Businesses should be nervous if they do not have employment contracts with each of their (key) employees which specifically address who is entitled to any intellectual property created or developed by those employees in the course of their employment.
As recent cases demonstrate, employers risk losing the rights, which they might otherwise capture, if they do not have employment contracts in place which deal specifically with that issue.
The question of who owns any inventions created by an employee is not as straightforward as you might think and will often be determined by the particular facts relevant to each employment relationship. It is increasingly important, as the employment market changes, for businesses to ensure that they cover those issues with new staff. It is also essential for businesses to regularly review existing agreements with employees, particularly when they reach a milestone, such as obtaining a promotion or undertaking a new role – perhaps as a result of the focus of the business having changed or developed into other areas.
Historical Background
As the English authorities have developed, prior to 1955 it was possible for an employer to claim the benefit of an invention developed by an employee in the course of their employment, if the employer could show that they either had a positive contract with their employee or that there was an implied duty of trust pursuant to which the employee held the invention on behalf of the employer.
In Stirling Engineering Co Ltd [1955] AC 534, the House of Lords moved away from that position and found that there is an implied term in many contracts of service to the effect that any inventions made by an employee (within the scope of their duties) belong to their employer. In that case it was said "if the employment is of a designer, that which he designs is thus the property of the employer which he alone can dispose of …. it could only be excluded by an express agreement that it be varied and some other legal relationship created".
The legislative framework in Australia followed the common law development. Section 35 of the Copyright Act 1968, for example provides that works created by an employee "under a contract of service or apprenticeship" are owned by the employer (s35(6)), unless certain exceptions apply. Similarly, section 13(1)(b) of the Designs Act 2003 provides that the employer will be entitled to be registered as owner of a design which is created in the course of employment or under a contract, unless the employer and the designer have agreed to the contrary. There is no equivalent provision dealing with inventions in the Patents Act, although section 15(i) provides to the effect that only the person who is the inventor or who is entitled to have the patent assigned to them may apply for a patent. It is a 'normal incident' of the employment relationship that any employer is entitled to have the patent assigned to them if the invention is created by an employee in the scope of their employment. The result is that an employer will be regarded as entitled to the benefit of any patentable invention transferred to them if it is created by an employee in the scope of their employment.
Acceptance in Australia
The English position was adopted in Australia in the leading case of Spencer Industries Pty Ltd v Collins (2003) 58 IPR 425, a decision of Justice Branson of the Federal Court. In that case, an employee (Collins) who was engaged as a sales manager made an invention, which was an improved form of a product being sold by the company. The Court found that it was not within the scope of his employment to either improve the products which the company sold, or to invent new products. However, Collins did occasionally make suggestions about the expansion and improvement of the product range in an endeavour to boost sales. Even though the invention was created in part on company time (when he had downtime) and in part on his own time, the Court decided that it was outside the scope of Collins' duties to invent products and, therefore the employer was not entitled to it.
The position was further entrenched by the Federal Court decision in Victoria University of Technology v Wilson (2004) 60 IPR 392. In that case, Justice Nettle considered "the mere existence of the employer/employee relationship will not give the employer ownership of inventions made by the employee during the term of the relationship. And that is so even if the invention is germane to and useful for the employer's business, even though the employee may have made use of the employer's time and resources in bringing the invention to completion. Certainly, all the circumstances must be considered in each case, but unless the contract of employment expressly so provides, or an invention is a product of work which the employee was paid to perform, it is unlikely that any invention made by the employee will be held to belong to the employer".
Of course, the relationship between the employer and the employee will change, depending on the scope of their duties and the level of seniority which they enjoy. In Victoria University of Technology v Wilson, the Court considered that a manual worker is unlikely to have imposed upon them restrictions which would interfere with their freedom to use their spare time (including to create inventions) as they choose. That, of course, differs from the position of Senior Executives or management, who may well owe fiduciary duties to their employer, particularly if they are in possession of confidential information.
The Courts have also recognised that the scope of an employee's work can change over time, particularly if the employee is promoted or reassigned. Accordingly, if it is necessary to look at the common law to determine who owns an invention, then an assessment of the scope of the employee's duties must be undertaken at the point in time when the invention is created.
There may also be changes in the economic climate, in business practices or in legislation which affect the relationship. For example, it no longer goes without saying that certain classes of employee (such as public servants) are required not to take a second job outside of ordinary business hours, where it was generally accepted in the past that they would not do so. Of course, those changes may affect what is considered to be in the scope of the employee's duties.
Recent Decision
The position was again reviewed in the recent case of University of Western Australia (UWA) v Gray [2008] FCA 498, which considered the position particularly in relation to the development of intellectual property by academics and University staff. In that case, Dr Gray was a full time professor of surgery who was required, by the University, to teach and to conduct research. He was also based at Royal Perth Hospital. In addition, he had an interest in a research and development company, through which he invented and obtained a method of treatment of liver cancer. It was accepted that the concept for the treatment was conceived prior to Dr Gray's employment at UWA and that the research and trials (which were conducted at UWA) were a "reduction to practice" of those concepts.
The Court rejected UWA's argument that it was an implied term of Dr Gray's employment that any intellectual property he developed in the course of his work belonged to UWA. The Court moved away from the general position adopted in Stirling Engineering Co on the basis that such a term could be implied only where employees have a duty (whether express or implied) to invent, as expressed in the scope of their employment.
Although the decision only considered the position of University staff, it may yet be applied more broadly. In that case, the Court examined the employee's obligations and distinguished the duty to invent from the duty to teach or to conduct research. In the latter cases, the employee has no contractual obligation to invent and is more likely to succeed in an argument that they are entitled to the benefits of any inventions created by them, to the exclusion of their employer. It may be that there is at least scope for arguing the decision has wider application and should not be limited to academics or University staff.
Principles
There are a number of propositions which can be taken from the cases including:
- The general position is that the inventions developed by an employee in the course of their employment will be subject to an implied term that they are owned by the employer (and are to be assigned to the employer) or are held in trust by the employee on behalf of the employer. That position is further supported by both the Designs Act and the Copyright Act.
- A contract of employment does not (require that a term be implied to) prevent an employee from taking the benefit of an invention, even if developed, in part, on the employer's time or using the employer's resources.
- Employees who hold senior positions may have a greater duty to protect the interests of their employer, such that any inventions made, even if outside work hours, may be the property of the employer.
- If the employee has a duty to invent or develop IP, there is likely to be an implied term that the property belongs to the employer, if developed within the scope of their employment.
- Academics and University staff are likely to be entitled to retain any IP which they develop, even in the course of their employment, unless they have a duty to invent, (as opposed to research and teaching).
- To ensure the position of the parties, they may enter into contracts which (may alter the common law position to) provide that:
- The employer owns the work;
- The employee owns the work; or
- The parties own the work jointly or may share it in specific proportion and may require the assignment of the work to one of the parties, if necessary.
- Any contract which is expressed too widely may amount to an unreasonable restraint of trade and be unenforceable.
Summary
There are a number of questions to be addressed by employers, which require careful consideration both at the time of engaging staff and at regular intervals throughout the course of their employment. It is essential that an employer properly consider a number of factors in determining whether an employment agreement is required. These include:
- The scope of the employees duties, and how those are to be documented;
- Their level of seniority;
- Whether their duties involve a requirement that they invent (or contribute to inventions);
- The employee's propensity to invent;
- The access which the employee has to the employer's resources (both during and after hours) for their own purposes.
On the basis of recent decisions of the Federal Court, only very brave employers are likely to decide that they do not require employment agreements with their senior (or any) employees. Whilst it may be that, in many cases, works produced in the course of employment are owned by the employer, the cases referred to demonstrate that the Court's view is broadening as to what is considered to have been created outside the scope of employment.
