Lesson: Startup IP with Jack Russo

Step #2 Rights: Employer vs employee rights to IP

Think of a company as an empty shell. So when you form a company, it has nothing in it. It just exists as a legal entity. You've kind of created a new person. A company is considered a person, whether it's an LLC, a corporation, limited partnership. Intellectually property rights typical attached to the person who creates. This question is nuance, because most people tend to be employed somewhere when they create. If you're employed by an employer that has done all of his, its, or hers homework, all the intellectual property is going to be transferred as part of the employment, and sometimes even as part of independent contractor relationship to the company you work for.

The exception is what about when you create something during your vacation? What about if you create something at night or on weekends, or on your own time? Can that be owned by your corporate employer, even if it has nothing to do with their business? California and a host of other states have very important statutory protection for individuals, called Labor Code Section 2870. What it says is, an employer cannot force you to transfer to the employer, intellectual property rights that are truly yours. That is rights that don't relate to the company's business. So here I am now working at a firm, I'm technically obligated to give my intellectual property to the limited liability partnership that's called both Computer Law Group as well as Entrepreneurial Law Group, because of its division.

If I create something like a legal memorandum in the field that we operate, that's intellectual property that's owned by the firm. But if I'm writing a book that's on the topic of how to swim faster, because I happen to swim typically at nights, typically long distance and I am studying that field, that has nothing to do with practicing law. That has everything to do with stroke and breathing and so on. That I chose as a hobby that I choose to ride on. That's just an example of topic that can possibly be viewed by my, "Employer." In fact, I am a partner here, so I'm kind of part of the employer group. But treating me as I were an employee or a contractor to the firm, the firm couldn't say that book is our property. You really should let us publish it or control it. Because it's been done in my time, at night on weekends and has no relationship to the firm's work.

We often get the gray cases where people come in from Apple or Google or Yahoo or host space, those companies. I said, I came up with this idea and I really did come up with on my own at home on weekends. But it does relate to the Internet. It's not really a project I was working for my company. I'm doing QA testing. I came up with this idea. No one at the company helped me and I had done it on my own time, weekends, evenings and so on. But I feel like, should I tell my employer that I had come up with this and get his permission and I want to continue to work on it? Because what if they say, we think it's a great idea. We want to add it to part of Google Hangouts, if you work for Google or at Facebook. We want to add it as a whole section of Facebook.

How can that be that I lose an idea that I was never employed to create. Labor Code 2870 comes in somewhat to answer the question, and it answers the question by asking questions. Did the new innovation get financed by your employer? No. Did you use any of the employer equipment to do it? No. Did you use any of the employer other resources? No. Hopefully no. Hopefully the answers are no, no, no. Does it relate to the business? That's a very gray. What does it mean to relate? I suppose. So you need to get a lawyer involved to figure out how gray or how black and white this is, and to the extent it's more gray than less, the typical conservative advice is if you want to keep the job while you do this, disclose it to your boss and get some approval that yeah we’re not doing it. That's fine, just use your own time and kind of get something clean.

Because down the road when you finally leave and you start your own business, whoever is helping you doesn't want there to be some taint from a past employer or from a past claimant. There are lots of great stories or companies about to go public and all over sudden, a previous employer enters the picture saying, "Wait a minute! That was our invention. You can't use it, you have to pay us a royalty. We have to be able to exploit it."