Employee’s Rights to Intellectual Property

When your business expands to include employees or contractors that work alongside you, the rules governing intellectual property as it relates to your business become somewhat more complicated. Whether your employees are creating intellectual property for your business, are using confidential intellectual property in your business 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 these rules to avoid any surprises down the line when it comes to intellectual property ownership. In Canada, there are different legal ownership tests applicable to patents, trademarks, and copyright. Further, there are meaningful differences in legislation depending on whether the creator is an employee or an independent contractor.

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

Pursuant to subsection 13(3) of the Canadian Copyright Act, R.S., 1985, c. C-42, where 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 be certain that they own the rights to the works created by their employees on a worldwide basis, employers should nonetheless address copyright in their employment contracts. While ownership of the copyright, by law, is 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.

An agreement may also address moral rights, which cannot be assigned and would otherwise remain with the employee. An employer may want an employee to waive their moral rights in the agreement. Otherwise, the employee will retain a right to the integrity of the work, and to be associated with the work by name or pseudonym, or to remain anonymous. A right to the integrity of the work may impact the use to which the employer may put the work, for example, whether a photograph may be used in a particular campaign or may be modified.

The default rights of each party are different for independent contractors, so it’s important to correctly characterize the creator as an employee or an independent contractor when considering ownership.

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 the rights paid for are actually a matter of implied licence. By entering into a contract to create artwork for use in a media campaign, it is implied that the independent contractor has licensed the use of the work by the party contracting with them – otherwise, the creation of work would be of no use to the purchasing party. Having a license, express or implied, however, is distinct from owning the work.

A written assignment transferring the rights to the contracting party will be necessary if the ultimate intention is for the entity who paid for the work to own the copyright. If no assignment is executed, the copyrighted work is not transferred, and the rights remain with the author who is the first owner.

Trademarks

Trademark ownership is dependent on who uses the trademark, rather than the person who creates or designs it. Note, however, a design mark (e.g., a logo) includes an aspect which may be subject to copyright. Consequently, there can be disputes over ownership of copyright in a logo (apart from the trademark aspect) due to the copyright ownership issues discussed in the sections above. Businesses engaging independent contractors to produce logos for their brand ought to obtain an assignment of copyright in the logo to avoid any uncertainty as to ownership and their ability to reproduce the mark.

Patents – inventions made in the course of employment

In Canada, if no assignment of inventions or intellectual property clauses are included in an employment contract and common law factors do not favour the employer owning the invention, the employee may retain ownership of their invention even if made in the course of employment. This is because under the Patent Act the inventor is the first owner of an invention absent an assignment agreement or an obligation to assign.

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 and the invention is within the scope of what the employee was hired to invent. The second is where all the surrounding circumstances point to the fact that the independent contractor was never intended to own the invention. In other words, the Court may consider whether it is an implied term of the agreement entered into between the hiring party and the contractor that the hiring party owns of the invention.

Outside of these two situations, it is incumbent on the employer to include a clause assigning inventions and/or intellectual property to it in the employment contract. Absent such a clause, Canadian common law determines who owns the invention. As a best practice, for the sake of certainty, these issues should be explicitly addressed in written agreements.

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, in the absence of an express written agreement disputes can arise. 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 more time and cost effective to include appropriate intellectual property provisions in an employment agreement or a standalone agreement executed at the start of employment dealing with intellectual property and confidential information.

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 terms might include:

• A non-disclosure agreement for any employee that deals with confidential material or trade secrets in their work that mandates that the information in question is not shared with anyone outside of the company, including but not limited to future employers.

• Restrictive covenants or non-compete agreements (if permissible in your jurisdiction) may be used as a further precaution if the risk of the employee going to work for a competitor and revealing confidential information is high.

• A provision regarding ownership of intellectual property rights in the employment contract that provides for 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 the specific circumstances, become the property of the employer.

• If the employee creates any works that may be subject to copyright, it is useful to also provide for 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 designs and marketing content.

• In Canada, the creator of the copyrighted work also owns moral rights to the work which can dictate the way the work is used, so a waiver of moral rights should also be included in the contract.

• A provision requiring the employee to assist the employer in obtaining protection for any intellectual property created is also often included in an employment or other contract since, for example, declarations from the inventors may be necessary to apply for patent protection.

In the case of each 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 can address protecting your business's intellectual property, consider getting the help of an intellectual property lawyer to review your employment contract to ensure it adequately addresses intellectual property.

If the employee in question is already employed and no provisions regarding intellectual property ownership were agreed to in the original employment contract, a new agreement can be executed during the employee’s tenure to shore up the company's rights to the IP so long as there is adequate further consideration to the employee, which might be continued employment and future compensation.

Steps to take when hiring a contractor

Owning the intellectual property made for your business by contractors can be a little trickier. The default legal position of an independent contractor is not the same as that of an employee, meaning that you are likely receiving some sort of implied licence to their work consistent with the parties’ understanding of the arrangement absent an express assignment of intellectual property.

Like when working with employees, the best method by which to ensure that the intellectual property created by independent contractors for your business belongs to you is to include 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 monies being owed, and that the contractor waives any moral rights which may apply, and if the contractor is an entity as opposed to an individual, that it shall obtain waivers of moral rights from all its employees and contractors.

Another precaution to take in case of future litigation is to ask the contractor to provide a detailed listing of all intellectual property to which they claim ownership prior to commencing their working relationship with you. This will provide the independent contractor with assurance that works made before and 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 an intellectual property lawyer for help with making sure your contract fulfills your needs.

Conclusion

Rules surrounding intellectual property created by employees and contractors can be complicated, but an agreement providing for the assignment of intellectual property to the employer or contracting party at the outset of any working relationship is a strong solution.

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

If you would like our help with your particular situation or have general question regarding employee or employer ownership of intellectual property, please contact us for a complimentary and confidential initial telephone appointment with a member of our team.