply to those inventions noted above.

765 ILCS 1060/2

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State

Summary – 3/1/2001, cont. Cite

KS Same as California plus: Even though the employee meets the burden of proving the conditions specified in this section, the employee shall disclose, at the time of employment or thereafter, all inventions being developed by the employee, for the purposes of determining employer and employee rights in an invention.

K.S.A. §44-130

MN Same as Illinois except: The employer business carveout is limited to inventions which relate directly to the employer's business. The statute is silent as to burden of proof, and the date for the employment agreement for written notification is 8/1/77.

M.S.A. §181.78

NC Same as California except: Statute doesn't include notice requirement.

N.C.G.S.A. §66-57.1

UT An employment agreement between an employee and his employer is not enforceable against the employee to the extent that the agreement requires an employee to assign or license or to offer to assign or license to the employer any right or intellectual property in or to an invention that is (a) created by the employee entirely on his own time and (b) not an employment invention. The foregoing does not apply to (a) any right, intellectual property or invention that is required by law or by contract between the employer and the U.S. government or a state or local government to be assigned or licensed to the U.S. or (b) an agreement between an employee and his employer which is not an employment agreement. An employer may not require his employees to agree to anything unenforceable re: inventions noted above. However, employer may require an employee to assign or license, or offer to assign or license to his employer any or all of his rights and intellectual property in or to an employment invention and employment or continued employment is sufficient consideration for such an assignment or license.

U.C.A. 1953 §34-39-3

WA Same as Minnesota except: (i) the statute is silent as to burden of proof, and (ii) the date for the employment agreement for written notification is 9/1/79. Even though the employee meets the burden of proving the conditions specified in this section, the employee shall disclose, at the time of employment or thereafter, all inventions being developed by the employee, for the purposes of determining employer and employee rights in an invention. The employer or employee may disclose such inventions to the department of employment security, and the department shall maintain a record of such disclosures for a minimum of 5 years.

RCWA 49.44.140 RCWA 49.44.150

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