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Can you use employment and consultancy contracts to protect your intellectual property?

Intellectual Property (IP) is of critical importance to most businesses and so it is worth spending some time investigating how best to protect it. Whilst it may sound obvious, it is advisable to be clear about what your IP is, so that you can establish whether it has been properly protected and will continue to be protected in the future. It is likely that your business will have a plethora of IP, including inventions it will want to protect using patents, names protected by trademarks, designs by registered and unregistered design rights; and copyright to protect artistic and literary works including software, films, music, and rights relating to the use of those.  

In this article, we look at the rules surrounding IP ownership and protection and specifically how employment and consultancy contracts can bolster IP protection for your business. Unless you clearly define job descriptions and terms of employment and police your business’ IP effectively, you run the risk that commercially valuable IP may be used on behalf of competitors and/or not utilised to its full potential by your business. 

Who owns 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.   

Are there exceptions to the rule? 

There are a few exceptions to the first ownership rule, even if you are able to establish that an employee created the IP in question in the course of their employment with you, the fact that this IP belongs to your business should be clearly referenced in your business’ employment contracts and any other relevant policies. This is particularly because whilst the economic right will usually vest in the employer due to statute alone, the situation is different when it comes to non-economic moral rights. To best protect your business’ IP, your employees should agree in their employment contracts to waive all moral rights. 

Moral rights are not the only exception to the general rule of rights vesting in the employer. If an invention is of ‘outstanding benefit’ to you, as their employer, it may be possible for the employee to claim compensation from you. For example, in the case of Kelly v GE Healthcare, two research scientists were awarded compensation of £1.5 million for their invention of a radioactive imaging agent, as their employer was able to profit far more as a result of this invention. To have ‘benefit’ the invention must achieve something in addition to that which the employer would usually expect the employee to achieve when performing their duties and ‘outstanding benefit’ is more than substantial, significant or good. Compensation should be awarded by the employer to an employee if it is ‘just’ in the circumstances. 

Are the rules the same for both employees and contractors? 

No. In some circumstances, an assignment of IP can be implied into a consultancy contract where 'it is reasonable, equitable and necessary for business efficacy' and 'the terms are obvious and capable of clear expression and do not contradict any express terms' agreed between a business and an independent consultant. However, otherwise, all IP created by a consultant will be owned by that consultant and not the company engaging them. For this reason, if your business is looking to hire a consultant, the written consultancy agreement should be clear before the consultant starts work on the terms of engagement, including that any IP in the deliverables that the consultant will provide to your business will transfer to your business immediately upon creation and the consultant will co-operate in any reasonable manner required to transfer such ownership. It is possible in some ways to secure even greater protection over your business’ IP using a contractor than when an employee carries out work for you. Under a consultancy agreement a consultant can assign the rights to a future invention to your business, whereas this is not the case with an employee arrangement. Our specialist employment lawyers can assist in drafting or updating your consultancy agreement to maximise protection of your business’ IP. 

Can you use employment contracts to protect your intellectual property?  

With some expert guidance in clearly defining the scope of an employee's engagement and the terms of their employment in their employment contract, you can best protect your business’ IP. Written clarification will minimise the likelihood of time and expense being spent on a dispute concerning whether a work was created during the course of the employee’s employment, and who it belongs to. Being clear from the outset and regularly updating your employee’s job description to include the relevant areas the employee is working on can help with this. For example, stating that an employee’s job description includes inventing and/or improving products and processes or producing certain designs, writing, drawings or plans and being specific as possible, means it is clear what is included in ‘the course of employment’ and so what is owned by the employer. 

You can also draft IP clauses in employment contracts which create an obligation on an employee to disclose any IP including inventions to you, as their employer, immediately upon creation. This means that you will be aware that new IP has been created, by whom and when, in order to be able to effectively protect and commercially exploit the protected IP as against your competitors. 

Another important consideration when looking to draft employment contracts to best protect your business’ IP is to look at the assignment of future rights and permit assignment from the employee to you so far as possible under the legislation. A present assignment of future copyright is permitted, but as mentioned above, present assignment of future inventions is not allowed where there is an employer/employee relationship.  

It is worth bearing in mind that standard contracts of employment do not usually provide for specific IP focussed roles. Therefore, bespoke terms should be drafted by a professional and included to ensure that both you and your employee are clear on what intellectual property is required from the employee’s employment, and how that will be owned. 

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

IP is an important asset of any company. If you do not clearly define job descriptions and terms of employment and police your business’ IP effectively, commercially valuable IP may be used on behalf of competitors or not utilised to its full potential by your business, both of which would be financially costly to your business. As many employees in certain roles (such as software engineers or other creative professionals) are likely to work on various projects alongside their employment with you, it is all the more important that you are clear on contractual terms, so that your IP does not blur with that of another business your employee is working for. If it does, you may lose the right to exploit it if others protect the IP created by that individual more aggressively.  

You also leave your business commercially vulnerable if moral rights to IP are not waived in specifically drafted clauses in your employees’ contracts of employment.  

Summary  

  • Ensure that you are clear on what your IP is or might at a later date be and how it is protected or might be protected and whether there is any further protection already in place in your employee or consultant contracts. 
  • If there are individuals who are more likely to be in a role where they will develop IP for your business, it is particularly important that you focus on making their roles clear and agreeing what falls within the ambit of their role and would belong to your business. 

For further information, you may be interested in reading some of our related articles in our Knowledge Hub about IP and employment contracts

We understand how important protecting your intellectual property is to your business. As outlined in the article above, not all IP or the extent of the rights attached to that IP will automatically be owned by your business so having precise and legally binding clauses into an employment contract, or consultancy agreement, which protects your business’ IP is critical. Additionally, you may have an ongoing dispute with an employee or consultant over the ownership of Intellectual Property rights in your business and it is important to seek legal advice before the situation escalates. Our team of IP specialists lawyers can provide clarity over ownership of Intellectual Property within your business and our team of employment lawyers can assist with your employment and consultancy related contracts. 


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