NDA vs. Invention Assignment

The Fundamental Difference

While NDAs and invention assignment agreements are often bundled together in employment contracts, they serve entirely different purposes and protect different interests. Understanding this distinction is crucial for both employers protecting their intellectual property and employees understanding their rights.

Think of it this way: An NDA is like a lock on information - it prevents others from seeing what's inside. An invention assignment is like a deed to a house - it transfers ownership from one party to another. You can have a lock without owning the house, and you can own a house without any locks.

What Each Agreement Covers

NDA Coverage

A typical employee NDA protects:

• Trade secrets: Formulas, processes, customer lists, business methods
• Business information: Financial data, pricing, strategies, forecasts
• Technical information: Designs, specifications, research data
• Third-party information: Data received from customers or partners under confidentiality
• Personnel information: Salary structures, performance data, HR records

The NDA prevents the employee from sharing this information with competitors, the public, or anyone not authorized to receive it. It does NOT automatically give the employer ownership of anything the employee creates.

Invention Assignment Coverage

A typical invention assignment agreement covers:

• Patentable inventions: New products, processes, machines, compositions of matter
• Copyrightable works: Software code, documentation, designs, written content
• Trade secrets you create: New formulas, methods, or processes you develop
• Improvements: Enhancements to existing company products or processes
• Ideas and concepts: Sometimes even unpatented ideas related to the business

Why Companies Need Both

The Gap an NDA Alone Leaves

Consider this scenario: An engineer at a tech company develops a new algorithm using company resources. If the company only has an NDA:

• The engineer cannot disclose the company's confidential information
• But the engineer may own the patent rights to their invention
• The engineer could potentially sell or license those rights to a competitor
• The company might be blocked from using the invention without the engineer's permission

With both an NDA and invention assignment, the company both owns the invention AND can prevent its disclosure - complete protection.

The Gap an Invention Assignment Alone Leaves

Conversely, if a company only has an invention assignment:

• The company owns what the employee creates
• But the employee could still share other confidential information learned on the job
• Business strategies, customer lists, and pricing information could be disclosed
• The employee could describe how the company operates to competitors

Detailed Comparison Table

State Law Protections for Employees

Several states have laws that limit what employers can claim through invention assignment agreements. These protections typically carve out inventions that employees create:

California (Labor Code Section 2870)

California provides the strongest employee protections. An employer cannot claim inventions that an employee develops entirely on their own time, without using company equipment, supplies, facilities, or trade secrets, UNLESS the invention either:

• Relates to the employer's business or actual/demonstrably anticipated research, OR
• Results from work performed for the employer

Similar Protections in Other States

• Delaware: Title 19, Section 805
• Illinois: 765 ILCS 1060/2
• Minnesota: Minn. Stat. 181.78
• Washington: RCW 49.44.140
• North Carolina: N.C. Gen. Stat. 66-57.1
• Kansas: K.S.A. 44-130

For Employees: What to Watch For

Red Flags in Invention Assignment Agreements

1. No state law carve-out: If you're in California or another protective state, the agreement should acknowledge your rights to personal inventions
2. Overly broad scope: Agreements that claim inventions "related in any way" to the business can be problematic
3. Prior inventions: Ensure you can list and exclude inventions you created before employment
4. Survival clauses: Watch for provisions claiming inventions conceived within a period after employment ends
5. No review process: Better agreements include a mechanism to get confirmation that a personal project is outside scope

Before Signing

• List all prior inventions and ensure they're excluded in an exhibit
• Understand exactly what activities are covered
• Know your state's laws on employee inventions
• Consider whether you have side projects that need protection
• Ask about the review process for personal projects

For Employers: Best Practices

Drafting Effective Agreements

• Be specific: Clearly define what types of inventions are covered
• Include required notices: Add state-specific employee rights language where required
• Prior inventions exhibit: Provide a form for employees to list existing IP
• Disclosure procedures: Establish a clear process for employees to disclose new inventions
• Review mechanism: Create a way for employees to get guidance on side projects
• Consider reasonableness: Overly aggressive agreements may be unenforceable and harm recruiting

Common Questions

Can I work on personal projects while employed?

Generally yes, but with caution. You should: (1) not use company time, equipment, or resources; (2) not use any confidential information from your employer; (3) work on projects unrelated to your employer's business; and (4) check your agreement for any personal project provisions. Many companies will give written confirmation that a specific project is outside the scope of the assignment.

What if I invented something before I was hired?

You typically retain ownership of prior inventions, but you must properly disclose them. Most invention assignment agreements include an exhibit where you list all prior inventions. If you fail to list a prior invention, you may face a dispute about when it was actually created.

Does "work for hire" replace an invention assignment?

Not entirely. "Work for hire" applies to copyright under specific circumstances defined by federal law. It doesn't cover patents or trade secrets. An invention assignment agreement is broader and provides cleaner ownership transfer across all types of intellectual property.