New York Restricts Assignment of Employee Intellectual Property
by Hemant Gupta, Susan Gross Sholinsky, and Adelee Traylor
On September 15, 2023, New York Governor Kathy Hochul signed SB 5640 into law, adding New York to the growing list of states that restrict the enforcement of employee intellectual property assignment agreements.
SB 5640 creates a new Section 203-f under New York’s Labor Law, which the New York State Department of Labor (NYSDOL) is responsible for enforcing. The new law took effect immediately upon Governor Hochul’s signature, so it is vital that New York employers act now to understand the new legal landscape.
What SB 5640 Says
The new law generally makes unenforceable any provision in an employment agreement that requires an employee to assign to the employer (or offer to assign) an invention that the employee develops on their own time and without the employer’s equipment, supplies, facilities, or trade secret information (a “Non-Assignable Invention”). However, SB 5640 exempts from this carveout those inventions created on the employee’s own time/equipment that:
- at the time of conception or reduction to practice, relate to the employer’s business, actual research or development, or anticipated research or development, or
- result from work that the employee performs for the employer.
In other words, even if the invention was created on the employee’s own time and without the employer’s tools, etc., if it either relates to the business when it was developed or results from work that the employee is performing for the employer (an “Exempt and Assignable Invention”), it is not covered by the pro-employee protections of SB 5640; thus, the employer can enforce any relevant assignment provision.
Importantly, while SB 5640 invalidates overly broad invention assignment provisions, it does not create an express private right of action. However, employers should remember that New York Labor Law Section 213 generally provides that any person who violates a labor law, as well as any officers and agents of any corporation who knowingly permit the corporation to violate the law, are guilty of a misdemeanor punishable by a series of fines.
While the text of SB 5640 refers only to the assignment of employee “inventions” (for which there is no definition), employers should be aware that the legislative commentary accompanying the law refers to the broader concept of “IP” as well as “inventions.” Although this commentary is not binding, it suggests that the legislature may intend for the law to apply to all forms of employee intellectual property.[1] It remains to be seen whether the NYDOL and courts will broadly interpret SB 5640 to align with this position.
How SB 5640 Relates to Other States’ Laws
With the addition of New York, more than 10 states now regulate employee assignment of intellectual property rights, including California, Illinois, Minnesota, and New Jersey[2] Although these laws generally favor employee ownership and mobility, their specific scopes vary significantly.
One area of differentiation is the type of employee inventions that the laws exempt from the employee-favorable carveout. For example, both SB 5640 and Minnesota law exempt certain inventions that “relate” to an employer’s business. However, the laws are distinct in two important ways.
First, New York law includes a temporal qualifier that is absent from Minnesota law. Under SB 5640, an employee’s related invention only qualifies as an Exempt and Assignable Invention if it relates to the employer’s business or actual or anticipated research or development “at the time of conception or reduction to practice.” If the invention does not relate to the employer’s business at such time, it is not an Exempt and Assignable Invention, so the employer cannot require the employee to assign the invention. Under Minnesota law, all related inventions qualify as an Exempt and Assignable Invention regardless of timing. In this way, Minnesota allows employers to require employees to assign more inventions than under New York law.
In contrast, Minnesota law includes a relationship qualifier that is absent from SB 5640. Under Minnesota law, an employee’s related invention only qualifies as an Exempt and Assignable Invention if it “directly” relates to the employer’s business. Unless future NYSDOL guidance or court precedent requires otherwise, under New York law, inventions that are directly or indirectly related to an employer’s business qualify as Exempt and Assignable Inventions. In this way, New York law allows employers to require the assignment of a broader range of inventions than Minnesota law does.
Another way in which state laws differ is through the imposition of affirmative employer obligations. SB 5640 only limits the types of employee invention assignment agreements that are enforceable. It does not require an employer to take (or prohibit an employer from taking) any specific action. This is markedly different from California law, which, in addition to limiting enforcement, also requires employers to include specific notice in employee invention assignment agreements as to the inventions that employees may not assign. Other states, including Illinois, Kansas, Minnesota, and Washington, impose similar notice obligations on employers as well.
Given this trend in legislation, although not required under SB 5640, including provisions that specifically identify and carve out Exempt and Assignable Inventions from New York employee invention assignment agreements not only makes it clear and unambiguous to employees what inventions they are and are not assigning but also may help reduce the risk of a court invalidating an assignment provision in its entirety.
What New York Employers Should Do Now
To comply with SB 5640, employers should do the following:
- Identify relevant employment agreements and handbooks, compliance manuals, or other policies that contain an employee invention or other intellectual property assignment provision (“Assignment Provisions”).
- Revise Assignment Provisions to (i) include a clear description of what constitutes an Exempt and Assignable Invention and (ii) exclude Non-Assignable Inventions from their scope.
- Maintain accurate records regarding business plans as well as actual or anticipated research or development to counter any employee claims that an invention is not an Exempt and Assignable Invention.
- Monitor the NYSDOL’s website for guidance relating to SB 5640.
ENDNOTES
[1] Employers should be aware that notwithstanding SB 5640 and similar state laws, federal law may conflict with these laws’ protections. For example, where work product is capable of both copyright and trade secret protection, if the work product is not a work made for hire, the employer cannot claim ownership of the work as a trade secret.
[2] Other states with such laws include Delaware, Kansas, Nevada, North Carolina, Utah, and Washington.
