Intellectual Property Ownership as an Employee

Question

I am a final-year college student entering the software industry as an engineer. My job will probably require me to write code all day for a company, using company resources and hardware (company provided laptop, etc.).

Suppose I also write code outside of work hours, on a personal computer, and the code is completely unrelated in any way to the product(s) that I work on, and to any of the product(s) the company develops. I use no company resources to develop this code.

Let's say some of this personal code starts to make me money, in the form of a business I incorporate. If it was not specified in my employment contract that the company owns all employee code, personal or otherwise, does my employer have any justifiable claim to my intellectual property, or to the profits from my business? Does this claim extend to time beyond my employment at the company (like, after I quit, and they learn I made money through an entrepreneurial side project while I was working there, can they sue for money)? Do the answers to any of these questions change if I did not incorporate a business, and just sold my IP as an unincorporated sole proprietorship?

In the United States (and, specifically in California), is it even legal for companies to have an employment contract where they own IP developed outside of company time? If it is, are there any legal loopholes around it (besides getting a new job, of course)?

I sincerely apologize if this is a known question or is inappropriate for this site.

Answer 1

California has employee friendly IP employment laws. It states that an employer does not have rights to things you develop on your own time and equipment unless it was assigned work or withing the company's current or "actual or demonstrably anticipated" future business.

It is not just the default absent any other agreement. In fact, it makes any agreement that purports to change this as unenforceable.

Answer 2

If it was not specified in my employment contract

That is highly unlikely. Almost all companies that have any interest in IP will have a detailed set of rules in their employment contract. These typically cover not only IP but also "working on the side" either for yourself or for other clients. If you are worried about this sort of thing, your first order of business is to carefully read the contract and negotiate or make changes (which is entirely possible), before you sign it.

This contract then govern what happens, UNLESS the contract is either in conflict with local labor rules OR the terms are deemed "unenforceable" by the local jurisdiction. This happens depressingly often: a sizeable number of employment contracts include clauses that are enforceable. This assessment should be done by a lawyer familiar with local labor laws and rules.

In practice, most contracts will specify that IP generated out of work is yours UNLESS it's related to the companies business. However, that's where the rub is: "related to the business" is a term that's wide open to interpretation and chances are your interpretation is very different than theirs.

Another word of caution: "unenforceable" means that the company has no legal recourse. That doesn't mean it has no recourse at all. Any serious conflict or legal argument is almost certainly a career ending move at this employer and it can damage your career prospects broadly as well. It's almost always better to find a mutually agreeable solution through negotiation and bargaining.