Intellectual property (IP) is relevant to all types of businesses, from large scale R&D companies to a family owned furniture manufacturers. In carrying on commercial activities, many businesses rely on their employees and consultants with whom they contract.
Whether those commercial activities include researching and developing new products or manufacturing processes, or creative endeavours, IP will be generated. The IP that is created could be the business’ competitive advantage and failing to protect it could have serious adverse consequences.
Two key issues therefore arise in relation to the IP that is created: (1) who owns it? and (2) how should it be protected?
This article explores the ownership of key IP rights, as well as confidential information, and practical steps to protect these rights.
Before addressing the two key issues, it is worth reminding ourselves of relevant IP rights:
|IP Right||What does it protect?||Examples|
|Confidential information||Commercially sensitive, confidential information. In order to be protected the information must have the necessary quality of confidence and be disclosed in circumstances that impose an obligation of confidence. There is no system of registration in the UK.||
* Trade secrets;
* business methods;
* customer lists and information; and
* financial information.
|Copyright||Copyright arises automatically on the creation of an original work. Copyright protects original artistic, musical, dramatic and literary works, including computer programs, sound recordings, films, broadcasts and typographical arrangements of published works.There is no system of registration in the UK.||
* Product manuals;
* graphic designs;
* product photography; and software.
|Design rights||Design rights protect the way a novel/original product looks. There is an automatic form of protection which arises when an original design is recorded in a design document or an article is made to the design. The unregistered system sits alongside a system of registration which provides stronger protection.||* Novel product designs.|
|Patents||Patents protect inventions; that is, innovative products or processes. A patent is a published document disclosing an invention and provides the owner a complete monopoly to exploit the invention. Broadly speaking, whereas design rights (above) protect the appearance of a product, a patent would protect how it works. To obtain patent protection, the product or process must be new, inventive, capable of industrial application and not be excluded from protection.||* Innovative products or processes.|
|Trade marks||Words and symbols used by traders to distinguish their products and/or services. To be protected, the mark must be distinctive and be capable of distinguishing the relevant goods and services.||Words, logos, names, slogans and colours that distinguish the origin of goods and/or services.|
IP rights – who owns them?
Broadly speaking, in the context of the employer-employee relationship, the law favours the employer. The general rule is that an employer will be owner of IP which is created by an employee during the course of their employment. This general rule is contained within the various statutes that govern IP rights. Further, for any inventions which are patented, an employee may be entitled to statutory compensation if the invention delivers an ‘outstanding’ (i.e. more than substantial, significant or good) benefit to the employer.
For each IP right, the work must have been created during the course of the employee’s employment for it to be owned by the employer. The creator must be a person employed under a contract of employment and the work must have been created in the course of employment. In other words, was the employee employed to do the kind of work in question? If so, the employer would own the IP.
Whether the employee created the work during the course of their employment is assessed by various factors, including:
- the employee’s job description;
- whether the work done is of the kind of work that the employee was employed to do;
- the time the work was created and the source of the materials used – was this during or outside working hours and using materials owned by the employer. Notably, the time of creation is not a conclusive factor. The fact work is done outside normal working hours may not mean it is not done in the course of employment – there is no clear demarcation of hours of work for many employees today; and
- whether there is any agreement between the employer and employee. For each IP right other than patents, it is possible for an employee to enter into an agreement that transfers ownership of past, present and future IP to the employer. This is typically found in an employment contract.
Notably, the position differs for consultants. A consultant is independent so, unless there is an agreement to the contrary, the consultant will be the first owner of the IP and not the company who engaged them. The only exception to this is for UK design rights for designs created before 1 October 2014 because the commissioner of the design is the first owner – this does not apply for any designs created on or after 1 October 2014.
There may be legal arguments as to whether the company engaging the consultant has the benefit of an implied transfer of the IP or a licence but this is by no means a certainty. Accordingly, a written agreement addressing IP is particularly important in the context of a consultancy relationship.
Strictly speaking, confidential information is not IP because there is no clear property to own. For example, Coca Cola’s recipe and manufacturing process is recorded in a document and the Coca-Cola Company would most likely have owned copyright in that literary work. However, an employee/consultant could misuse that information without copying or taking the document. Ensuring confidential information remains secret is therefore the most important issue.
An obligation of confidence will be implied during the course of employment between an employer and employee because of the nature of the relationship. However, to ensure that there is no doubt and to put the employee on notice of their responsibilities, it is advisable for the contract of employment to include express obligations of confidence. As between a company and a consultant, there is unlikely to be an implied obligation so the terms of the consultancy agreement are particularly important.
Tips for protecting IP
- Contracts: Ensure that your contractual documents best protect your business. Agreements with employees and consultants should, amongst other things, address IP ownership and obligations of confidence. The agreements should also include waivers of certain rights that an individual would still retain even if the IP is owned by the company and could include other restrictions, such as a reasonable non-compete provision to protect the business.
- IP Management: Identifying and protecting your IP requires effective management and this may include making this part of one or more employees’ roles. Practical steps to manage IP include:
- Identifying what IP you own – without this, you do not know what (if anything) needs to be protected;
- Recording the new IP that you create – who created it and when, and taking steps to protect it, including obtaining appropriate registrations; and
- Treating your IP with care:
- Disclosure of inventions and design outside of the business, except under confidentiality agreements, can be fatal to obtaining protection; and
- Mark sensitive information as “confidential” and limiting access to those who need it to perform their roles.
- Education: Education is a powerful weapon and raising awareness of IP within your business can help prevent issues arising. For example, implementing an IP policy to train your employees and consultants to embed their responsibilities - Employees and consultants should be reminded of these obligations at the end of their relationship with your business. Education should also mitigate the risk of your business infringing IP owned by third parties.
This article was first published in the November / December edition of Engineering Designer