On June 6, 2023, New York Senate Bill S5640 / Assembly Bill A5295 (“S5640”) won near-unanimous final passage in the New York Assembly with a 147-1 vote, after being passed unanimously by the Senate the previous week. If signed into law by Governor Hochul, the legislation would, effective immediately, add to New York labor law a new section 203-f that renders unenforceable provisions in employee agreements that require employees to assign certain inventions developed using the employee’s own property and time.
As well-settled default rules for patentable inventions (contrary to those for copyrightable works) presumptively deem employee-created inventions the property of the employee, it is critical for innovation-focused businesses to enter into invention assignment agreements with employees to secure ownership of employee-created inventions as they are conceived and first reduced to practice. Though it is generally beneficial for businesses to include broad invention assignment provisions in these agreements, several states have adopted statutes that deem overly broad assignment provisions to be unenforceable. S5640, if signed into law, would introduce such limitations into New York labor law.
S5640 provides statutory protections that are nearly identical to those of its longstanding California state law counterpart (Cal. Lab. Code §2870), as has been the trend with states that have enacted statutes governing employee invention assignment agreements (including Delaware, Illinois, Kansas, Minnesota, New Jersey, North Carolina and Washington)—only Nevada and Utah to date have deviated, in each case flipping presumptive ownership of employee-created inventions to the employer. Under S5640, employee invention assignment provisions will not apply to any invention that an employee develops:
(i) entirely on his or her own time; and
(ii) without using the employer’s equipment, supplies, facilities, or trade secret information,
except for inventions that:
(a) relate at the time of conception or reduction to practice of the invention to the employer’s business, or actual or demonstrably anticipated research or development of the employer; or
(b) result from any work performed by the employee for the employer. Under S5640, as is the case with Cal. Lab. Code §2870, employee invention assignment provisions that would require the assignment of these excluded inventions are against the public policy of the state and will be unenforceable.
Note that despite the overlap of S5640 and Cal. Lab. Code §2870 (and near-identical legislation in other states), there is meaningful variance among state laws in respect of employee-created inventions. In the immediate case of S5640, for example, the legislation does not include employer-favorable counterparts of California labor law that (i) explicitly allow employers to require employees to disclose all inventions employees develop during the term of their employment (Cal. Lab. Code §2871) and (ii) place on employees the burden of proving that their inventions are not covered by their employee invention assignment agreements (Cal. Lab. Code §2872). Given the immediate effect of S5640 if signed into law, while the bill moves to the desk of Governor Hochul, businesses would do well to revisit their existing employee invention assignment agreements (and any template agreements for ongoing use) to ensure that the assignment provisions in each will not be overbroad and be in compliance with, and therefore enforceable under, New York labor law and its new section 203-f upon enshrinement.