The ownership of intellectual property (IP) rights is of paramount importance to employers, particularly those developing new software, products or manufacturing processes.
Undoubtedly, employers will want to ensure that they own any and all IP rights subsisting in the fruits of their employees' labour, but tension often arises when an employee has developed a new idea, and is exacerbated when that employee is considering leaving their employment in order to turn their idea into a start-up. In many cases, the key issue is whether or not the IP rights were created "in the course of [the employee's] employment".
The general rule – IP ownership
The general position under English law is that IP rights created by an employee within the course of employment automatically belong to the employer; where there is any doubt as to whether an employee or their employer owns IP rights, the relevant legislation largely favours employers.
Consider copyright, by way of example, which will exist in written software code and interfaces as well as literary or artistic works (which may include designs or copy). Copyright seeks to protect the creation of an author's original works, that is, works where the author has used independent effort to create it. The Copyright, Designs and Patents Act 1988 states that where a literary (or dramatic, musical, artistic or film) work is made by an employee in the course of employment, their employer is the first owner of any copyright in the work.
Similarly in relation to inventive products or processes, the Patents Act 1997 provides that an invention (whether or not patentable) belongs to an employer in certain circumstances which, importantly, includes if it was made in the course of the employee's normal or specifically assigned duties.
Employment contracts tend to mirror the pro-employer IP ownership provisions contained in the statutes, and often go even further to remove an employee’s rights in inventions and ideas created. For instance, moral rights (including the right to be identified as an author of a copyright work) are regularly waived by employees in their employment contracts.
When are IP rights created in the course of employment?
For an employer to benefit from the legislation the creator must be an employee and the work must have been created during the course of their employment. As well as the statutory rights many employment contracts also use the phrase 'in the course of' employment to define the rights acquired by the employer.
If material which includes IP rights is created outside office hours and/or using the employee’s private resources this may give rise to arguments that the rights belong to the employee rather than their employer, but that is not decisive. The fact that work is done outside normal working hours does not necessarily mean that the work is not done in the course of employment as, for many employees, there is often no clear demarcation of the hours of work.
The key question to be asked is whether the work was the kind of work which the employee was employed to do i.e. whether it was within the scope of their employment. Could the employee have been ordered to do the work and would it have been a breach of contract for the employee to not do it? The terms of any contract of employment and job description will be relevant, however, these (and duties more generally) often evolve in the course of time and it may therefore not be appropriate to rely on them exclusively.
These considerations highlight the difficulty parties face in trying to establish legal certainty in this area, where most cases turn on their facts.
Inevitably, the severity of the issues identified above will be dependent on the scope of employment and how distinct the employee’s works are compared to the industry within which the employer operates. An employed accountant will (unless they have a very unusual employment relationship) own the copyright in a script for a play they have written. Difficulty arises (often in relation to technology) where it is harder to disassociate the output of an employee with the products and business of an employer.
To that end, employees should also consider their duties to their employers. The duty of trust and confidence owed to an employer may prevent an employee from setting himself up to do in his spare time something which would inflict harm on his employer’s business (or be in direct competition with it). Furthermore, where an employee is also a director, or whose seniority means they have a duty to act in the best interests of their employer, a fiduciary duty may be owed to the employer. In this situation, an employee may be in breach of his fiduciary duty by not disclosing the creation of IP rights to his employer and, in the worst case scenario, the result being that the employer becomes entitled to the IP.
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