Protect Your Assets: 3 Best Practices for Intellectual Property (IP) Owners
October 31, 2017
Intellectual Property (IP) can be a valuable asset – even the most valuable asset – of a business. So it’s worth making sure the business both understands Intellectual Property rights – and owns its IP. Here’s a rundown of who owns what IP and three best practices to help businesses maximize the likelihood they own it.
WHO OWNS WHAT
The initial owner of IP can be uncertain, especially as between an employer and its employee, but it’s important to figure that out. In the absence of a contract, here’s who owns each of the five main types of IP.
Trade-mark. Ownership of a common-law trade-mark is based on the mark’s use; normally, the employer/business owner is the one that’s using the mark, and can thus establish ownership. But this will depend on the evidence of use. “Ownership” of a registered trade-mark is the registrant.
Copyright. The starting premise is that the creator of a work is the first owner of the copyright in that work. However, the Copyright Act has an important exception for works made in the course of employment (there’s a different exception for an article or other contribution to a newspaper, magazine or periodical): the employer is the first owner of the copyright in a work if all of these three criteria are met:
- The creator was in that employer’s employ under an employment contract, as opposed to being an independent contractor, like a consultant.
- The creator made the work during the course of their employment; relevant considerations include the creator’s use of the employer’s tools or confidential information, or creation of the invention under the employer’s instruction.
- There’s no “agreement to the contrary”, that is, an agreement, whether written or not, that the employee retains ownership of the copyright to their creations.
Trade Secret. Who owns a trade secret depends on the circumstances in which the trade secret arose. For greater certainty, a business can protect itself by using a well-drafted employment contract and contractor agreements under which any trade secrets, inventions, ideas, and so on an employee and/or independent contractor creates or contribute to in the course of their relationship with the business will be the business’s property.
Industrial Design. The “proprietor” of an industrial design is its owner. The Industrial Design Act states that the author of an industrial design is its first proprietor unless she executed it for another person for a “good and valuable consideration” (something of value in exchange), in which case that other person is the first proprietor and thus the owner. The few court decisions respecting “proprietorship” in the employment context suggest that when an employee authors an industrial design developed in the course of their employment, that employee’s salary constitutes the “good and valuable consideration” giving first proprietorship to their employer.
Patent. The Patent Act doesn’t expressly state who owns an invention. The legal presumption that’s developed is that an employee owns a patentable invention that they invented while employed – unless the employer hired them for the purpose of inventing it. Judges consider several factors to decide whether an employee was “hired to invent” the invention, but courts don’t always apply them at all or consistently, and the law is constantly evolving.
BEST PRACTICES FOR IP OWNERS
Here are three best practices for businesses to minimize the uncertainties around who owns what IP – and to maximize the likelihood they will own it at the end of the day.
Written Contract. A written agreement is always good business practice. In the case of employees, there are many benefits to a well-drafted and implemented written employment contract. A key one is the ability to establish and protect the employer’s IP ownership rights. Employment terms must be set at the time of hiring/start of employment; an employer can’t later unilaterally impose new terms that fundamentally change the employment relationship unless it gives the employee prior notice or new “consideration” (and merely continuing employment doesn’t count). If there’s an employment contract but it doesn’t address IP rights, the employer can try to enter a separate agreement with the employee to deal with IP rights if it gives the employee new consideration (for example, a bonus, raise or promotion) – and the employee agrees. In the case of independent contractors, a written agreement setting out the terms of the relationship – including the IP rights as between the business and the contractor – is equally important. Key clauses to include in a contract with an employee or with a contractor to protect the business’s IP rights are:
- A statement that the business owns any and all IP the employee or contractor develops and that the employee or contractor both assigns all IP rights to the business, and waives their moral rights.
- A definition of “confidential information” and the employee’s or contractor’s acknowledgement and agreement to keep it confidential both during and after termination of the relationship. In the case of employees, all employees owe their employer a duty of good faith, fidelity and loyalty that includes maintaining confidentiality. After the employment relationship ends, employees are free to use the general skills and know-how they developed during the employment relationship – but not information that’s established to be a “trade secret”.
- A non-solicitation &/or non-competition clause limiting the employee’s or the contractor’s ability to compete and/or to solicit the business’s customers and employees post-termination. Public policy discourages such restraint of trade, so courts closely scrutinize these clauses and refuse to enforce them unless the business can prove they protect a legitimate proprietary interest, and are reasonable in duration, geographic scope and the nature of the prohibited activities. So the business needs to ensure such clauses are clear and limited to what’s really necessary to protect their interests.
- The employee’s or the contractor’s liability for monetary compensation for breach of their confidentiality obligations, and their acknowledgements that money is insufficient to compensate for any such breach and the parties’ agreement to a court order to stop doing something (injunction) and/or to do something (specific performance).
Information security practices. In addition to contractual agreements, businesses should take steps to maintain confidentiality of any information, including limiting access to it (for example, tell only those who need to know), effecting physical safeguards of it (for example, keep it under lock and key and segregate confidential process components), and marking it as “confidential”.
Registration. Though registration is optional for some IP rights, where it is available, registration can be determinative of ownership of the IP right, strongly evidence its existence and/or give the registrant enforcement advantages. Registering IP might also improve the chances of attracting investors and/or selling the business. While registration might not always be the best option for other reasons, where it is an option, at least weigh the pros and cons in each case.
Please contact your McInnes Cooper lawyer or any member of the Intellectual Property Team @ McInnes Cooper to discuss this topic or any other legal issue.
McInnes Cooper has prepared this document for information only; it is not intended to be legal advice. You should consult McInnes Cooper about your unique circumstances before acting on this information. McInnes Cooper excludes all liability for anything contained in this document and any use you make of it.
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