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Employee’s Rights to Intellectual Property

When your business expands to include employees or contractors that work alongside you, the rules governing intellectual property become somewhat more complicated. Whether your employees are creating intellectual property for your business, are using intellectual property created by you (i.e., trade secrets) to complete their tasks, or working on developing independent intellectual property outside of work hours, there are rules and regulations that govern these actions.

It is important to get acquainted with those rules to ensure that the intellectual property developed during your business operations continues to belong to you. In Canada, there are different legal ownership tests applicable to patents, trademarks, and copyrights. Further, there are meaningful differences in legislation depending on the creator’s status within your organization – employee or contractor.

Copyright – works created by an employee in the course of employment

Pursuant to section 13(3) of the Copyright Act, R.S., 1985, c. C-42, where the author is an employee, creates an original work in the course of employment and in the absence of any
agreement to the contrary, the employer shall be the first owner of copyright.

If employers wish to make it clear that they own the rights to the works created by employees on a worldwide basis, employers should nonetheless address copyright in their employment contracts. While ownership of the copyright, by law, remains with the employer, addressing the question of rights in an employment contract eliminates any doubt in the eyes of employees about who owns the rights to works created in the course of employment.

Copyright – works created by an independent contractor

In the absence of an employment agreement, the general rule in Canada is that the author is the first owner of the copyright in an original work. The author is the creator of the work. Just because a contracting party pays for the work to be completed does not mean that they own the copyright in the work. In fact, this is a common misconception as they typically have some form of implied licence. A written assignment transferring the rights to the contracting party will be necessary if the ultimate intention is for the person who paid for the work to own the copyright. If no assignment is executed and the copyrighted work is not transferred the rights shall remain with the author who is the first owner.

Trademarks

Trademark ownership is dependent on who uses the trademark, rather then the person who creates or designs it. Note, however, that there can be disputes over ownership of copyright in a logo due to the copyright ownership issues discussed in the sections above.

Patents – inventions made in the course of employment

In Canada, if no specific intellectual property clauses are included in an employment contract and common law factors don’t favour the employer owning the invention, the employee may retain ownership of their inventions even if made in the course of employment. This is because under the Patent Act the inventor is the deemed first owner of an invention unless there is an agreement to the contrary.

There are two notable exceptions to this rule. The first is if an employee has been hired under contract with the specific purpose of inventing. In that case, ownership will be determined by the employment agreement. The second is where all the surrounding circumstances point to the fact that the independent contractor was never intended to own the invention.

Outside of these two situations, it is incumbent on the employer to specify a clause regarding assignment and transfer of intellectual property within the employment contract the employer wishes to own the patent. In the absence of such a clause, Canadian common law determines who owns the invention.

While mere existence of an employment relationship does not disqualify employees from patenting inventions made in the course of employment, the content of an employment agreement, if one exists, and other factors set out by Canadian common law will play a role in determining who owns an invention.

These factors include:

  1. Was the employee hired for the express purpose of inventing?
  2. At the time of hiring had the employee previously made inventions?
  3. Did the employer have incentive plans encouraging product development?
  4. Did the conduct of the employee once the invention was created suggest ownership was held by the employer?
  5. Was the invention the product of the problem the employee was instructed to solve?
  6. Did the employee’s invention arise following consultation through normal company channels?
  7. Was the employee dealing with highly confidential information or confidential work?
  8. Was it a term of the employee’s employment that he or she could not use the ideas that he or she developed to his or her own advantage?

It should be noted that even if an employer is confident that he or she may fall under the two exceptions listed above or that he or she will pass the common law test for whether the employer owns the invention, employment relationships are not impervious to this issue. It is not unusual for parties to dispute patent ownership considering the ultimate value that a patent can have for a business or an inventor. Accordingly, it is much more time and cost effective to stipulate appropriate intellectual property provisions during the hiring process and the process of signing an employment agreement.

Steps to take when hiring an employee

In the beginning of an employer-employee relationship, it is important to ensure that the employer is clear on where they stand regarding ownership of intellectual property. If the employer intends to retain all rights then the employer must ensure that the transfer of intellectual property rights and protection of confidential information is presented as part of the terms for hiring the employee. These provisions might include:

  • A non-disclosure agreement for any employee that deals with confidential material or trade secrets in their work and that mandates that the information in question should not be shared with anyone outside of the firm, including but not limited to future employers.
  • Restrictive covenants or non-compete agreements may be used as a further precaution if the risk of the employee moving to work for a competitor and revealing confidential information is high.
  • A provision regarding ownership of intellectual property rights in the employment contract that specifies the assignment of all employee-created intellectual property rights to the employer throughout the term of employment. When in doubt, it is better to be specific and outline different situations that may occur (for example, including IP created by an employee outside of work hours but with the use of company knowledge and resources). Often, strict provisions will stipulate that all intellectual property created by an employee during their tenure, regardless of specific circumstance, become the property of the employer.
  • If the employee creates any works that may be subject to copyright, it is useful to also specify transfer of copyright to the employer. Copyright protection extends not only to artistic works such as music and paintings, but to more everyday developments such as website design and marketing content.
  • In Canada, the creator of the copyrighted work also owns moral rights to the work that can dictate the terms of its usage, so a waiver of moral rights should also be included in the contract.

For all of these contractual provisions, it is crucial to specify the penalties that the employee may be facing if they breach the agreement. Doing so will provide an additional deterrent and discourage employees from potentially acting in their own self-interest.

Because the employment contract carries so much importance in terms of protecting your business from damage to your intellectual property or future litigation, it may be helpful to get the help of an intellectual property lawyer in drafting the contract and ensuring it adequately covers all your needs.

If the employee in question is already employed and no provisions regarding intellectual property ownership were agreed to in the original employment contract, there is an option to secure a new contractual provision midway through the employee’s tenure. However, the assignment of intellectual property rights should be accompanied by consideration to the employee, such as future wages to avoid issues around the validity of the assignment.

Steps to take when hiring a contractor

Retaining the intellectual property made for your business by contractors may be a little trickier. An independent contractor is not bound by the same intellectual property rules that an employee is, meaning that you are likely receiving some sort of implied licence to their work consistent with the parties’ understanding of the arrangement.

Like when working with employees, the best method to ensure that the intellectual property created by independent contractors for your business is to make specific provisions regarding all intangible assets in question within the initial contract. Make sure to require that any intellectual property created by the independent contractor over the course of the business relationship is assigned to the employer, with all ownership rights transferred. The contract should also specify that this transfer occurs without any future royalty or copyright fees, and that the contractor waives all rights to the intellectual property and moral rights in question.

Another precaution to take in case of future litigation is to ask the contractor to provide a detailed listing of all intellectual property that they claim ownership to prior to commencing their professional relationship with you. This will provide the independent contractor with assurance that works made outside of the contract will not be affected in any way by the terms of the new agreement.

Drafting a contract that clearly outlines these issues and specifies the penalty a contractor could face for non-compliance can be tricky. As with employee contracts, you may wish to ask a lawyer for help with making sure your contract fulfills your needs.

Conclusion

Rules surrounding intellectual property created by employees can be complicated, but a contract specifying assignment of intellectual property to the employer at the outset of any working relationship is a strong solution.

In drafting a contract that adequately protects the employer in intellectual property-related scenarios, it is important to be very specific and consider all potential scenarios. Finally, employers may wish to consider using exit interviews with employees and contractors to remind them about the intellectual property obligations they have contractually committed to at the beginning of your business relationship.