May 2nd, 2024

New York Bans Certain Invention Assignment Clauses

On September 15, 2023, New York Governor Kathy Hochul signed Senate Bill S5640 (“S5640”) into law, introducing a new section 203-f to New York’s labor law. This legislation imposes new limitations on the use of invention assignment clauses in employment agreements within New York. Effective immediately upon signing by Governor Hochul, S5640 marks a significant shift in the state’s approach to managing the balance between employee and employer intellectual property (“IP”) rights. Employers should review their existing employee invention assignment agreements to ensure these agreements comport with the new law.

The Impact of S5640 on Invention Assignments

Many employers have included broad invention assignment clauses in their agreements with employees that require employees to assign all inventions created during their employment to the employer.  S5640 renders unenforceable any provision that deems a New York-based employee to have assigned inventions made on their own time and without using the employer’s equipment, supplies, facilities, or trade secret information.

Importantly, this restriction does not apply to inventions (1) that relate to the employer’s business or actual or reasonably anticipated research and development or (2) resulting from work performed by the employee for the employer. In essence, S5640 aims to strike a balance by protecting an employee’s right to own inventions created independently and unrelated to the employer’s business, while still allowing employers to acquire ownership of inventions that are within the scope of the employee’s duties or related to the employer’s business.

Recommended Steps for Employer Compliance

As a result of the adoption of S5640, employers may find themselves with non-compliant employment agreements if they contain invention assignment clauses that purport to assign to the employer all inventions created by the employee. Invention assignment provisions that conflict with S5640 may be deemed unenforceable and result in uncertainty regarding ownership of the company’s IP. 

Employers should work with counsel to conduct a review of the invention assignment provisions in their existing agreements to ensure compliance with S5640. After reviewing New York-specific agreements, employers with employees in multiple states should extend the same review to additional jurisdictions, as similar laws have been enacted in other states, such as California, Illinois, Kansas, Washington and others, as discussed below.

Other States’ Invention Assignment Laws

A growing number of states have taken steps to safeguard worker autonomy over personal inventions. California, Illinois, and New Jersey have also passed legislation prohibiting employers from claiming ownership of inventions conceived by employees on their own time without utilizing company resources. Some of these states further require companies to explicitly notify workers of limitations on the employer’s ability to claim ownership over certain IP developed by their employees. At present, New York's S5640 lacks comparable notification mandates for employers.

If you have questions about how to comply with S5640, or about other corporate or employment law matters, please contact Jay Rand at (212) 705-4825 or jrand@fkks.com, Lee Silver at (212) 705-4826 or lsilver@fkks.com, Wendy Stryker at (212) 705-4838 or wstryker@fkks.com, Ian Padilla Jong at (212) 705-4871 or ipadillajong@fkks.com, or any other member of our Corporate & Finance or Employment Compliance, Training & Litigation Groups.