Ownership Of Intellectual Property (IP) – Employees & Directors

The majority of businesses use Intellectual Property (IP) on a daily basis; in many instances, the business’ employees or directors will create the IP that is used.

Consider, for example, a software developer writing code. That code would likely be protected by copyright. Product designs often attract design right protection and employees can also contribute to an invention that is patentable. Even this blog is an example of an employee-created work and attracts IP in the form of copyright. But who owns the IP – the employee/director, or the business?

General position

The starting point for the majority of IP rights is that the creator of a work protected by IP (or capable of being protected by IP, in the case of registered rights) is the owner of that IP.

Clearly, this could have far-reaching implications for employers – if their employee leaves, can they take the intellectual property rights with them and/or seek to prevent the employer from using those rights in future?

For a number of IP rights, provided that the work (whether that be code, product design, invention or otherwise) was created by the employee in the course of their employment/execution of their duties, the employer will own the IP in question (or be entitled to be registered as the proprietor of that work). This is, however, subject to there being an agreement to the contrary.

Employment duties

So what would be considered to be work created in the course of employment/executed in the course of the employee’s duties? While an employee’s duties might seem obvious, it is not unusual for disputes to arise over this very issue, particularly as the value of IP can be significant.

Whilst each case will depend on its own facts, the following circumstances can be indicative of employer ownership:

• The work was created on company premises or in the employee’s usual place of business;
• The work was created during the employee’s usual contracted hours;
• The employee has a special obligation to further their employer’s interests – this is likely to apply to more senior employees;
• The employee’s job specification requires that they create work of this nature;
• Creation of the work was specifically tasked to the employee by the business;
• The work is relevant to the business e.g. a software business is unlikely to own the IP in still-life drawings created by an employee;
• The work was a collaborative effort between multiple employees; and
• Company-owned resources were used to create the work.

There are a number of practical steps that an employer can take, so as to try and minimise the likelihood of a dispute.

Practical steps that employers can take in relation to the creation and ownership of IP

Primarily, make sure that there is an express clause in the employee’s contract that addresses the creation and ownership of IP. Whilst the nature and extent of the contractual provisions necessary will differ depending on the employee’s role and seniority, it is strongly advisable to include a clause that confirms that you, the employer, will own any IP or rights to register IP created by the employee as a minimum.

It is also sensible to include an obligation on the employee to promptly disclose to their line manager (or someone within the company capable of assessing the IP and its value) any IP arising from the work that they are employed to undertake.

Additionally, an obligation that the employee should supply/assist with any related documentation or information should be included in the contracts to enable you to vest ownership of any such IP in the company (if that does not automatically transfer to or vest in the company).

The employment contract should clearly define the types of IP that you are seeking to protect. Particular care should be taken to ensure that the definition(s) capture all and any work that the employee is likely to produce in the course of their normal duties, as well as in the course of any additional duties that may be assigned to them from time to time or that are incidental to their normal duties.

Finally, regularly review your employee’s duties – do these match up with their job specification? If not, consider refreshing this, making any changes to their employment contract as may be necessary and consulting with the employee to that effect where required.

It is important to note that while the employer may be the owner of employee-created IP, the employee may still have some rights regarding that work. Authors of works protected by copyright can sometimes retain the right to be named as the author of their work, even if they are not the owner of it – these are known as moral rights. Further, it is possible (although in practice, quite difficult) for an employee inventor to claim compensation if a patent for that invention is granted and the invention or patent is of outstanding benefit to their employer.

Non-employee directors

If a company director is also an employee, the considerations set out above will apply. However, the situation is different if the director is not an employee.

In an ideal world, the directors’ service contract will deal with ownership of IP but, in any event, all directors owe fiduciary duties to their companies.

Those duties include the duty to promote the success of a company and the duty to avoid conflicts of interest. Consequently, if a director sought to claim ownership in or exploit IP that could have benefitted the company, they might find themselves in breach of those duties.

Further, it is quite possible that, even if the company did not own the IP outright, the director could be considered to hold the IP on trust for the company.