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Ingersoll-Rand Co. v. Ciavatta

Supreme Court of New Jersey
110 N.J. 609, 542 A.2d 879 (1988)
ELI5:

Rule of Law:

A post-employment "holdover" agreement, which requires a former employee to assign inventions conceived after termination, is enforceable only if it is reasonable. Its reasonableness is determined by a three-part test that balances the employer's legitimate interests, the hardship on the employee, and the public interest.


Facts:

  • Ingersoll-Rand Company developed and sold a successful 'split-set' friction stabilizer for mine roofs, the technology for which was publicly known and not a trade secret.
  • Armand Ciavatta, an engineer, began working for an Ingersoll-Rand division in 1972.
  • In 1974, upon transferring to Ingersoll-Rand Research, Ciavatta signed a 'Proprietary Agreement' containing a 'holdover clause'.
  • The clause required Ciavatta to assign to Ingersoll-Rand any invention conceived within one year of his termination if it was 'conceived as a result of and is attributable to work done during such employment' and related to the company's business.
  • During his employment, Ciavatta gained general knowledge of the mining industry but was not hired to invent or design new stabilizers.
  • In June 1979, Ingersoll-Rand terminated Ciavatta’s employment.
  • Approximately two months after his termination, while unemployed, Ciavatta conceived of a new type of friction stabilizer that was different from Ingersoll-Rand's product.
  • Ciavatta developed the invention using his own time and funds, obtained patents for it, and started a company to sell the competing product.

Procedural Posture:

  • Ingersoll-Rand (plaintiff) initiated a suit against Ciavatta (defendant) in the New Jersey Chancery Division (trial court) to enforce the holdover agreement.
  • The trial court found that Ciavatta had not used any of Ingersoll-Rand's trade secrets but nonetheless entered judgment in favor of Ingersoll-Rand, enforcing the agreement.
  • Ciavatta (appellant) appealed the trial court's decision to the Appellate Division of the Superior Court of New Jersey.
  • The Appellate Division reversed the trial court's judgment, holding that the agreement was unenforceable.
  • Ingersoll-Rand (petitioner) petitioned for certification to the Supreme Court of New Jersey, which was granted.

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Issue:

Is an employee invention 'holdover' agreement, which requires the assignment of a post-termination invention, enforceable when the invention was not developed using the employer's trade secrets or confidential information?


Opinions:

Majority - Garibaldi, J.

No. An employee invention holdover agreement is not enforceable where it is unreasonable under the specific circumstances. The court extended the three-part reasonableness test from non-competition covenants (Solari/Whitmyer test) to holdover agreements. This test balances whether the clause (1) protects a legitimate interest of the employer, (2) imposes an undue hardship on the employee, and (3) is not injurious to the public interest. The court found Ingersoll-Rand had no legitimate protectable interest because its stabilizer technology was public knowledge and not a trade secret, and Ciavatta was not hired to invent. Enforcing the clause would impose an undue hardship on Ciavatta by preventing him from using his general skills and knowledge. Finally, the public interest in fostering competition and innovation would be harmed by enforcing the agreement. Therefore, the holdover clause was unreasonable and unenforceable as applied to Ciavatta's invention.



Analysis:

This case establishes the controlling legal standard in New Jersey for evaluating invention assignment 'holdover' clauses, importing the well-established 'reasonableness' test from non-compete covenant jurisprudence. While the court acknowledged that an employer's protectable interests could theoretically extend beyond traditional trade secrets to 'highly specialized, current information,' it set a high bar for this protection. The decision strongly supports employee mobility and the right of former employees to use their general skills and knowledge, limiting an employer's ability to contractually control an employee's future inventiveness after they have left the company.

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