When I started a part-time job, everything ran on trust — an email setting out my start date, responsibilities and pay. No contract, none of the “wherefore” and “whereas”. The trust mattered. It also meant very little would have stopped me walking out with everything the business had spent years creating.
Entrepreneurs, like most people, are a little hesitant to engage lawyers and entrust them with their ideas. So this is the first of a few posts on intellectual property basics — starting with the clause that most often goes missing.
What goes wrong
Having reviewed a good many employment agreements — including ones where clients took a sample off the internet — two problems recur.
Some startups have no intellectual property clause at all. Others have one that is written for another country’s law, inherited wholesale from a downloaded template. The second is arguably worse, because it creates the impression the question has been dealt with.
What the clause does
The IP clause defines the intellectual property that may be created during employment, and who holds the rights to it. It ties in with a clause defining confidential information and the rights to use it after employment ends.
At minimum it should cover:
- defining what the intellectual property is;
- defining ownership of that IP;
- the rights of employee and employer; and
- use of the IP by both parties after termination.
The reason is straightforward: both parties should know what rights they have during employment and once it ends.
Why Indian law makes it necessary
A template drafted elsewhere will not track the Indian position, which is not uniform across rights:
- For copyright, Section 17 of the Copyright Act generally vests first ownership in the employer for works made in the course of employment under a contract of service — but the position differs for works made under a contract for service, which is how most contractors and freelancers are engaged. Startups frequently rely on contractors for exactly the work they most need to own.
- For patents, there is no equivalent statutory vesting. Ownership of an invention made by an employee turns substantially on the contract, which makes an express assignment clause genuinely load-bearing rather than a formality.
- For confidential information and trade secrets, India has no dedicated statute. Protection rests on contract and the equitable duty of confidence — so an undefined confidentiality clause is close to unenforceable.
- Post-employment non-compete clauses are generally void under Section 27 of the Contract Act as agreements in restraint of trade. Confidentiality and IP assignment obligations survive; a broad non-compete copied from a US template will not.
Why it matters in practice
The clause earns its place when a dispute arises. The Delhi High Court granted an injunction against former employees who left a company with confidential data and its client database, and began contacting the company’s clients to start a similar business.
Because their employment agreements contained an IP clause clearly stating that the IP belonged to the company, the employer obtained an injunction restraining the former employees from using the information and approaching those clients, at least until the dispute was resolved.
Without that clause, the same employer would have been arguing from first principles about what was confidential and who owned it — which is a much harder application to win, and a much slower one.
The point
The IP clause may be short and a relatively small portion of the agreement. It is incredibly important, and it needs drafting for the specific business model rather than adopted from a sample.
The scenario of employees leaving with confidential information may or may not arise. Consider Oliver Cromwell’s advice — put your trust in God, my boys, and keep your powder dry.
The takeaways
- Define the IP, the ownership, and post-termination use — all four elements.
- Copyright vests in employers by statute; patents do not — the contract carries that.
- Trade secrets have no Indian statute — the clause is the protection.
- Non-competes are void under Section 27 — don’t rely on a foreign template.
Frequently asked questions
Does my company automatically own what employees create? For copyright, generally yes under Section 17 where the work is made in the course of employment. For patents and for contractor-created work, ownership depends substantially on the contract.
Can I use an employment agreement template from another country? It is risky — provisions on IP ownership and especially non-compete clauses often do not work under Indian law.
Are post-employment non-compete clauses enforceable in India? Generally not — Section 27 of the Contract Act renders agreements in restraint of trade void, though confidentiality and IP assignment obligations remain enforceable.
What should an IP clause cover? What the IP is, who owns it, the rights of each party, and how the IP and confidential information may be used after employment ends.
Legislation referred to
- The Copyright Act, 1957
- The Indian Contract Act, 1872