IP Rights: When Does Your Business Own What Employees Create?

All businesses create value.  They may do it in different ways, but the creation of value is what underpins commerce.  For some businesses, a service is the source of value on which they rely.  Others create products.  Generally, the value created by services or physical products goes first to the business.  From there, it is distributed among employees as wages.  It’s well accepted that even though an employee creates a product, the employee does not own that product.  But what if an employee creates value that is neither a product, nor a service?  If an employee creates intellectual property (IP), the question of ownership can become more complicated.  So, let’s take a look at intellectual property rights, and how they interact with the employee/employer relationship.

An IP rights checklist: Whose intellectual property is it?

There are many varieties of intellectual property.  Exactly how IP rights interact in a workplace does depend to an extent on the type of intellectual property in question.  Some types of intellectual property cannot be transferred, or assigned.  Others can be.  Often, employers attempt to claim IP rights to intellectual property created by employees in the course of their employment.  But those claims may not be successful, unless the appropriate steps are taken.  And to take the right steps, you need to know what sort of intellectual property you’re dealing with.  So, here’s an overview.

Moral rights: an IP right that cannot be transferred or assigned

Moral rights are a form of intellectual property that cannot be transferred or assigned.  Moral rights are personal rights that cannot be held by a corporate employer.  However, that does not mean you cannot derive any benefit from certain intellectual property to which your employees hold moral rights.  Moral rights only extend to copyright works and films; they do not apply to patents, designs, or trademarks.  Within the sphere of moral rights, there are three varieties: the right to attribution of authorship; the right against false attribution; and the right to integrity of authorship.

Essentially, those rights preserve the author’s position in relation to the relevant work.  However, there are certain clauses within an employment contract that may permit employers to deal commercially with the relevant property, free from most restraints.  Such clauses are a type of consent clause that applies to intellectual property over which moral rights are held.

Patents: IP rights over any device, substance, method, or process

Patents only apply to intellectual property in the form of new devices, substances, methods, or processes that are not exceedingly obvious.  The question of who possesses the right to patents is one often asked by companies and businesses involved in research and development.  Over the course of such commercial endeavours, employees routinely create intellectual property.  But if individual employees are to claim that property, there is no way for the business to capitalise on it.  The Patents Act, which governs patents at a statutory level does not specify who may claim rights to this sort of intellectual property.  That means it has been left to common law and equity to decide.

The most common way for employers to gain rights over intellectual property of this variety is through contract.  Express and implied terms of an employment contract can assign IP rights to employers, when an employee creates intellectual property in the course of his or her employment.  That then means employers can apply for patent protection under section 15(1)(b) of the Patents Act.

Designs: IP rights that include shape, configurations, ornamentation, and pattern

Designs are the primary trade of many employers, from engineers and architects, to fashion and graphic designers.  Designs are also a form of intellectual property.  For that reason, many issues arise in respect of IP rights to designs, and who holds them in employment settings.  Ownership and registration of designs is something that the Commonwealth has dealt with under the Designs Act.  In particular, section 13(1)(b) entitles employers to apply for registration of designs made in the course of employment by an employee.  Once registered under the employer’s name, the employer will possess IP rights over the relevant design.  However, if an employment contract includes a provision that assigns IP rights in a design to the employee, the employer may not be able to apply for registration.

Trademarks: one of the best-known IP rights that exist over brands themselves

Trademarks are one of the best-known IP rights.  We see them advertised by some of the largest brands, usually accompanied by a trademark symbol: ™.  But what exactly does a trademark right entail?  To put some perspective on it, here are some things that can qualify as a trademark: words, logos, shapes, and colours, or any combination of those factors.  Essentially, a trademark is the sign that distinguishes your business’s goods or services from those of another.

At statute, the Trademarks Act manages many aspects of trademark administration in Australia.  However, it does not specifically confer IP rights in an unregistered trademark.  Fortunately, common law offers some guidelines.  Under common law, establishing ownership in a trademark requires an element of intention.  Specifically, to possess IP rights over a trademark, its creator must have intended to use it for the relevant goods or services in Australia.  As a result, IP rights in trademarks generally rest in the employer.  However, it’s important to get legal advice to ensure that this is the case.

Employees and employers: safeguarding your business’s IP rights

With so many variables affecting the possession of IP rights, it can be challenging to claim them for your business.  And with significant value resting in intellectual property, the stakes are often high.  However, by establishing your employment relationships with an extensive employment contract, you can place yourself in a strong position to claim IP rights for your business.  Of course, there will always be limits to the IP rights you can and can’t claim.  But with guidance from an experienced commercial lawyer, you can improve your prospects.  And better still, you can minimise the likelihood of disputes arising over the ownership of intellectual property within your business.