Most organizations are aware of the value of intellectual property. The rationale behind intellectual property is rewarding the inventor with exclusive rights over their invention or literary work including monetization. Consequently, ownership and control of intellectual property rights are vital to the success of any business. To this extent, organizations rely on employees and independent consultants to expand and maximize the value of intellectual property asset base. As a result, conflicts frequently arise between employers and employees over the ownership of intellectual property
Who owns the intellectual property created by Employees, Independent Contractors or Consultants?
a) Employees, Independent Contractors or Consultants
Employers often rely on the principle that “I paid for it, therefore I own it,” in claiming intellectual property rights whereas employees rely on the fact that they are the inventors. Notably, the general principle is that intellectual property created by an employee, in the course of employment, is owned by the employer. Employers usually assume that by investing in employees, they are automatically the owners of the intellectual property developed by the employees in the course of their employment.
However, there are two main approaches to ownership of intellectual property rights (IPRs) i.e. Common Law (modelled from the English legal system) and Civil Law (modelled from the French and German legal systems). At Common Law, the investor (in this case, the employer) owns and has a right to benefit from their employees’ inventions.
At Civil Law, the investor/employer’s benefits are limited to their contractual agreement with their employees.
Despite the general principle, transfer of these rights is not automatic and the moral rights remain with the employee/inventor. Therefore, employers must take necessary steps to protect intellectual property created during an employee’s employment:
The steps include:
1. Execute a written agreement with the employee which assigns to the Company and all intellectual property created during an employee’s employment with the Company.
2. Ensure the agreement is executed prior to the commencement of the employment to support the validity of the agreement.
3. Employers are advised to include an addendum to the agreement to allow the employee to identify all intellectual property in which he has an ownership interest before & after commencement of his employment. This will mitigate any possible arguments in future in respect to ownership of intellectual property.
4. Ensure the agreement is in compliant with all relevant laws and actions to be taken for an employee who is in breach of the company’s ownership of intellectual property.
5. Employers should also ensure independent contractors’ and consultants’ agreements clearly state that the intellectual property will be exclusively owned by the Company.
6. Employers should confine access to information only to those employees who need to know the information to carry out their work.
7. Employers to keep their intellectual property and confidential information in a secure manner.
8. Employers to conduct exit interviews with employees and independent contractors to remind them of their contractual obligations as set out in the agreement.
While deciding the categories of employees likely to create intellectual property in the course of employment, employers should consider including the following clauses in employment contracts:
1. The nature of the business.
2. The particulars of employee.
3. The type of information the employees can access.
4. Non-compete and non-solicitation clause.
A volunteer includes an independent contractor or consultant. The general rule is that for volunteers, the assumption that an employer owns the intellectual property created by an employee in the course of employment does not apply. The position of a volunteer is similar to that of an independent contractor or consultant. A common example of a volunteer or independent contractor is a web designer.
An organization may hire a web designer to develop its website. The website belongs to the organization, however, without a written agreement to the contrary, the web designer retains the intellectual property rights on the website. The consequences of not owning the IPRs in this case are that the organization may only use the website for the intended purposes, the organization cannot change the website without the consent of the web designer and the volunteer may use the design or other aspects of the website for other business. Consequently, an IPR clause in a service agreement involving independent contractors or consultants is very important.
Employers should note that despite having an upper hand regarding intellectual property in the workplace, there are limits. The Common Law approach, which is the most common approach, favors the employer, while the Civil Law approach relies on statute and the contractual agreement. However, in practice, the ultimate determinant is the terms set out in employee intellectual property agreements. Therefore, the absence of executed agreements does not automatically assign rights to the employer and ownership is retained by the employee who created it. The importance of an Intellectual Property Clause in an Employment Contract or a Contract for Services cannot be underscored.