Employee inventions and the (potentially) million dollar question: who owns the IP?

Employees often develop new ideas, create new designs and invent new products or procedures while employed by or working for a business. When these ideas or products turn into rights to intellectual property (IP) with possible commercial value, the question arises: who is the owner of the IP? Although the common assumption is that the employer or business owner owns these IP rights, this may not always be the case. This article provides some practical advice on how to protect your IP rights as an employer or business owner engaging a contractor.

Ownership of IP – default rules

The default rule for IP ownership in relation to an invention is that the creator of the invention is the owner of the IP to that invention. However, any IP relating to an invention created by an employee in the course of their employment or within the scope of their employment is generally owned by the employer. When assessing whether an invention has been created in the course of employment or is within the scope of the employment the courts look at the following key criteria:

• what was the employee’s job description
• what specific directions were given by the employer to the employee

So what about an invention made by the employee in his or her own time which falls within the employer’s area of business? This was dealt with in the Water-tank case (Courier Pete Pty Ltd v Metroll Queensland Pty Ltd [2010] FCA 735) in which the court found that an employee of a business which manufactured water tanks owned the IP to a new type of water-tank which the employee invented at home and in his own time. The court found that the employee’s duties were very generally described without any precision as to the scope and he had not been given specific instructions to create new water tank designs.

A different situation arises in relation to a contractor or consultant. In Australia, any IP in relation to an invention created by a contractor is by law owned by that contractor unless otherwise specified in the contract with the hirer, even if the contractor creates the invention as part of his or her contract with the hirer.

Special rules may apply to inventions made by university researchers and teachers which are regulated by the IP policies and agreements of the institution.

How to protect your IP rights in employee/contractor inventions

So what should you do as an employer or business owner to ensure that you own the IP resulting from inventions and other IP created by your employees and contractors?

In summary:
1. put an appropriate employment or contractor agreement in place early.
2. make sure the agreement includes:
• a detailed and extensive description of the job duties. This will help establish what is in the course of the employment
• a clear statement of who owns the IP rights created by the employee or contractor.
• a specific and clear clause transferring the IP to the employer.
• a confidentiality clause.
• a non-compete clause.
It is important that all of these clauses (IP rights, confidentiality and non-compete) are drafted in such a way that they apply for an extensive (but reasonable) period after the termination of the agreement and the employment relationship.
3. Put corporate policies and regulations in place.
4. Monitor any potential IP-related activities and take action if any breaches occur.

IP is a very important but often overlooked asset for most businesses and, increasingly, IP rights arise from the activities of employees and contractors. Costly and damaging IP disputes can be avoided by implementing certain steps at the outset. So make sure the IP – and the potential million dollar income – is yours!

Please contact us at McGuinnLegal if you need assistance in drafting an employment/contractor agreement or corporate IP policy or implementing the above recommendations.

The above news items are provided as general information in summary form of legislation and are not intended as legal advice.

Please contact us at McGuinnLegal if you would like further information or need specific advice in relation to any of these matters.