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Biotech News Protecting IP developed by employees In brief: Lawyer Kirraley Bowles assesses the rights to intellectual property (IP)developed between employer and employee and how contractual arrangements and policies provide the required IP protection. |
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Background
In March 2004 we considered the Supreme Court of Victoria's decision in Victoria University of Technology v Wilson & Ors [2004] VSC 33 (VUT). In this case Victoria University (the University) asserted ownership of a patented e-commerce system developed by two of its senior academics.
The University claimed that it was the rightful owner of the invention on the following grounds.
- The technology was developed in the course of the senior academics' employment and the invention thus belonged to the University.
- The University's IP policy provided for ownership of inventions (and resulting patents) made by staff to vest in the University.
- The academics breached a fiduciary duty they each owed to the University by diverting a commercial opportunity away from the University and exploiting it for their own benefit.
The Court rejected the first two claims, but accepted the argument that the employees had breached their fiduciary duties. Nettle J found that the opportunity to develop the e-commerce system had been presented to the defendants in their role as senior academics in the School of Applied Economics (the School), and that they had misappropriated the University's opportunity for personal gain.
Although the Court ruled that the academics held the patent on trust for the University (and they were ordered to account to the University for their shares in the company which owned the invention), the University was not held to own the IP in the defendants' invention. The decision in VUT highlights some of the difficulties that employers face in claiming ownership of inventions and materials made or created by employees, and indicates the importance of having clear policies and agreements in place to preserve employer rights in such inventions.
IP is a significant business asset, and it is therefore essential for employers to clarify the nature of their commercial IP and take steps to protect it. The following summary considers some of the ways in which employers may assert ownership of IP that is generated by their employees.
Legal principles
In many instances rights to IP created by employees will automatically vest in the employer. For example:
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The Copyright Act 1968 (Cth) specifies that when a work is made by an author in pursuance of the terms of his/her employment under a contract of service or apprenticeship, the employer is the owner of any copyright subsisting in the work.
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The Designs Act 2003 (Cth) prescribes that if a design is created by a designer in the course of employment, or under commission, the designer's employer or commissioner is entitled to be the registered owner of that design.
In contrast, the Patents Act 1990 (Cth) does not address the circumstances in which an employer is entitled to the grant of a patent for an invention made by an employee. If an employer seeks rights over any patented invention developed by an employee, the employer must rely upon common law and equitable principles in order to obtain an assignment of the patent or the invention.
Regardless of whether an employer's rights over the IP developed by an employee are to be determined by legislative provisions or common law principles, the fundamental issue is whether the IP was created in the course of the employee's employment. This question requires an analysis of all the terms upon which the employee is employed.
Employment contract
In VUT, Nettle J held that the University had no IP rights in the academics' invention because the University could not show that the invention was made within the scope of the duties the academics were paid to perform. It was found that the academics were engaged by the School to conduct general academic research, and the Court further noted that no person had ever been engaged by the School with respect to formulating a computer-based e-commerce system. Further, the academics' employment contracts did not contain any express terms in relation to ownership of IP.
The University may have had a stronger claim in VUT if its employment contracts with the academics had set out comprehensive job descriptions, specifying the range and nature of the tasks that the defendants were expected to perform. As a general rule, it is essential that employers ensure that their employment contracts clearly prescribe the nature and extent of each employee's duties. Employers should also specifically reserve rights over any IP generated as a result of employees fulfilling those duties.
In addition, employees will retain moral rights to any literary, dramatic, musical or artistic works they create as part of their employment. This means that they maintain the right to be identified as the author of their work and can object to it being distorted. Unlike copyright, moral rights cannot be assigned. However, an employer can – and should – obtain agreement with respect to the moral rights in an employee's work, by explicitly addressing moral rights in employment contracts. To maximise protection, employers should obtain broad consents from employees to cover 'all or any' acts in the past or future, without specifying the actual works the subject of the consent.
Contractors
When hiring independent contractors, it is again essential for the person or company so hiring to have an appropriate written agreement in place with the contractor which explicitly deals with any IP developed by that contractor. Such an agreement should fully set out the contractor's responsibilities and incorporate the assignment of IP rights in any creation to the employer.
Policies and procedures
In VUT, Nettle J found that the University did not have a formal IP policy in place at the time the academics were developing their invention. It was held that the IP policy upon which the University sought to rely had never been approved nor made available to staff members. As the University's IP policy had not been properly implemented, it was not a 'University policy' at the relevant time, and hence did not apply to the academics.
It is essential for employers to maintain a clear commercial policy specifying the employer's rights in relation to any IP generated by employees. It is equally important that such a policy is brought to the attention of all employees (eg, by publication in human resources manuals, employee handbooks and on staff intranets).
Ideally, employers should also incorporate the salient terms of any IP policy into each employee's contract of employment.
Conclusion
The law recognises that employers have a right to the IP generated by their employees if such IP is created by employees in the fulfilment of their duties. However, cases such as VUT make it clear that the onus is on employers to protect their rights in respect of any IP which is developed in this way. The issues in VUT may well have been avoided if the University had implemented some of the following practical tips.
- All employment contracts should define the nature of the employee's role and specify the employer's rights in relation to ownership of IP generated by the employee.
- All agreements with independent contractors should similarly define the nature of the contractor's role and provide that any IP which is generated shall be assigned to the person/organisation hiring the contractor.
- Employers should have a comprehensive IP policy clarifying the ownership of various forms of IP.
- Such an IP policy should be readily accessible by all staff members, and measures should be taken to ensure that staff members understand that policy.
- Employers should constantly advise employees and contractors/consultants that the information they create or acquire is confidential and proprietary and must be treated as such.
IP is an important asset and it is imperative for any business to be able to prove clear ownership of its IP. Title to IP becomes a particularly significant issue if customers, potential lenders or bidders wish to examine it in order to determine whether the business is a good potential partner or investment. Employers therefore need to be careful to protect their rights in respect of all IP assets, and in particular the IP that is likely to be generated by employees.
For further information please contact Chris Bird +61 3 9613 8259
