Intellectual Property and Employees

by Kate McCormick

Our guide to understanding employee and employer rights in relation to Intellectual Property created by employees.

This guide explains how the law deals with ownership of various types of intellectual property and other information created and used within an employer and employee relationship. It covers what a company can do, within the legal framework, to ensure that it acquires and protects any such information and intellectual property rights, in the UK.

Employees and Patents

A patent is an exclusive right to create and use an invention for up to twenty years from registration. To be patentable an invention must satisfy various criteria in the Patents Act 1977, including that it must not be in an excluded category or contrary to public policy or morality, it must be novel and not previously available to the public and must involve an inventive step that is not obvious to a person skilled in the relevant art.

Under the Act, there is a presumption that an employer will own the patent of an invention made by its employee if the invention was made in the employee’s normal or specifically assigned duties and either, an invention might reasonably be expected to result from such duties or, the employee has a special obligation to further the employee’s interests, arising from the nature of those duties and responsibilities and the employee’s status.

The employee’s “duties” have been given a wide interpretation by the court and not only encompass those duties outlined in the employment contract but also any duties that they have evolved into or that the employee has taken on over time. An invention might be “reasonably expected to result” if an employee has specific skills, for example in engineering, and is given duties where he will be employing those skills.

The employee has a non-excludable right to claim statutory compensation for an invention patented by its employer where the invention or patent is of outstanding benefit to the employer, for example where the employer has gained a monopoly through the patent or exploited the invention or patent for exceptional profits. The courts have however, rarely awarded such compensation.

Any inventions not falling within the above definition will belong to the employee. It is not possible for an employee to assign the right to any future inventions made by him/her to his/her employer. Therefore, if there is any doubt, the employer should ask the employee to assign any particular invention to him/her, as soon as it is created. The employer should also seek to avoid any doubt arising by including an express statement in the initial employment contract (or amending it to include one) wherever an employee’s duties might reasonably include inventing or developing new products, to assert this fact. The employer should also keep track of employees’ work and ask employees to keep a record of any ideas or inventions, perhaps offering a bonus or prize for the best one, as an incentive to disclose them.

Where the employee is held to own an invention, the law allows the employee to exploit it without liability for infringing other rights in the invention, such as copyright, that might, as a result of different rules relating to that right, be owned by the employer.

Patents are protected through registration so an employer should always apply to register any patent that it wishes to own, as quickly as possible. Whilst registered, the patent holder can prevent and obtain compensation for the unauthorised manufacture and disposal of a patented product, use of a patented process, sale, use or disposal of a product created by a patented process or the provision of anything essential to put the invention into effect, unless these acts are done for private, non-commercial or experimental means.

Employees and Copyright

Copyright is the right to prevent the copying of the whole or a substantial part of a piece of work and arises automatically when work capable of attracting copyright is created in a material form. Works that may be protected by copyright are original works of literature, drama, music or art, broadcasts, film and sound recordings and cable programmes and typographical arrangements of published editions (i.e. the layout of published documents). The work must be original, in that the author must have used skill and judgment in creating it.

There is a presumption in the Copyright, Designs and Patents Act 1988, that any copyright in literary, musical, artistic, dramatic and film works created by an employee in the course of his/her employment will be owned by the employer, unless the employee and employer have agreed otherwise. There is no such presumption for sound or film recordings or broadcasts so the employer should obtain an express assignment of any such works. This time, the employer can include a general assignment of all future copyright in an employee’s employment contract, provided that this is in writing and signed by the employee. As the definition only applies to works created “in the course of employment”, it is important for the employer to carefully define the employee’s job description as comprehensively as possible, to encompass all situations where the employee might create copyrighted works. For example, is the employee likely to write a book, guide or lecture using work resources or contacts, albeit in his own time or using his/her own resources during work time? If so, it may not be obvious that writing the document is to be part of his/her employment duties unless expressly envisaged as a possibility in the contract. Another possibility is that the copyright is held in trust for the employer, if the employee creates a work in breach of his/her duties to his/her employer. On the other hand, it is possible for an employer to contract out of the Act by expressing in the employment contract that copyright in any works or particular type of works will vest in the employee. Also, joint authorship is possible where the employer and employee’s efforts in creating the work are impossible to differentiate.

An employer should also be aware that copyrighted works also give rise to moral rights for the creator, which cannot be assigned. Such moral rights protect the integrity of the author and the work and include the right for the author to be identified and the right to object to derogatory treatment of the work. Where copyright in the work belongs to the employer, under the Act, the moral rights do not apply. However, to be certain that it obtains complete freedom in exploiting such works, in the interests of certainty it should obtain a written waiver of any moral rights signed by the employee in the employment contract.

Copyright protection arises automatically and lasts for the life of the author plus seventy years. An employer will be able to bring an action for breach of copyright as long as the copyright vests in the employer. The employer will need to prove ownership in any dispute, so should obtain signed and dated evidence of authorship and creation from the employee and will also need to establish that the offending work was copied and not created independently. The employer should manage any copyrighted works and keep watch over their use and mark them with the copyright symbol wherever used.

Employees and Database Rights

Databases can be protected by copyright (if original and the author’s intellectual creation) or under the Copyright and Rights in Databases Regulations 1997. The Regulations state that a database is “a compilation of independent works, data or other materials arranged in a systematic or methodical way and individually accessible by electronic or other means.”

Under the Regulations, an employer is the first owner of a database created by an employee in the course of employment, unless otherwise agreed. This is likely to be the case if the list forms part of and is accessible only through the employer’s system, e.g. Outlook.

Again, it is advisable to incorporate express terms regarding ownership of any databases, in the employment contract.

Database rights are protected automatically if there has been a substantial investment in obtaining, verifying or presenting their contents and are protected for fifteen years. The individual data contained in databases may also be protected under laws relating to copyright and confidentiality.

Employees and Design Rights

Design rights protect functional and aesthetic designs, shapes and compositions of the whole or part of a product provided they are original, recorded and not excluded by any Act. Unregistered design rights arise automatically upon creation of a qualifying design and can last for up to fifteen years from creation. Registered design rights must be novel and individual and can be renewed every five years up to twenty five years.

Like copyrights, any design created in the course of an employee’s employment is owned by the employer, who also has the right to apply for its registration as a UK registered design. Again, the design must have been created in the course of the employment so the employee’s duties should again be carefully specified in the employment contract.

The employer should protect any designs that can be registered by registering them, in order to create a national monopoly for up to twenty five years, preventing the unauthorised exercise of any of the rights of the registered owner. Unregistered design rights automatically protect designs from unauthorised copying and the production, importation or supply of identical or substantially similar objects or documents, for up to fifteen years.

Employees and Trade marks

A trade mark is a word, symbol or phrase used in connection with a specific business, or specific goods or services to distinguish their origin and quality. Under the Trade Marks Act 1994, a mark must be “a sign capable of being represented graphically and of distinguishing gods or services of one undertaking from those of another”, to constitute a trade mark. It must be not be exclusively descriptive or generic or contrary to public policy or morality.

The Act does not deal with trade marks created in the course of employment. The situation most likely to arise is where an employee seeks to register a trade mark already used by his or her employer, with a view to gaining from any existing reputation built up in the mark or selling it to the employer for a price. In these circumstances the employer can object to the registration on the basis that it was made in bad faith or that the employee is attempting to ‘pass off’ its reputation already built up in the mark. If already registered, the employer can apply to have the registration invalidated on these grounds.

The employer should always apply to register any trade marks that it uses in its business, as soon as possible. This way it gains a monopoly over use of the mark and is fully protected against attempts to profit from its goodwill.

The registered owner of a trade mark can bring an action for trade mark infringement to prevent its use and exploitation by others for business purposes. Trademark infringement occurs when an identical mark is used for identical goods or services; or an identical mark is used for similar goods or services or a similar mark is used for identical or similar goods or services and the use is likely to cause the public confusion as to the origin of the goods or services or wrongly associate them with the registered mark. Infringement also occurs where an identical mark is used for non-similar goods or services and such use is likely to take unfair advantage of or damage any significant reputation built up in the registered mark.

If a trade mark is unregistered, the owner will have to prove ‘passing off’ to prevent others from using it. This is harder to prove as the owner must establish that there has been a misrepresentation by a trader which has damaged or is likely to damage its goodwill or reputation. Substantial evidence will be required, showing the extent of the owner’s goodwill and the damage to it.

Employees and Domain Names

A domain name is a contractual right to use a particular web address. As with trade marks, the main problem associated with domain names in an employment relationship occurs when an employee or former employee seeks to register an employer’s business or company name, trade mark or personal name as the employee’s domain name, thus preventing the employer from doing so and refuses to transfer the domain name to the employer when required. The domain name registries have their own dispute resolution procedures to deal with any disputes and will order a transfer to the employer where the employee has registered or used a domain name in bad faith (e.g. taking unfair advantage of or unfairly prejudicing the employer’s rights in the name) or the employer has an identical registered trade mark, provided that the employee does not have any personal right to the name (e.g. it is not his/her own name). The courts may also find that use of a domain name constitutes passing off or trade mark infringement of a trade mark already in use and/or registered by the employer and award damages and/or an injunction preventing further use by the employee of the domain name. Again, an employer should seek to register any domain names and trade marks as quickly as possible.

Employees and Confidential Information

Throughout his/her employment, an employee is likely to have access to a large amount of information belonging to the employer, for example customer and marketing lists, supplier information, business techniques and methods and financial information. The challenge for the employer is in retaining control over such information. This will only be possible if the information is and remains confidential. Otherwise, unless the information is protected by another right such as copyright or database rights, the employer cannot assert an exclusive right to own or control it.

The employer/employee relationship imposes implied duties of good faith and confidence upon the employee. So, during his or her employment, an employee cannot use or disclose information gained from the employer’s work and experience, if it is expressly or obviously confidential and non–trivial. After termination of the employment contract, however, non-trivial, confidential information will only be impliedly protected if it constitutes a trade secret and does not form part of the employee’s acquired skill and knowledge i.e. it is highly confidential, may only be used in a limited manner in the course of the business and would cause significant harm if revealed to a competitor. An employer should be aware that trade secrets may not include information such as customer lists, which s/he may particularly want to prevent an ex-employee from using.

Therefore the employer should include express confidentiality obligations and duties in the employment contract and handbook and ensure that s/he marks all confidential information that the employee has access to as such and/or informs the employee of its confidential nature. This is particularly necessary in order to protect the information after an employee has left. Post termination restrictive covenants are common in employment contracts and, subject to requirements of reasonableness, allow an employer to protect wider confidential information after termination than just trade secrets, provided that the employer is not in breach of contract i.e. through wrongfully dismissing the employee. Restrictive covenants should not just detail information that the employee must not disclose but should also prohibit situations and acts where the employee would require or use such information, such as working for competitors and dealing with former customers or employees. So that they are not void, restrictive covenants must go no further than is reasonably necessary to protect the employer’s interests. It is recommended that the advice of a solicitor is sought in drafting restrictive covenants as their permitted scope and contents will depend upon the exact circumstances.

Garden leave clauses can also be useful to prevent disgruntled employees from coming into work after they have learned of their impending redundancy or dismissal and taking confidential information which they feel may give them an advantage in securing future employment or earnings. The clause should expressly prohibit the use or disclosure of confidential information during the garden leave period.

An employer can also seek to minimise the risk of losing confidential information by keeping up good communication and relations with former and leaving employees wherever possible, conducting exit interviews to question employees and draw their attention to any restrictive covenants, monitoring employees’ use of emails and having clear, well communicated confidentiality and internet policies in place (for example restricting the removal of information from the office or its storage on laptops, disks and memory cards). If an employer is aware or suspects that unauthorised information has been taken or used, it should immediately write to the employee and/or his/her new employer, informing them of the breach and requesting that they return and stop using any confidential information immediately. This may suffice to protect the employer’s interests. However, legal action may be necessary to enforce the restrictive covenants, obtain damages and obtain an injunction as quickly as possible stopping the employee from using the information before any further damage is done. The employer should seek legal advice as soon as any dispute arises.

Conclusion

Ownership disputes can be complicated, costly and time consuming and damaging to the employer-employee relationship. As seen, the law is not clear or sufficient in all circumstances so it is important to cover the position explicitly and comprehensively in the employment contract, to avoid disputes arising through uncertainty. Our standard Employment Contract Template includes provisions to cover this. Once the position is clear, it is usually possible to alter it through negotiations to create the most beneficial arrangement, for example through an assignment, licence or even a revenue sharing agreement, allowing an employee to share in the profits of his/her invention or work, which may improve staff productivity and morale.