Balanced Intellectual Property policy is critical for startup formation and talent mobility

By Tarang Mishra, Policy Fellow, Engine Foundation

A common element found in employment agreements in the tech sector is holding back would-be founders and employees from joining the startup ecosystem, and a better balance could unlock their contributions and grow the economy. Overbroad intellectual property provisions in employment contracts can get in the way of aspiring startup founders that get their start at larger companies.

Last week, the Federal Trade Commission concluded a comment period exploring a ban on non-compete agreements nationwide, except in certain circumstances. A ban would lead to the formation of more new innovative startups and give founders better access to the talent they need to grow, as we told the Commission. Other elements of tech sector employment agreements, like Intellectual Property assignment agreements share similar characteristics.

IP assignment agreements are a common part of employment agreements, especially for most technical roles. They are used by companies of all sizes — including startups — and essentially lay out the terms on which inventions created by an employee belong to the company. Startups, for example, have few resources and want to ensure that the product of their investments in research and development stays at the company, so it is easy to see why many utilize these provisions in their employment agreements.

But overbroad IP assignment agreements can impinge startup formation and stanch the availability of talent in the startup ecosystem. Agreements that include language assigning all inventions created by the employee during their time of employment are overbroad because they could be construed to include things that the employee develops during their own time with their own resources. That, of course, could include developing their own idea or product that could become a startup or helping a friend build their startup. If employees are fearful that their employer could have a claim on their invention, or that they’d expose their friends’ startup to such a claim, they’re less likely to undertake that innovative activity or lend their skills to support a burgeoning startup.

Some states try to solve this by placing limits on what IP assignment agreements can look like. Much like limitations placed on the enforcement of non-competes in California, the state also limits what terms of an assignment agreement are enforceable. Essentially, only what is created for the employer using business resources is owned by the employer. But many agreements are often standardized nationwide, and employees in states where more restrictive provisions are unenforceable might not realize they aren’t subject to those terms. These are lucrative positions, and many employees understandably don’t want to risk upsetting that relationship. And startup formation and talent availability suffers as a result.

For IP assignment agreements, like all IP policy, balance is needed to accrue benefits while avoiding negative consequences for the startup ecosystem. Policymakers should recognize the interplay between startup talent availability and the types of employment agreements entered into by tech sector employees. Standardizing what aspects of an assignment agreement are enforceable nationwide would create clarity for would-be members of the startup ecosystem and contribute to a growing startup sector.

Disclaimer: This post provides general information related to the law. It does not, and is not intended to, provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.

Engine is a non-profit technology policy, research, and advocacy organization that bridges the gap between policymakers and startups. Engine works with government and a community of thousands of high-technology, growth-oriented startups across the nation to support the development of technology entrepreneurship through economic research, policy analysis, and advocacy on local and national issues.