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South Carolina Supreme Court Upholds Confidentiality and Inventions Assignment Agreement

    Client Alerts
  • September 10, 2012

In some circumstances, employers may decide that a non-competition agreement with an employee is inappropriate. Perhaps the employee in question would not present an unreasonable threat to the business by going to work for a competitor, or perhaps the employee simply refuses to sign a non-compete. In these circumstances, employers often rely on confidential information and assignment of inventions agreements to provide different but equally important protections against the employee's possible post-employment activities.

Last month in Milliken & Co. v. Morin, the South Carolina Supreme Court upheld the validity of a confidential information and inventions assignment agreement entered into with a research scientist. The employee resigned and started a competing venture based on a new class of fabrics. Milliken sued, contending that the new products were the result of the scientist's previous work for the company. The defendant argued that the restrictions were legally equivalent to a non-compete agreement, and were overbroad in that they encompassed information unrelated to his work for Milliken.

The South Carolina Supreme Court affirmed a jury verdict for Milliken. First, the court distinguished confidentiality and inventions assignment agreements from traditional non-competes. The former agreements are not analyzed under the same tough legal standard used with non-competes They are not considered to be restraints on trade, and are not interpreted in favor of the employee.

With this legal standard in mind, the court next analyzed the Milliken agreement to determine if it was overbroad. The inventions assignment provisions included a clear exception for work done by the plaintiff on his own time that did not involve his duties for Milliken or use of Milliken's resources. The confidential information clause was limited to sensitive Milliken information made known to the employee through his work. It did not attempt to restrain the plaintiff from using his general skills, knowledge and inventive ability in his new venture.

If employers use carefully drafted confidential information and assignment of inventions agreements, these documents can provide valuable protection against subsequent misappropriation of proprietary information and intellectual property. Even in situations where a non-compete is inappropriate or unavailable, these alternative agreements provide employers with substantial protection against unfair competitive activities.