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Whose Intellectual Property Right Is It Anyway?

A question and answer session between David Anderson, commercial litigation solicitor with Sykes Anderson Perry Ltd and a fictional company that wants to protect its intellectual property rights explores who owns intellectual property rights created in the employment context.

Please note that this area of law is a complex subject and you should not take or refrain from taking any step without full independent legal advice on the particular facts of your case. The content of this article is of a general nature and no liability is accepted in connection with it or if any reliance is placed on it.

Q. Our business involves providing solutions, coming up with ideas, and occasionally a patentable invention. I know that most of this work has some kind of IP right attached to it, be it copyright, design rights, patents etc. Who owns the IP rights in the work we create?

A. The general rule is that the creator of a work is the first owner of any IP right in it. If the work is created during the course of employment though, the IP is owned by the employer. Any contractual provision to the contrary will usually be given effect.

Q. Every rule has its exceptions – what about here?

A. Quite right. There are several but there are a few key ones affecting employees. Not all inventions created during the course of employment are owned by the employer and some IP in commissioned work is owned by the commissioner. In certain circumstances an employer or commissioner can claim equitable (rather than legal) ownership of IP and of course not all contractual provisions will be enforceable.

Q. Why address IP rights in the employment contract if they might not be enforceable?

A. Where it is known in advance that IP is to be created, it will always be preferable for the parties to agree who will own the IP and to make that agreement part of their contract. It is well established that a contract can deal with ownership of IP that does not yet exist.

Q. So how do I know if a contractual provision is enforceable?

A. I’ve got three words for you – restraint of trade. Contractual terms that are in restraint of trade are not enforceable at all. For your employees’ contracts that means not drafting any IP clause too wide to ensure that your back is covered. Too wide and the clause will have no effect.

Q. Can you give an example?

A. Let’s assume someone is employed as a storeman by a vacuum cleaner manufacturer. His employment contract contains a clause that says something like,

“If at any time during the period of your employment, you should discover, ascertain or invent any process, invention or improvement relating to articles manufactured and or marketed by the Company or associated Company, you must disclose the same to the Company who will be entitled to any patents or other rights in respect of it”.

What if this storeman invented a device in his spare time so that any open mouthed bag could be used in a vacuum cleaner for the collection of dust?

A. Well, under the above clause the patent in the device is owned by the employer. It would be appropriate for a vacuum cleaner manufacturer to insert a clause like this into its employees’ contracts – indeed if such a clause didn’t exist it is likely that a court would imply an appropriate provision to safeguard the employers legitimate business interests. Case closed it seems?

Not at all. A storeman is not employed to undertake research and development or invent. One would expect a person employed to do that to be remunerated rather better than a storeman. Reference to associated companies also makes the clause too wide – it would catch inventions relating to products which had nothing to do with vacuum cleaners. The IP right above is likely to belong to the employee.

Q. How do I protect my legitimate business interests then?

A. Well, there are useful tips to follow. Always remember that any clause is potentially a restraint of trade and must refer to some genuine interest of the company to be justifiable. Regard should be had to the field in relation to which you can claim a legitimate interest. If your company has many and diverse interests, that should be limited to the interests of the part of the company employing that particular employee. Always think of the duties of employees and whether it is reasonable that any creative or inventive work carried out could properly be regarded as part of his duty to the employer.

Q. Earlier, you mentioned equitable rather than legal ownership. What did you mean?

A. Although IP rights belong to the creator in law, in certain circumstances the right can be said to be held by the creator on trust for a third party – the equitable owner. That third party is entitled to require the legal owner of the IP to assign it to them.

Q. We sometimes commission third parties to create work for us which we then exploit. Does that mean we can require them to assign the IP rights to us?

A. The issue of IP rights in commissioned work is by no means straightforward and each case will turn on its own facts. If the question of ownership is dealt with in the contract for the commission then – assuming it is enforceable – no problem arises. If not the IP usually belongs to the creator, that is the commissioned party.

Q. Surely we must have some rights, even if it is only to possession, otherwise what are we paying for?

A. Depends what you’re commissioning. If you commission a company to design a brochure, it must be implied that you can reproduce that brochure and issue copies to potential clients as that was the very purpose for which it was commissioned.

Q. Will there be situations when we need to own the IP outright?

A. I expect so. Two examples: Firstly if you were to commission a brochure for the purpose of reproducing and selling copies and you didn't want the commissioned or any other third party to have the right to also do so; or secondly if a commissioned party is working on a joint project with your employees and you do not want him to be able to exploit either the joint work or, more importantly, any distinct contribution he may have made.

Q. What if there is nothing in writing? You said a moment ago a term could be implied?

A. There are set legal principles as to whether a term can be implied into any contract. In the context of IP, circumstances where those rights need to be assigned to you are only likely to arise if you need the right to exclude the commissioned party from exploiting the work as well as the right for you to simply use the work.

Q. Perhaps we should not mention IP rights and act as if we own them?

A. Risky business. In deciding what term needs to be implied, the choice is that which doesn’t exceed what is necessary in the circumstances. If, for example, the necessity to imply a grant of some right could be satisfied both by (1) a licence of the IP right and (2) an assignment of that right, you’ll only be able to imply a licence. A court won’t assign a right unless they absolutely must.

You must consider the price paid for the commissioned work, the impact on the commissioned party of an assignment of the IP right to you and whether it can reasonably have been intended that the commissioned party should retain any IP rights. And remember, you could always find yourself in court defending a claim of IP right infringement.

Your most sensible course of action, whether dealing with employees under a contract of service or a contractor under a contract for services is to address IP in writing prior to commencement of the working relationship.

Q. So putting something in writing would solve any problem?

A. Only if is drafted very carefully. A case regarding a multi-party research agreement recently found its way to the Court of Appeal. A party was described both as a ‘sponsor’ in one clause and as ‘agent’ in another. Whether or not the party owned the IP right in issue depended in the end on judicial interpretation of two clauses in the agreement, one in which as sponsor it would own the right and one in which as agent it wouldn’t!
You should always enter into clear contractual terms, preferably before work commences but always as soon as you think IP will be an issue, setting out clearly who will own any IP rights.

If you would like to find out more about protecting your IP rights, please contact David Anderson in our commercial litigation department.