Who owns the intellectual property of a contractor employed by another company?

Question

Suppose the following hypothetical situation occurring within the United States of America.

Startup Sam wishes to contract Contractor Bob to invent a widget. Startup Sam and Contractor Bob agree, and state on their contract, that Startup Sam will own the intellectual property rights to the widget upon completion of the project.

Unbeknownst to Startup Sam, Contractor Bob is currently employed by Company X. As part of the terms of employment, Contractor Bob agreed to an intellectual property clause which states that Company X will own the intellectual property of all inventions by Contractor Bob (whether or not they were produced on or off company hours/premises).

In this scenario, would Startup Sam still own the intellectual property rights to the widget invented by Contractor Bob, or would Company X own it?

Answer 1

It is possible that a court would hold Comapny X's agreement with Bob to be unconscionable for overbredth and therefore void. This would depend on the state having jurisdiction, and on the specific facts of the case and the language of the contract between X and Bob. Some states do not favor such broad agreements on automatic assignment of IP rights.

If the Contract between X and Bob was held to be void, then Sam would own the rights. Otherwise X would own the rights, as their contract came first. As the answer by Dale M says, Bob entered into the contract with Sam fraudulently, by concealing a materiel fact (Bob's existing employment with X). Bob would potentially be liable to Sam for damages. One possible measure of damages would be what it would cost Sam to buy the rights from X.

Answer 2

The contractor agreement has been entered on a fraudulent basis by Contractor Bob and is probably void for that reason. The IP is owned by company X. Startup Sam can sue Contractor Bob for the tort of misrepresentation and claim the value of the IP.