Shop Right

A shop right is an implied, non-exclusive, royalty-free license that an employer automatically receives — without any written agreement, without payment, and without taking ownership — when an employee uses the employer's time, materials, equipment, or facilities to develop an invention. The employee retains ownership of the patent; the employer gets only the right to use the invention in its own operations, without paying royalties, but cannot exclude others from also using it. Key characteristics: (1) Implied by law — shop rights arise automatically under equitable principles, not from a written license. Courts recognize them because it would be inequitable for an employee to use employer resources to develop an invention and then sue the employer for infringement. (2) Non-exclusive — the employee-inventor can still license the patent to anyone, including the employer's competitors. The employer gets a right to use, not an exclusion right. (3) Royalty-free — no payment required. The prior wages and resources provided by the employer are the consideration. (4) Non-transferable — the shop right belongs to the specific employer and cannot be assigned, sublicensed, or transferred in an asset sale. (5) Employer retains no ownership — unlike an invention assignment agreement (which transfers patent ownership to the employer), a shop right gives only a use license. The employee can still sell, assign, or enforce the patent against others. The doctrine originated in U.S. common law and is recognized in all U.S. jurisdictions, though specific facts (what resources were used, how much time) determine whether a shop right arose in any given case.

Shop right and invention assignment agreements both give employers rights to employee inventions, but they differ fundamentally: (1) Ownership: a shop right gives the employer only a non-exclusive license to use the patent — the employee-inventor remains the patent owner. An invention assignment agreement (also called an IP assignment agreement or PIIA — Proprietary Information and Inventions Agreement) transfers full patent OWNERSHIP to the employer. (2) Written vs. implied: shop rights arise automatically by operation of law when the conditions are met — no writing required. Invention assignment agreements are written contracts signed before or during employment. (3) Exclusivity: a shop right is non-exclusive — the employee can license the patent to competitors. An assigned patent belongs to the employer, who controls all licensing and can enforce exclusivity. (4) Transferability: shop rights are non-transferable — an acquirer does not automatically receive them. An assigned patent transfers with ownership through normal IP conveyance. (5) Scope: shop right typically covers only the specific invention made with employer resources. An assignment agreement can be broader — covering all inventions related to the company's business conceived during employment, regardless of where developed. (6) Enforceability: shop rights are subject to equitable scrutiny — a court decides if a shop right arose based on the facts. Assignment agreements are contractual and presumptively enforceable (subject to state employee-inventor protection laws). Bottom line: any employer relying on shop right is in a weaker position than an employer with a proper written IP assignment agreement. Employers should always get signed IP assignment agreements from employees and contractors — shop right is a fallback for when proper agreements were not obtained.

A shop right, once established, is generally durable but can be affected by several circumstances: (1) Patent sale to bona fide purchaser: if the employee-inventor sells the patent to a third party who pays value and has no knowledge of the employer's shop right, that third party may take the patent free of the shop right. Documented shop rights (or better, recorded licenses or assignments) provide constructive notice to purchasers. (2) Non-transferability in asset sales: the employer's shop right does not automatically transfer when the employer is sold, merged, or when assets are acquired by another company. The acquiring entity may not have the shop right unless it takes as a successor to the exact employer entity that had the right. This is a significant issue in M&A transactions — standard IP due diligence should identify employee-developed patents and confirm either (a) a written assignment exists, or (b) the transaction structure preserves the entity holding the shop right. (3) Express waiver: an employer can waive a shop right by written agreement (e.g., agreeing in a license that the employee has the right to fully commercialize an invention). (4) Inequitable conduct: equitable doctrines cut both ways — if an employer unreasonably delayed asserting a shop right and the employee relied on the delay to their detriment (e.g., invested in commercializing the patent), a court might refuse to enforce the shop right under laches. Practically speaking, the biggest risk to a shop right is an M&A transaction where the successor entity did not take care to ensure proper IP chain of title from the original employer. IP counsel should review all relevant patents in a transaction for proper assignment to the selling entity before closing.

Yes — several U.S. states have statutes that limit the scope of employment invention assignment agreements, protecting employees who develop inventions outside of their employer's field on their own time. Major state laws: (1) California (Labor Code § 2870): the most pro-employee statute. An invention assignment agreement CANNOT cover inventions that were developed 'entirely on the employee's own time without using the employer's equipment, supplies, facilities, or trade secret information' AND that did not relate to the employer's business, actual or demonstrably anticipated R&D, OR result from work performed for the employer. California employers must include a notice of § 2870 rights in their PIIA agreements. (2) Washington (RCW 49.44.140): similar to California — assignments cannot cover inventions developed entirely on the employee's own time without company resources unless the invention relates to the employer's business or results from the employee's work. (3) Minnesota (Minn. Stat. § 181.78): same structure as California and Washington. (4) North Carolina (N.C. Gen. Stat. § 66-57.1): similar employee protections. (5) Delaware (Del. Code Ann. tit. 19, § 805): similar. (6) Illinois (765 Ill. Comp. Stat. 1060/2): similar. Note on shop right: these statutes limit ASSIGNMENT AGREEMENT scope — they do not directly eliminate shop rights (which arise by operation of law regardless of contract). However, if a state statute says the employer cannot claim ownership of an invention developed entirely on personal time, the equitable basis for a shop right in the same situation may be weak, since the employee used no employer resources.

The only reliable way for an employer to avoid relying on the uncertain and limited shop right doctrine is to use properly drafted written IP assignment agreements from the start. Practical steps: (1) PIIA or CIIAA at hiring — require every employee (and every contractor) to sign a Proprietary Information and Inventions Assignment Agreement (PIIA) or Confidential Information and Invention Assignment Agreement (CIIAA) before starting work. This gives the employer full ownership of inventions related to the business or developed with company resources. State-specific notices for California, Washington, Minnesota, and other employee-protection states must be included. (2) List any prior inventions — have employees list any inventions they want to exclude from the assignment at the time of signing (a 'prior inventions schedule'). This prevents disputes later about what was pre-existing. (3) Contractor IP clauses — every consulting agreement should contain an IP assignment clause. Note: under 17 U.S.C. § 101 (copyright work-for-hire), written agreements are required for independent contractor work. For patents, there is no automatic work-for-hire doctrine — a separate assignment clause is essential. (4) Moonlighting policies — policies requiring employees to disclose outside employment and prohibiting use of company resources for outside projects help prevent the ambiguity that creates shop right disputes. (5) M&A IP due diligence — in any acquisition, confirm that all material patents are properly assigned to (or exclusively licensed by) the entity being acquired, with clear chain of title from all inventors through the company. Patents found only in inventor names without recorded assignments are a red flag. (6) Pay employees for inventions — some employers pay bonuses or equity for assigned inventions, increasing inventor willingness to disclose and assign and reducing post-employment disputes.