Austin Technology Law Blog

Are Confidentiality Provisions and I.P. Assignment Clauses In Employee Agreements To Be Treated Like Non-Compete Provisions? South Carolina Supreme Court Says No.

Almost every technology company of any variety has a couple of standard provisions in the documents that their employees sign as part of the employment on-boarding process.  Those are, of course, provisions that require the employee not to divulge certain information that they learn as a result of their employment and that provide that any intellectual property developed by the employee during the employment (and often for a period thereafter) and based on information provided by the employer, belongs to the employer.  Some agreements also contain non-compete provisions, which purport to prohibit the employee from engaging in certain kinds of employment activity after the present gig ends.

Mr. Morin went to work for Milliken & Company in South Carolina as a research physicist and worked for Milliken for nine years developing fibers.  Apparently, Mr. Morin began to make plans for his own company prior to leaving the employee of Milliken and filed for a patent on a new fiber within a few months after resigning from Milliken.  Milliken thought such behavior was untoward and filed a suit against Mr. Morin for breach of the confidentiality provisions and the breach of invention assignment provisions in his employee contract, among other things.

The appeal of this case recently found its way to the Supreme Court of South Carolina.  One of Mr. Morin's principal arguments was that the confidentiality provisions and the assignment of inventions provision were restraints of trade and as such, should be reviewed under the same standard as a non-compete provision, i.e. not favored by the courts and construed against the employer unless certain very stringent requirement were met.

The South Carolina Supreme Court disagreed with Mr. Morin and found that such provisions (confidentiality and invention assignment) were not restraints of trade and as such, were to be reviewed under the reasonableness standard, i.e. to be enforced as an ordinary contract provision unless the provisions exceeded what was necessary to protect the legitimate interests of the employer.  The court held: "We therefore hold confidentiality and invention assignment clauses are not in restraint of trade and should not be strictly construed in favor of the employee."

This confirms what most of us in this industry believed to be the law and should make it easier for well crafted provisions of this nature to be enforced in the future.

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