• Giving An Idea to Your Employer

    by  • December 23, 2011 • copyright

    If an employee has a pre-existing idea that he or she brings to the employer, who owns it? At first blush it seems pretty easy, that the employee would own it. What, though, if the employer puts time, effort and money into developing the idea, then what?

    This is the situation in Woodfords Family Services, Inc. v. Casey. Woodfords provides support and educational services to people with special needs. Woodfords hired Laura Casey as a Program Director for early childhood services. Well before Casey started working at Woodsfords she had conceived of an idea for a video product to assist children with autism in learning appropriate behavior. The product would superimpose the autistic child’s face on the body of a child exhibiting appropriate behavior, so the autistic child would see him or herself modeling the behavior.

    While Casey was employed at Woodfords she encouraged Woodfords to develop the product. Woodfords applied for and received two grants for the project from which part of Casey’s salary was paid, and one of the grants specified that Casey had to work on the project. One 2-minute video of Casey’s son brushing his teeth was filmed. The amount of time spent on the project by other employees was disputed. Casey also didn’t have a non-compete agreement with Woodfords.

    Casey resigned and her lawyer sent a letter to Woodfords stating that any work Casey created relating to video self-modeling was Casey’s exclusive property and that she owned all copyright, patent, trade secret and other intellectual property rights to it. Woodfords therefore brought claims against her for, and moved for a preliminary injunction on, misappropriation of trade secret, misappropriation of idea, breach of confidential relationship or fiduciary duty, and unjust enrichment.*

    The Restatement (Third) of Unfair Competition, § 42 cmt. e says this about ownership of idea:

    In the absence of a contrary agreement, the law ordinarily assigns ownership of an invention or idea to the person who conceives it. However, valuable information that is the product of an employee’s assigned duties is owned by the employer, even when the information results from the application of the employee’s personal knowledge or skill:

    If, however, one is employed to do experimental work for inventive purposes, it is inferred ordinarily, although not so specifically agreed, that patentable ideas arrived at through the experimentation are to be owned by the employer. This is even more clear where one is employed to achieve a particular result which the invention accomplishes. On the other hand, if one is employed merely to do work in a particular line in which he is an expert, there is no inference that inventions which he makes while so working belong to the employer.

    Restatement, Second, Agency § 397, Comment a.

    I expected the court to consider who initially owned the trade secret and, if Casey, whether ownership was transferred to Woodfords, but it didn’t. Instead, the court went straight to whether there had been a misappropriation by Casey, with the only dispute over whether Woodfords had taken reasonable measures to guard the secrecy of the idea. The court considered the following factors in deciding whether the efforts were reasonable:

    (1) the extent to which the information is known outside the plaintiff’s business; (2) the extent to which employees and others involved in the plaintiff’s business know the information; (3) the nature and extent of measures the plaintiff took to guard the secrecy of the information; (4) the existence or absence of an express agreement restricting disclosure; and (5) the circumstances under which the information was disclosed to any employee, to the extent that the circumstances give rise to a reasonable inference that further disclosure without the plaintiff’s consent is prohibited.
    This is where the pre-existence of Casey’s idea made a difference, though. On the first factor, while no one else in the industry was creating this type of self-modeling, Casey had told a number of individuals about her idea, including her father, a volunteer, two former colleagues, and unnamed friends. Most critically, on the third factor, Casey was never told to maintain the secrecy of the project, although she did attend meetings where third parties were told the concept was confidential and some were asked to sign “work-for-hire” and nondisclosure agreements. The court weighed heavily that Woodfords never told Casey to contact individuals to whom she had previously disclosed the idea and tell them that the idea was confidential information of Woodfords, concluding that

    Notwithstanding [Woodfords Executive Director] Farnsworth’s admonition to members of the [internal] WFRD Committee and the non-disclosure agreement with [videographers] Current Motion, Woodfords’ failure to notify [volunteer] Meehan to maintain confidentiality and its failure to specifically instruct Casey about the secrecy of her idea lead me to conclude on this record that Woodfords has not shown a likelihood of success on the proposition that it took reasonable steps under these circumstances to maintain secrecy of the idea and thus that it was a trade secret belonging to Woodfords.

    So the trade secret claim was decided on the basis that there was no trade secret, rather than who owned it. The court did recognize the latter issue in dicta, though:

    FN10. Moreover, in order to prevail on its claim for misappropriation of trade secrets, Woodfords must establish that it owns that which it is striving to keep secret. The only support for Woodfords’ ownership is found in Nau’s affidavit where he makes the ambiguous statement that “[a]ll of Ms. Casey’s work on the conceptualization and development of the video self-modeling product was within the scope of her employment as Program Director.” Nau Aff. ¶ 31. This may have been so, once Casey started working for Woodfords. But given Casey’s specific statements about conceiving and sharing the idea with colleagues and friends years before joining Woodfords, Woodfords must provide more to support its assertion that her work on it at Woodfords gave rise to Woodfords’ ownership.

    The misappropriation of idea claim didn’t work because Maine hasn’t recognized the tort. The breach of confidential relationship claim wasn’t viable: “If Woodfords cannot establish that the idea is a trade secret or that Maine law recognizes appropriation of an idea, the confidential relationship cases will not allow it to bootstrap its way into a likelihood of success for the temporary restraining order and preliminary injunction.” On the breach of the fiduciary duty of loyalty that an employee owes to an employer,  while an employee may not actually compete during the course of employment, there is no prohibition against preparing to compete. Casey indeed prepared to compete while she was still employed by Woodfords, but she didn’t actually compete so this claim failed also. Finally, at this stage there was no unjust enrichment because there was no showing that Casey has yet to be enriched by the use of the idea. Thus the court did not enjoin Casey from developing her business using the video self-modeling idea.

    Woodfords Family Services, Inc. v. Casey, No. 2:11-cv-445-DBH (D. Me. Dec. 14, 2011).

    * There is also a copyright infringement claim but it was not part of the motion for preliminary injunction. However the copyright claim was the basis for federal jurisdiction, with the notable comment by the court that a registration isn’t required before the court will have jurisdiction over a claim for determination of ownership of a copyright.

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