Can Intellectual Property Laws Limit Career Mobility?

by Nancy Ordman

Standard employment contracts assign employee work products to the employer, including patent ownership. Some contracts include non-compete clauses. Since these are standard and expected contract provisions, new hires sign on the dotted line and get on with their new jobs.

What about employment contracts covering intellectual property? The controversy between Mattel and a former Mattel employee who jumped ship for MGA Entertainment shines a light on the contracts’ perils to employees. Orly Lobel, professor of law at the University of San Diego and a respected scholar of both employment and intellectual property law, contends that non-compete contracts limit an employee’s freedom to change jobs. Adding a company’s ownership of intellectual property to the non-compete restriction imposes even stricter mobility limitation.

Lobel’s recent book "You Don’t Own Me: How Mattel V. MGA Entertainment Exposed Barbie’s Dark Side" calls this situation “the criminalization of employment mobility” and describes how employees can start to protect themselves from the restrictions that non-compete and intellectual property contracts impose. Michael B. Arthur summarizes these steps in a recent Fortune article.

The first piece of advice is to avoid the combined effects of both non-compete and IP-restricting contracts. The defendant in the Mattel case had signed a contract that entitled Mattel to “all inventions…conceived or reduced to practice” during his tenure at Mattel. Although the defendant was on unpaid leave when he conceived of and sold his idea to MGA, Mattel contended that he had to have come up with the idea while working on Mattel’s dime. Clarify definitions and expectations before signing a contract with highly restrictive non-compete and IP clauses.

The second piece of advice sounds obvious: do not trust company lawyers. Their sole responsibility is to the company, not to employees. Employees should consult their own counsel, a specialist in labor and employment law, if the slightest suggestion of a non-compete or IP issue exists.

Next, employees should protect their time and their minds. The Mattel v. MGA case calls into question whether an employee’s thoughts and creations outside of working hours belong to the employee or the employer. In this case a Mattel lawyer stated in court that work done during nights and weekends belongs to the employer, and the court agreed. A work contract should state that time away from work and the products thereof belong to the employee.

Before signing off on a restrictive contract, a new hire can point to companies that take a different approach to inventions developed off the work clock. Hewlett-Packard asks for the right of first refusal. Laws in other countries protect an inventor’s right to some of the profit from their inventions. A longer-term goal would be to lobby for less-restrictive laws in the U.S. – activity that professional associations can help further.

The last suggestion is to leave for a new company, including starting a company to turn inventions into products. Refer to the second suggestion about engaging a lawyer before leaving to minimize the potential for backlash.

Read Michael Arthur’s article in the Forbes issue of September 23, 2018.

Read about Orly Lobel’s book on the publisher’s website.