Why employment contracts need an intellectual property clause

Once upon a time there was a man who was engaged by a radio station to prepare a music catalogue under a consultancy agreement.   This involved creating a list of pieces of music together with a grading system as to their popularity.  The catalogue was original and attracted copyright protection.  However, the consultancy agreement had no clause which said who owned the copyright in the catalogue. The radio station was very successful and expanded its services, sending the music catalogue abroad. The man claimed copyright in the music catalogue and after a Court battle won the rights to receive royalties on any exploitation of the catalogue by the radio station.  The absence of a clause in the consultancy agreement meant that the author of the catalogue owned copyright in it.  This clearly had not been the intention of the radio station.

This is why it is important that employers ensure that all employment contracts and contracts with any contractor, consultant or designer contain an intellectual property clause. Without it, you may find that you don’t own the rights created by the contractor, or worse, the contractor is entitled to extra payments.

Employees and consultants, however, are treated differently in relation to the ownership of intellectual property rights; here is what you need to know.

Employment Contracts

There is a statutory presumption in the United Kingdom that intellectual property created by an employee during the course of his or her employment is generally owned by the employer.  Some say that there is, therefore, no need to have an IP clause in an employment contract.  Whilst this may be the case in some situations, if intellectual property is not expressly dealt with in the contract of employment this can have the following consequences:

• Unless expressly excluded the employee has the right:
  • to be named as author on all reproductions of work;
  • to object to certain alterations to the work; and
  • to object to any derogatory treatment.

Such rights could at the very least be an administrative inconvenience on the employer if every time the work is reproduced the employee has to be named as the author. At worst, such rights could prevent the employer from adapting the works where the employee considers such adaptation as derogatory treatment.

• If the employee creates something outside his or her terms of employment he or she retains ownership of the intellectual property. By way of illustration, if the employee is employed as a photographer for a fashion company but then creates a new design for a dress, the employee may be entitled to the intellectual property rights in that design as creations of dress designs are unlikely to be within the terms of employment of a photographer.
• When trying to enforce intellectual property rights, that have been created in the UK, in other jurisdictions, where no statutory presumption of ownership exists, it can be difficult to explain to the Courts that intellectual property subsists in the employer without an express clause.  This makes it harder for employers to enforce their intellectual property rights overseas and will likely lead to greater expense in doing so, as the Courts may require a United Kingdom legal opinion on the matter from an independent expert.

Where inventing is likely to form part of an employee’s job, employers need to remember that under patent law if an invention is patented the employee may, in certain circumstances, be entitled to statutory compensation in respect of the invention. The employer cannot contract out of this right and therefore any terms in the employment contract that purport to remove this right will not be effective. However, the employer can still successfully ensure that it owns the rights to any invention, in preference to the inventing employee, by specifying in the employee’s job description that their role includes inventing or conceiving of new products and product development ideas.

Consultancy Agreements

Generally there is no presumption in the United Kingdom that intellectual property created by a consultant during the course of his or her employment is owned by the employer.  As we have seen from the radio station example, in most situations the intellectual property is owned by the consultant unless the contract expressly provides otherwise.

Again, though this is not the end of the story as the general rule of intellectual property ownership in relation to consultants varies between the different intellectual property rights. By way of illustration, the commissioner of a design, rather than the designer, is automatically the person entitled to any subsequent registered design or unregistered design rights in the design. Whereas any copyright will by default be owned by the consultant who created the work during the consultancy.

In view of this, as with employment contracts, it is prudent to deal with intellectual property expressly in the consultancy agreement.  We have briefly considered this below.

IP Clauses

When considering what intellectual property provisions need to be in place in employment contracts or consultancy agreements some of the issues that should be covered are:

• be clear about what the employee/consultants’ duties are as this can have an impact on whether the work created is done so in the course of employment;
• have a clear statement of ownership that covers all works or inventions created by an employee or consultant;
• consider whether any obligations to disclose inventions are needed and whether records should be kept in order to prove that the work is original and/or its date of creation;
• ensure that any assignment or licence deals with existing rights and future rights.

Simon Bennett is a Partner in the Commerce and Technology Department at Fox Williams LLP.  Simon can be contacted on sbennett@foxwilliams.com  or 020 7614 2522.