Protecting Intellectual Property (‘IP') is crucial for most businesses, making it worthwhile to invest time in determining the best protection strategies. It is essential to clearly identify your IP to assess whether it has been adequately safeguarded and will remain protected in the future. Your business likely possesses various forms of IP, such as inventions eligible for patent protection, names safeguarded through trademarks, designs covered by both registered and unregistered design rights, and copyright to protect creative works like software, films, music, and associated usage rights.

Who owns the IP created by an employee?

The first ownership rule is that any IP created by you or by an employee whilst in the course of their employment with you, is automatically the property of the employer.

There are exceptions to the ownership rule. Even if you can demonstrate that an employee created the IP during their employment with your company, it is crucial to explicitly state in your business' employment contracts and relevant policies that this IP belongs to the business. This is especially important because, while economic rights typically belong to the employer by statute, the scenario differs for non-economic moral rights. To enhance protection for your business' IP, it is advisable for employees to agree in their employment contracts to waive all moral rights.

Moral rights are not the sole exception to the general rule of rights automatically belonging to the employer. In cases where an invention brings about an 'outstanding benefit' to the employer, the employee might have the opportunity to seek compensation from the employer. Furthermore, in order for an invention to qualify as having 'benefit', it must go beyond the usual expectations associated with the employee's job duties. The term 'outstanding benefit' implies a level of achievement that surpasses what is merely substantial, significant, or good. Compensation from the employer to the employee should be granted if it is deemed 'just' in the given circumstances.

What should employers do?

Considering the points mentioned above, it is crucial for every employer to carefully address and regulate the intellectual property relationship with its employees in employment agreements. The inclusion of precise language regarding the transfer and, when necessary, the waiver of IP rights should be considered a fundamental step in ensuring protection through employment contracts. The absence of a written contract would raise significant concerns, particularly in terms of IP. Industries heavily reliant on IP, in particular, should contemplate conducting an IP audit to guarantee that their intellectual property holdings are adequately protected and addressed.

By seeking expert guidance to clearly define an employee's scope of engagement and employment terms within the employment contract, you can enhance the protection of your business's IP. Providing written clarification minimises the chances of disputes over whether a work was created during the course of employment and its ownership. It is beneficial to be explicit from the beginning and regularly update the employee's job description to encompass relevant areas of work. For instance, specifying that the job involves inventing or improving products and processes, creating designs, writing, drawings, or plans in as much detail as possible clarifies what falls under 'the course of employment' and, consequently, what is owned by the employer.

Incorporating IP clauses into employment contracts can establish an obligation for employees to promptly disclose any IP, including inventions, facilitating the employer's awareness of new IP creation, its source, and timing. This enables effective protection and commercial exploitation against competitors.

When drafting employment contracts for optimal IP protection, consider addressing the assignment of future rights and allowing as much assignment as permissible under the legislation. While present assignment of future copyright is allowed, it's important to note that present assignment of future inventions is restricted in employer/employee relationships.

Standard employment contracts often lack specific provisions for IP-focused roles. Hence, it is advisable to have tailored terms drafted by a professional to ensure clarity between the employer and employee regarding the required intellectual property contributions, ownership, and other relevant details.

What are the consequences if a business does not protect its IP? 

As we have seen, IP stands as a critical asset for any company. Failing to clearly define job descriptions and terms of employment, as well as not effectively safeguarding your business's IP, can result in commercially valuable IP being used on behalf of competitors or not fully exploited by your own business which can lead to significant financial costs.

In roles where employees, such as software engineers or creative professionals, often engage in various projects concurrently with their employment, it becomes even more essential to establish clear contractual terms. This ensures that your business's IP remains distinct from that of other entities the employee may be working for. Failure to maintain this clarity may jeopardise your right to exploit the IP if others aggressively protect the IP created by the individual.

Additionally, not including specifically drafted clauses in your employees' contracts to waive moral rights to IP leaves your business commercially vulnerable. Addressing these aspects is crucial to protecting and maximising the value of your business's intellectual property.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.