Ownership of intellectual property created by your employees and contractors or consultants

Do I own intellectual property that my employees create?

The comments below apply to all categories of intellectual property: trademarks, copyright, software, patents, trade secrets and confidential information, designs, circuit layout rights, and plant breeder's rights.

As a general rule, an employer will own the intellectual property created by its employees in the course of their employment.

However, intellectual property that is created by an employee, other than in the course of employment, is owned by the employee, not the employer.

What does 'in the course of employment' mean?

The most important single factor in deciding ownership of intellectual property created by employees is whether or not the employee had a duty to create intellectual property as part of their employment duties.

An employee who creates intellectual property in the normal course of their duties cannot claim to own that intellectual property.

However, if the employee is not employed to create intellectual property, but does so, then the employee will own the intellectual property.

Consideration needs to be given to all the circumstances:

  1. How are the employee's duties described in any written employment contract?
  2. Are there duty statements that record the duties of the employee's position?
  3. Did the employer direct the employee's activities that led to the creation of the intellectual property?

The fact that an employee used the employer's equipment is not enough by itself to show that the employer should own the intellectual property created with the use of that equipment.

Example 1

A software writer is employed to write a software program to manage databases of inventory being transported by road.

The software writer spends mornings working on the employer's software program.

The software writer spends the afternoons writing a new computer game, on the employer's computer, and using the employer's software development language and other programs and utilities.

The software writer licenses the computer game for a licence fee of $100,000, and royalties of 10% of sales.

Does the employer own the computer game and is the employer entitled to those monies?

No.

The employee's duties:

  1. were to write a software program to manage databases of inventory being transported by road
  2. were not to write a computer game.

The writing of the computer game was therefore outside the course of employment, and the software in the computer game is therefore owned by the employee.

The employee may be subject to disciplinary action for wrongfully using the employer's computer and software development language and other programs and utilities, and for not working on the employer's business in the afternoons. The employee may even be subject to dismissal.

But that does not affect the ownership of the copyright in the software in the computer game.

Whether the intellectual property was created during working hours, or outside working hours, does not affect ownership. Whether it was created at the employer's premises, or at the employee's home, does not affect ownership.

Example 2

An engineer is part of a team of co-workers that are together working on a solution for a new mechanical device, but they just can't get it to work.

At 6.30am one morning while taking a shower, and not giving any thought to work matters, it occurs to the engineer that redesigning the shape of a valve will achieve the flow through the device to make it work.

The engineer calls a friend who is a patent attorney, who advises him that the valve is sufficiently novel, and non-obvious to be patentable.

The engineer goes to work and keeps his innovation to himself.

Over the next few days the engineer files a patent application.

Only after filing the application does the engineer disclose the valve to the employer, and makes a proposal that the employer license the innovation from the engineer in return for royalties.

Does the employer own the innovation, and the right to apply for a patent?

Yes.

The engineer's employment duties were to solve the technical problem of making the mechanical device work.

If an employee could claim that ideas that entered the employee's mind after working hours belonged to the employee, employers who pay employees' salaries to develop intellectual property would never own any intellectual property.

What terms do I include in employment contracts to protect my intellectual property?

For an employer to protect its intellectual property in relation to its employees, every employment contract should deal with the following 6 essential terms.

TermDescription
Ownership of intellectual propertyThat intellectual property created by the employee in the course of the employee's employment, or in relation to a certain field, is owned by the employer.
Signing documents to record the employer's ownership of intellectual property

That the employee will sign any document that the employer reasonably requires (such as a deed of assignment) to record the employer's ownership of the intellectual property created by the employee in the course of employment.

This obligation needs to continue during the employment relationship, as well as after the employment relationship has ended. It may be necessary, for example, for an employee to sign patent application documents after the employment relationship comes to an end.

Confidential information

That in relation to the employer's confidential information the employee will:

  • keep it confidential and will not disclose it to another person
  • not use it in any manner outside the course of employment.
This obligation needs to continue during the employment relationship, and also after the employment relationship ends.
Scope of confidential information

The scope of the employer's confidential information subject to those obligations needs to be broad, and include:

  • the intellectual property created by the employee in the course of employment
  • other intellectual property of the employer's, including that created by other employees, in existence when the employment relationship started, or which the employer has licensed from another person
  • other business information such as customer lists, supplier lists, marketing plans and strategies, business plans, financial information, etc.
Waiver of moral rightsThat the employee waives the employee's moral rights in relation to any works in which copyright subsists (such as computer programs).
Restraint on competition

Some employment contracts include a restraint on competition.

Such a restraint operates to restrain a former employee from competing with the employer, for an agreed duration, over a specified geographical area.

If the extent or scope of the restraint is too broad, operates for too long, or operates over too large a geographical area, the restraint will be invalid, and the employee will not be bound by it.

But to the extent that the restraint is reasonable, operates for a reasonable period, and over a reasonable area, it will be valid.

These restraint obligations need to apply not just during the employment relationship, but also after it ends.

Which employees should have these terms in their employment contracts?

While some categories of employees are more likely than others to create intellectual property in the course of employment, some employers require all their employees to enter into written employment contracts covering the 6 essential terms.

When deciding to include intellectual property terms in employment contracts consider:

  • the nature of your business
  • the positions that your employees have
  • information your employees can access
  • whether your employees could set up a competing business
  • all other factors that may affect your own circumstances.

You will need to decide whether:

  • all employees must sign agreements covering all 6 terms
  • all employees must sign a document to maintain confidential information in confidence, not extending to intellectual property issues
  • a restraint clause is necessary or not.

A solicitor will be able to advise you, as well as prepare an employment agreement covering the terms that you need.

How can I protect my intellectual property at work?

The following are practical steps you could take to help protect your intellectual property.

Practical stepDescription
Implement a 'need to know' policy.

Not all employees need to know all your confidential information in order to do their job. Some employees might need to know some types of information (e.g. financial information) but not other types of information (e.g. patentable inventions).

Consider confining access to information only to those employees who need to know the information to be able to do their job. It is unnecessary for anyone else to know that confidential information.

Keep your IP secure.

Keep your intellectual property and confidential information in secure locations, in a secure manner.

Should some things be confined to a certain area such as a lab or other working area?

Restrict access to your business premises.

Restrict access to premises so that only employees who need access to a specific location are able to enter that location.

This applies not just to employees, but to visitors to your premises as well.

Restrict computer access.In the same way that access to premises may be restricted, similarly restrict access to parts of your computer systems so that only those employees who need to access certain types of information are able to do so, to the exclusion of others.
Have an employment commencement protocol.

Consider having an employment commencement protocol as part of an employee's induction.

It may not be enough to simply have employees sign an employment agreement.

An employee may sign it without appreciating the effect of its 6 essential terms.

An employee may assert that certain intellectual property disclosed during the employment relationship was created by the employee before the employment relationship commenced.

An employment commencement protocol serves these important purposes:

  • It is an opportunity for an employee to identify any intellectual property that the employee claims was developed by the employee before the employment relationship commenced. Anything identified is recorded in writing (e.g. in the employment contract), avoiding later disputes.
  • It is an opportunity to explain the 6 essential terms to the employee, and to communicate to the employee the importance that the employer places on those 6 terms.
Have an employment exit protocol.

Consider having an employment exit protocol.

It may have been years since the employee underwent the employment commencement protocol.

The exit protocol is an opportunity to interview the employee about:

  • having returned to the employer all of the employer's property (including electronic computer files)
  • not having copies of electronic computer files
  • the employee's continuing obligations under the 6 essential terms in the employment contract, and in doing so, communicating to the employee the importance that the employer places on the continuing binding effect of those 6 terms.

Do I own intellectual property created by independent contractors and consultants I engage?

While an employer owns intellectual property created by employees in the course of employment, the same rule does not apply when engaging a contractor or consultant.

In the absence of a contract to the contrary, a contractor or consultant will own the intellectual property that the contractor or consultant creates.

If the agreement by which a contractor or consultant is engaged is silent about the ownership of intellectual property, at best the law will imply a licence from the contractor to you, to enable you to use the intellectual property created by the contractor or consultant.

But you will not own that intellectual property.

When you engage a contractor or consultant, and you expect to own the intellectual property arising from the engagement, you must expressly provide for this in the engagement agreement.

How far should ownership of intellectual property be claimed in a contractor's agreement?

Some intellectual property created by a contractor in the course of an engagement, or included in what is delivered to you, will be the contractor's 'tools of trade' or other pre-existing intellectual property in which the contractor will expect to retain ownership.

Example

You contract a software developer to write a new computer program for you.

The software developer has a library of utilities and tools, which are computer programs used to build a new application. Examples are tools to allocate a date and time to a database entry, or a tool that will generate a specific type of report with particular characteristics.

These computer programs are 'tools of trade' for the software developer, which the software developer has developed to be efficient and more competitive, and which the software developer includes repeatedly in computer applications that are custom written for the developer's clients.

The computer program that is delivered to you may contain these 'tools of trade' repeatedly used by the software developer.

If the software developer transferred ownership of the copyright in the code for these 'tools of trade' to you, the software developer would be unable to re-use those tools of trade for later projects.

Or, if the software developer had previously transferred ownership of the copyright in the code for these 'tools of trade' to a previous client, the software developer would be delivering to you a computer program that infringed the copyright of the previous client.

Where this is legitimately the case, the contractor's agreement should not provide for ownership of all intellectual property to be transferred to you.

Instead, the contractor's agreement should make a distinction between the following:

  1. The contractor's intellectual property that is in the nature of a 'tool of trade'. Ownership of this 'tool of trade' intellectual property should be retained by the contractor.
    However, the contractor must grant a licence to you to enable you to use that 'tool of trade' intellectual property to the extent required for you to be able to use your new intellectual property without infringement.
    This licence should be non-exclusive, not require any further payment, be irrevocable, and be able to be sub-licensed.
  2. The new intellectual property arising in the course of the contractor's engagement, that is, all the intellectual property created by the contractor for you, other than 'tool of trade' intellectual property.
    This new intellectual property should be owned by you.

What should contractor and consultant agreements provide for?

TermDescription
Ownership of new intellectual propertyThat you own new intellectual property created by the contractor or consultant in the course of the engagement.
Licensing of the contractor's 'tools of trade' or other pre-existing intellectual propertyThat the contractor grants to you a non-exclusive license in relation to any of the contractor's 'tools of trade' or other pre-existing intellectual property included in what is delivered is to you, that requires no further payment, is irrevocable, and is able to be sub-licensed.
Signing documents to record your ownership of intellectual propertyThat the contractor will sign any document that you reasonably require (e.g. a deed of assignment) to record your ownership of the new intellectual property created by the contractor in the course of the engagement.
This obligation needs to continue after the contractor agreement has ended. It may be necessary, for example, for patent application documents to be signed after the engagement has ended.
Confidential information

That in relation to your confidential information, the contractor will:

  • keep it confidential and will not disclose it to another person
  • not use it in any manner whatsoever.

This obligation needs to continue after the contractor agreement has ended.

Scope of confidential information

The scope of your confidential information that needs to be subject to those obligations needs to include:

  • the confidential information that you provide to the contractor for the purposes of the engagement, and
  • the new intellectual property created by the contractor in the course of the engagement.
Waiver of moral rightsIf the contractor will in the course of the engagement create works in which copyright subsists (e.g. computer programs), that the contractor (if the contractor is an individual) waive the contractor's moral rights in relation to any works in which copyright subsists, and if applicable, that the contractor obtain similar moral rights waivers from the contractor's employees.

Who owns the intellectual property created by a volunteer?

Who is a volunteer?

A volunteer is anyone who:

  • creates intellectual property for, or with you
  • is not your employee, or an independent contractor or consultant.

For example, a relative, a friend, or a neighbour whom you have made aware of your innovation may make an innovative suggestion, or you may work with them on your innovation, and they may make contributions to your innovation.

Another example is that your business may have provided an internship or work experience to someone who contributes to an innovation in your business.

What are volunteers' rights to intellectual property they create?

As the volunteer is not your employee, and you are not the volunteer's employer, the general rule that an employer owns the intellectual property created by an employee in the course of employment does not apply.

The position with a volunteer is similar to the position with an independent contractor or consultant.

An independent contractor or consultant owns the intellectual property that they create, unless other arrangements have been agreed.

If the person who engages an independent contractor or consultant seeks to own the intellectual property created in the course of the engagement, specific provisions in the engagement contract need to address this.

In the same way:

  • a volunteer owns the intellectual property that the volunteer creates
  • if you need to own the intellectual property created by the volunteer, you need to have the volunteer transfer ownership of it to you, in writing.

You should see a solicitor to do this for you.