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Lesson 4: NDAs, Non-Competes, and Other Restrictive Covenants

Introduction to Intellectual Property

Introduction

Both students and graduates may encounter various restrictive covenants within internship, employment, and independent contractor relationships. These covenants can be embedded within the main contractual documents or provided as standalone agreements. While some of these restrictions pertain to intellectual property (IP), others serve broader purposes. The legal frameworks and practices surrounding these covenants can vary significantly across different jurisdictions. This discussion focuses on the context within the United States.

Key Terms

  • Assignment of Ownership: Sometimes referred to as a “work-for-hire agreement,” this clause clarifies that any IP created by the individual in the course of their work belongs to the company.
  • Confidential Information: Typically defined within a contract, this term encompasses non-public information related to a business’s operations, products, or financial status. The scope of what constitutes confidential information can vary by company and position, and it includes both documented and observed information.
  • Restrictive Covenant: Clauses within a contract that impose limitations on the actions of the signatory. In the context of employment, these covenants are designed to safeguard the company’s interests by restricting the individual’s activities both during and after their tenure.
  • Work-for-Hire: Refers to any work produced by an individual within the scope of their work and for which the IP rights are assigned to the company.

Types of Restrictive Covenants

  • Non-Disclosure Agreements (NDAs): These agreements restrict the dissemination of specific information. The scope and terms of NDAs can vary, but they generally cover:
    • Information eligible for IP protection (e.g., patents, copyrights).
    • Confidential information that, if disclosed, could undermine a party’s competitive advantage.
    • Trade secrets, such as proprietary algorithms.
    • Proprietary business processes or factory floor layouts, often referred to as “know-how.”
  • Non-Solicitation Agreements: Also known as “non-poaching agreements,” these clauses prevent an individual from soliciting the original company’s customers, vendors, or employees for a defined period. These restrictions may also be geographically limited and are expected to be reasonable in scope.
  • Non-Compete Agreements: These agreements prohibit an individual from engaging in competitive activities, either by working for a competitor or starting a competing business, for a specified duration. The enforceability of non-compete agreements is currently under scrutiny due to recent actions by the Federal Trade Commission and subsequent federal cases. Some companies circumvent potential limitations by broadly defining confidential information within NDAs.
  • Exclusivity Agreements: Similar to non-compete clauses, these agreements restrict an individual from working with competitors while under contract.

Understanding Written Agreements

When you enter into a written agreement, it is important to fully understand the terms. These agreements can use complicated language, so take the time to read all documents carefully before signing. If anything is unclear, don’t hesitate to ask questions.

Start by looking for definitions of key terms. They may be in their own section labeled “Defined Terms” or “Definitions,” or defined upon the first use of the word within the body of the agreement. Keep in mind that these definitions may differ from their common usage and can significantly change the impact of the agreement. For example, “confidential information” might be defined narrowly to include only certain sensitive data, or it could be defined as “any information learned during employment.”

Sample Agreement Language

3.1 Definitions. For purposes of this Agreement, the following capitalized terms have the following meanings:

(a) “Confidential Information” means information, to the extent it is not a Trade Secret, which is possessed by or developed for the Company and which relates to the Company’s existing or potential business, which information is not known or reasonably ascertainable by the Company’s competitors or by the general public through lawful means. “Confidential Information” includes but is not limited to information regarding the Company’s business affairs, business plans, strategies, software and other products, code, designs, finances, costs, pricing strategy, research, business development, purchasing, marketing, business relations, and other non-public information. “Confidential Information” may be oral, written, recorded, magnetically or electronically or otherwise stored, and may be that which Employee originates as well as that which otherwise comes into the possession or knowledge of Employee. “Confidential Information” also includes, but is not limited to, information received by the Company from others which the Company has an obligation to treat as confidential.

(b) “Trade Secret” means a trade secret as that term is defined under the Uniform Trade Secrets Act. ]

Seek clarification from the company about any limitations imposed by the agreement. Companies often interpret terms broadly, so it is crucial to know how your expectations for future use of information related to your work might be affected. The norms in a business setting can be very different from those in academia; for instance, while publishing research is encouraged in academia, this may not be the case in a corporate environment.

Companies usually understand that individuals will have questions about the agreement. At the same time, they are unlikely to be willing to negotiate its terms. It is also rare for companies to sign supplemental agreements requested by the individual.

Operating Under the Terms of Your Agreement

Typically, any IP you create while employed or under contract will belong to the company. This means the company will control the rights to that IP, and you will need the company’s permission to use it.

Sample Agreement Language

Ownership of Intellectual Property. In the event Employee, individually or jointly with others, makes an invention, originates a work of authorship (including any copyrightable software or other matter), creates Confidential Information or creates a Trade Secret in any way relating to the Company’s (or any subsidiary’s or affiliated entity’s) business, while Employee is employed by the Company, the same shall, without further payment, immediately become the property of the Company throughout the world.

The terms may also set expectations for you to support the assignment or enforcement of the company’s IP even after you’ve stopped working for them.

Sample Agreement Language

(b) Whether during or after Employee’s employment by the Company and without charge to the Company, but at its request and expense, Employee shall execute patent applications, copyright applications, assignments and other documents relating to each invention and work of authorship necessary or proper to vest ownership in the Company and to obtain, maintain and enforce patents, certificates of copyright registration, and other proprietary rights to the inventions and works of authorship throughout the world.

(c) Whether during or after Employee’s employment by the Company and without charge to the Company, but at its request and expense, Employee shall give affidavits and testimony as to facts within Employee’s knowledge in connection with any such inventions and works of authorship in any administrative proceedings, arbitration, litigation or controversy relating thereto.

If you plan to bring any existing IP into your job, it is a good idea to document this to ensure it is not mistakenly claimed by the company. It’s also critical to ensure that you have the rights to share any IP you bring into your work. Depending on the situation, you might need to formally ask for your existing IP to be recognized in the contract. Keeping detailed lab notebooks with proper version control is an effective way to track the development of your IP before, during, and after your employment.

Sometimes, companies may include clauses in the agreement that allow some types of IP to be licensed back to you under certain conditions. Again, be sure to carefully review these terms and ask for clarification on anything that isn’t clear.

Expect companies to interpret the terms of your agreement broadly. It is easy to break the terms of an NDA through casual mentions about details of the company or your work, in social media references, or even by simply taking or sharing photos at the office.

Sample Agreement Language

Prospective Employers. Employee agrees, during the term of any restriction contained in this Agreement, to disclose this Agreement to any person or entity which offers employment to Employee. Employee further agrees that the Company may send a copy of this Agreement to, or otherwise make the provisions hereof known to, any of Employee’s potential employers.

Requesting Help

UW-Madison staff and students seeking legal help in reviewing a non-disclosure agreement or other restrictive covenant can request assistance from the UW Law School Law & Entrepreneurship Clinic using the form linked below:

Apply for Legal Advice