That’s Mine! Employee Side Projects, Intellectual Property Ownership, and Innovation

Department of Decision Sciences and Managerial Economics

Working on side projects outside of a salaried job has become a growing trend for knowledge workers such as information technology (IT) professionals. While employees might believe that everything they invent outside their employment belongs to themselves, that is not necessarily the case. For example, in a well-known legal case of Alcatel v. Brown, a Texas court ruled that an employer (Alcatel) owns the intellectual property (IP) of all forms of employee innovation, even including an abstract idea that its employee (Brown) had for his software side projects. Despite concerns about the expanding contractual controls of IP by employers, relatively little is known about how the IP ownership of employees’ side projects influences innovation. In this study, we leverage Alcatel v. Brown as an exogenous shock and apply a difference-in-differences method to examine how its adjudication affects innovation. We find that following Alcatel v. Brown, the number of patent filings decreased in counties where employee ownership of side projects is not legally protected. This dampening effect on innovation is more pronounced in IT industries than in non-IT industries. Our work contributes to the information systems literature on digital innovation as well as to the broader innovation management literature. Our findings also provide implications for policymakers in designing IP policies and for firms in stimulating employee-driven innovation.