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A Challenge to IT Companies

Dear Reader,
[Note: This blog post should in no way reflect poorly on my current employer. I love my job and am not talking about any one company in particular but about IT companies in general.]

The Problem

Something has been bugging me for a while now. I’ve been a member of more IT companies than I care to remember. Outside of cube farms, one thing seems to remain constant throughout, a contract that was written in the 1800s. Most (not all) of the employment contracts I have been handed to sign have contained a clause that states something to the effect:

While you are working for us, if you invent something we like, we can claim ownership of it.

Each time I’ve had to negotiate that clause down to something a little less draconian. As my career has advanced and I’ve had more influence during the negotiations, I’ve been able to negotiate it down to something similar to:

While I work for you, if you ask me to create something, you own it. However, if I think it up on my own, and create it on my own time, I own it.

Even so, I am always nervous when I come up with a new idea until I have clearance to pursue it.

I am at that level of my career where I bring more skills to a job than I am going to take from them. At this point in my career it is much more likely that I will, during my own time, come up with an idea that has potential, but the current thinking is that unless I am diligent when reviewing employment contracts, the company feels it is entitled to that idea.

The Solution

The solution is simple, companies should stop thinking wrong-headed. Actually, if it were that simple, others would have already have implemented it. No, the rights of the company do have to be recognized. In many situations, the company invests in the developers/workers and that investment allows them the expanded knowledge to help fabricate ideas. Even if the investment is as simple as sending a developer to a conference, the conversations that happen at a conference could spark an idea. The company shouldn’t be cut out of the loop.

To balance the rights of the employee with the rights of the company I suggest this.

As long as you work for us, we have first right of refusal on funding any idea you come up with, regardless of its origin. If we decide to fund the idea, a corporate structure will be setup that will allow you partial ownership in the resulting entity. If we decide not to fund the idea, we give you our blessing to pursue the idea as long as it does not interfere with your current job.

In this case, if the idea has value, the company can participate in the idea and the employee is rewarded for their initiative with partial ownership. This also helps with employee retention, after all, the people coming up with good ideas are the ones that you want to keep!

The Challenge

Here is where the fun comes in. I challenge every CEO of a tech company reading this blog post to review your employment contract that you force employees to sign. Is there a clause in there like this? If you were offered a job with that clause, would you be happy about signing it? If not, I challenge you to implement this participation clause in not only future employment contracts but offer it up to all existing employees.

Until next time,

14 thoughts on “A Challenge to IT Companies

  1. Umm… Am not a CEO but CTO of my own company. And there is no such clause in our contract – in fact all Open Source work done by my employees is specifically copyrighted to them. About the only thing we recommend is that they use their work email ID as the contact address – this has two benefits #1 WE get publicity (hey we need that!) and #2 IME an employee who leaves more often than not abandons her OSS projects but we can continue to give support. But then we are a service company not a product company :-)

  2. Something from my employment contract, I believe this is pretty fair and means anything that could benefit the specific business of my employer is theirs, the only scary sounding part is 11.3 :)

    11.1 The Employee agrees to immediately disclose to the Company Inventions or Intellectual Property made or discovered by the Employee during the term of this document which are connected with or affect, relate to or are capable of being used or adapted for use in or in connection with the Business or the business of a Related Body Corporate.

    11.2 The Employee acknowledges that:
    (a) the Inventions and Intellectual Property referred to in clause 11.1 are the absolute property of theCompany or a person nominated by it for that purpose;
    (b) the Employee must assign absolutely all rights in those Inventions and Intellectual Property tothe Company or its nominee; and
    (c) at the expense of the Company, the Employee must do an act or thing which the Company may require, either during the term of this document or after its termination, to protect the Company or its nominee’s rights in those Inventions and Intellectual Property, throughout the world.

    11.3 The Employee irrevocably appoints the Company to be the Employee’s attorney and to sign a document or do any thing and generally to use the Employee’s name to give to the Company or to its nominee the full benefit of this clause. The Employee acknowledges that a certificate in writing, signed by a director or secretary of the Company that a document or act falls within the authority conferred by this clause, will be conclusive evidence of that fact.

  3. Most companies entertaining such contract clauses do so because many ideas are based on skills/knowledge/ideas etc. that the company has invested in. But mainly these clauses are there to counter what happens in many industries: the car repair man working on cars out of hours, developers competing with the company by running their own development shop in their spare time, etc.

    I’ve never worked at a company with a ‘we own your ideas’ policy. My contract actually has a similar clause, but the important line in it is “without consent”. Now I’ve had developers complain about this and ignoring that very important addition. This simply means that I discuss all ideas I have with my employer, and so far it has never happened that it led to a problem. A contract that says that issues like that should be discussed, should not be read as ‘there’s no discussion, we own you’. It’s usually more grey than the black and white it’s written in.

    By the way, your proposed alternative clause might lead to every idea having to become a company, whereas many ideas are not on that level.

    Finally I think it’s important to distinguish between something like an open source contribution and commercial ideas.

  4. I like the idea of “first right of refusal”. There’s no telling what caused the spark, but if the company doesn’t see the business sense in the idea, but the employee is adamant on going ahead anyway, they should be allowed to do so. Perfect example for this is Steve Wozniak and HP.

    I think a lot of these contracts have been taken from other industries, without the CEOs and Lawyers understanding the implication, or employees thinking these contracts are enforceable.

    I’ve seen lots of people who will share their idea with a friend who doesn’t work for the company, and then have that person “develop” the prototype. But, I agree, they are generally evil, lazy implementations.

  5. @Tarique, then you are one of the good guys. I applaud your efforts and am confident that as the job market is heating back up, your forward-thinking company will have no trouble in attracting the best and the brightest.


    11.3 would scare me away. I won’t sign any contract that gives a company that much power.
    My current contract (after re-reading it) is similar in nature but not working to 11.1 of yours. The one time I’ve had opportunity to test it, the company was more than willing to allow me to pursue my project on my own time. As I said at the top of the post, this post was not a response to any one contract or company but in response to some deep navel gazing over my career.

    it’s really difficult to respond to you since we’ve hashed this out in Skype not 30 minutes ago (and while sitting across the room from each other)

    I would agree that for Junior developers, where a company is investing in their training, yes, this may be an acceptable agreement. However, somewhere between mid-range and senior developer, the pendulum starts to swing the other way. When developers bring more to the table than the company, why should the company automatically own every idea they have?

    I disagree that my solution would force companies to invest in too many ideas. On the contrary, it would force them to think through each idea in a timely manner. If a company does not think an idea is worth investing in, that is all the most reason that they should allow the developer to pursue it on his/her own.

    If they do think it’s financially viable then in my opinion, morally, they owe the developer a stake in the idea. Beyond just my opinion though, by investing in the idea and letting the developer run with it, they have someone who is committed to the idea more so than anyone they could hire and put in his/her place.

    If the idea works, it a win for everyone, if it fails, well, it fails. Yes the company is out money if they invested in it but you can also look at it this way, the company just spend $xxx (or €xxx) to teach that employee what doesn’t work. That’s a lesson they they can then capitalize on by putting him/her back to work or allow their competition to capitalize on by firing the developer for failing. (but now we are getting into a whole different the value of failure post and I think Marco just did that one.)

    So the way I look at it, as long as the company is realistic in ther expectations and limits their exposure financially, win or lose, the company wins.

    Thanks to everyone for their comments! I do love a good discussion.


  6. I think there’s a difference between “ideas” and “freelance work on the side”.

    I think it’s fair to restrict your employees from working for other companies within the same field; but if they create IP outside of their employment, for example from a “side project” (whether it’s open source or potentially commercial) then I think it belongs to the individual and the company has no claim over it.

    If the company thinks that stinks, then they can always structure things so that the employee *wants* to bring them in on the action. I know that as a solo-developer, when your boss offers you the company’s resources to develop your idea (particularly the skills you don’t have, like marketing or design perhaps) then it’s a very tempting way to go. Isn’t that kinda how Google handle things like this?

  7. Not 100% sure how I feel about that first right of refusal…but one thing I do know is that it needs a timeline attached to it. (ie the Company gets some time to consider but must answer within that timeframe or the rights stay with the developer).

  8. Many companies try to have a one size fits all policy for these agreements but its really related to the expected contribution of the employee. Many developers will have ideas outside of the company’s industry which it will have no interest in owning, whereas the CTO might have 10 product ideas the company would never want to lose to a competitor.

    I have also seen agreements when the employee acknowledges that the scope and complexity of the position require the employees full time efforts and no outside work or consulting will be allowed as a condition of employment. This prevents other projects from impacting on the contribution of the employee to the company and gives them the option to leave if they have a great idea to pursue.

  9. @vid,
    Wozniak is an excellent example, thanks for that.

    In this post I am specifically talking about ideas, not freelance work. Maybe a better way to put my general thesis is that a company should not have a right to any Intellectual Property that they did not cause to be created. My idea of a first right of refusal was really an attempt at a comprimise to try to balance the wants of the company with the rights of the developer.

    As I said to Richard, it was an attempt at a compromise. Even if they do decide they want to pursue the idea, the employee has to be not only an integral part but has to have some form of legal ownership in the idea. As I said to Ivo, I think this would work for the company as well because immediately they have an employee committed heart and soul to the idea. (As I said in my Open Teams talk, developers WANT to create and they want to see what they create come to fruition.)

    I do agree that at a certain level, it becomes incumbent upon the employee to give everything to the company. Usually at those levels though you see some form or ownership in the company (not options, actual shares) as part of the compensation package. Also, most contracts *I’ve seen* state that the company owns the idea and that even if the developer leaves, he/she is not free to pursue it. That’s just wrong on every level as far as I’m concerned.

    Thanks to all for your great comments!


  10. I left a work once exactly because of that kind of clause. I don’t regret it as I’, pretty happy working on my OSS projects. I do understand the other position though as my “other tasks” do affect my performance..

  11. @Jose,

    Hi! I understand what you are saying but my thoughts are more along the lines of IP protection for developers. If working on OSS projects, or your own projects is affecting your job then the company has a right to complain.

    Thanks for the comment!

  12. As Director of Operations at a small software startup, I have been looking for something like this for our Non-Disclosure/Inventions agreement with employees. I think this approach will help foster creativity and goodwill.

    I’ll let you know how it turns out.

    P.S. Have fun at CW09!

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