• Why You Need an Ownership Clause in Your Employee Agreements

    by  • June 24, 2012 • trade secret

    An old case popped out on Westlaw for some reason, but it is an interesting one, about ownership of trade secrets created by an employee. So I thought it was worth writing about.

    Plaintiff Premier Displays & Exhibits and defendant EWI Worldwide are both in the business of design and fabrication of displays and exhibits for museums, theme parks and other businesses. Co-defendant David Cogwell was employed by Premier and apparently his wife was employed by EWI.

    EWI, but not Premier, was invited to bid on a Disney project, transforming a winery-themed exhibit at Disney’s California Adventure theme park into a workspace to be used by the Disney Imagineers.  EWI created CAD drawings of its proposal for the redesigned space, but wanted hand-drawn renderings to use in the bid. Cogswell’s wife asked Cogswell to make the drawings “for the fun of it,” which he did. He created two, a preliminary sketch and a final sketch. (Here’s the declaration that has the sketches, although the original CAD drawings are redacted.)

    Final drawing (click for larger image)

    In addition to claims against Cogswell, Premier brought a claim for misappropriation of trade secrets against EWI.

    First, on the question of whether there was a trade secret at all, for the most part the hand-drawn drawings were highly similar to EWI’s CAD drawings but they included some new details, like adding artwork to the walls, handles to the doors, chairs at the workstations, hoop bands on the workstation barrel-like enclosures, figures standing in the background, boxes on the floor, tools and papers at the workstations, and a full barrel of blueprints. The court decided that this last element, the full barrel of blueprints, was not a common design element like the rest and therefore was protectable as a trade secret. (Yeah, I know, a barrel of drawings in a design shop. Hardly original. But go with it, because it allows us to get to the more interesting stuff.)

    But how would Premier come to own this trade secret?  Premier had four theories: that it owned the Cogswell sketches under either California Labor Code section 2860, the terms of the Premier Employee Orientation Handbook,  an unwritten company policy, or the corporate opportunity doctrine. Goose egg on all four.

    With respect to the California statute, an employer owns “everything which an employee acquires by virtue of his employment ….”  In California, “acquired” is not construed to be the same as “created” and does not apply to employee-created works.

    The employee handbook didn’t have the magic bullet that Premier needed either. These are the portions of the handbook relied on:

    •  You may engage in work outside your regular work at the Company, provided this work does not detract from your job performance, is not harmful to the Company’s best interests, and does not present a current or potential future conflict of interest with your employment here.
    •  One of the Company’s greatest assets is ‘know-how.’ It is this specialized knowledge and experience which helps Premier Displays and Exhibits to successfully compete in the market place and thus provide security and growth for our Company. To help preserve this competitive advantage, you should be careful about what you say to those not employed by the Company. Information on the Company’s production methods, production rates, and new product ideas would be very helpful to any competitor and not in our best interests. Remember that loose and idle talk can harm the Company and our future success.
    •  Employees who may work for Company competitors or subcontractors must notify management in advance in order to prevent possible conflicts of interest.
    •  Everything on this property with the exception of employee’s personal property and client’s property, is Company property and must be maintained according to Company rules and regulations . . . and must be safeguarded against . . . loss. . . . No Company property may be removed from the premises without prior approval of a Manager.

    Note what’s missing here — any statement describing when work performed by an employee is owned by Premier.  The court found that, while Cogwell may have breached the terms of his employment agreement (for which he got fired), nothing in the handbook gave Premier a contractual right to claim ownership of the work.

    Premier claimed that it had orally expressed to employees that Premier would own work product created by employees for any third parties in the same line of work as Premier, no matter when the work was done. This theory wasn’t disclosed in discovery but only in an affidavit filed with Premier’s opposition to EWI’s motion for summary judgment, so the court disregarded the affidavit as a sham.

    Finally, under the corporate opportunity doctrine, an officer of director may not “seize for himself to the detriment of his company business opportunities in the company’s line of activities which the company has an interest and prior claim to obtain.” But neither Cogswell nor Premier had the opportunity to bid on the Disney project — the only opportunity Cogswell had was to create sketches and, at best, all that Premier could gain was to recover any payment Cogswell received for drawing the sketches, not ownership of the sketches themselves.

    Therefore Premier did not own any trade secret in the drawings and EWI’s motion for summary judgment was granted.

    Premier Displays & Exhibits v. Cogswell, No. SACV 09-354 JVS (Anx) (C.D. Cal. Dec. 23, 2009).
    Premier Displays & Exhibits v. Cogswell, No. SACV 09-354 JVS (Anx) (C.D. Cal. Mar. 3, 2010) (denying request for reconsideration).
    Premier Displays & Exhibits v. Cogswell, No. SACV 09-354 JVS (Anx) (C.D. Cal. April 24, 2009) (amended complaint).

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