Intellectual property arising in the course of carrying on a business, whether created by employees or contractors (including directors, founder-shareholders, or others), may not always vest with the business by default.
Failure to take appropriate steps can result in IP leakage and corresponding loss of value, risks to the freedom of the business to operate, and disputes with personnel or third parties.
This article outlines differences in the legal position in relation to inventions/patents and copyright-protected works, across the UK, Germany, China, and the U.S., and sets out what steps can be taken to address the risks.
The default position on “first ownership” of IP is largely not harmonized. The Berne Convention (1886) provides that works are protected for the benefit of the “author” but does not define “author” because national laws are not harmonized. In the case of industrial property, the Paris Convention (1883) does not establish a harmonized approach for determining who the first owner is.
Contractor-developed IP
In the UK, Germany, China, and the U.S., in the absence of an assignment, the default position at law is that IP developed by a contractor, i.e. a person working under a contract for the provision of services, will generally be owned by the contractor, as the creator or inventor (or otherwise).
There are limited exceptions. For example:
- In the U.S., there are specific categories of commissioned works where IP vests in a business under the “work made for hire” doctrine. This is explained further below. However, these are limited, and there must be a signed agreement ordering or commissioning the work as a “work made for hire”. Any contractor agreement should provide that, to the extent that a creation is not a “work made for hire”, the contractor assigns all rights to the creation to the party who hired the contractor. Businesses should take caution using “work made for hire” language for independent contractors in particular states (e.g. California) as there may be other employment-related legal consequences, including an independent contractor being classified as a statutory employee.
- In the UK, database rights are owned by the “maker” of the database, which is defined as the person who takes the initiative in obtaining, verifying, or presenting the contents of a database and assumes the risk of investing in the same. Where a business has instructed a contractor to produce a database, as the business assumes the risk of investing in obtaining, verifying, and presenting the database, the business is the database owner.
Employee-developed IP
In the UK, Germany, China, and the U.S., the default position at law is that IP developed by an employee during the course of their employment will generally be owned by their employer. However, the position varies, as outlined below.
UK
Inventions/patents
Unless otherwise agreed, the employer owns rights in inventions (and, accordingly, the right to apply for a patent in respect of inventions) that have been made by an employee: (i) during the course of the employee’s normal duties, or if outside their normal duties, where the duties have been specifically assigned to them, and in either case, the duties might reasonably be expected to result in in the invention; or (ii) during the course of the employee’s duties, where the employee has, due to the nature of their duties and responsibilities arising from them, a special obligation to further their employer’s interests. Any other inventions made by an employee are owned by the employee.
For inventions owned by the employer, the employer is required to award compensation to the employee that represents a fair share of the benefit that the employer has derived, or might be expected to derive, from the invention or patent. What amounts to a fair share is dependent on various factors, including the nature of the employee’s duties, the employee’s effort, and skill in developing the invention, the effort and skill that any other person has devoted to making the invention jointly with the employee and the contribution by the employer (e.g. provision of facilities, advice, and other assistance). The employee also has a statutory right to be named as the inventor of the patent.
Copyright
The position is similar to rights in inventions. Generally, the default position is that the first owner of copyright is the author of the work, but the employer owns literary, dramatic, musical, artistic, and film works created by an employee in the course of their employment. However, this rule does not apply to other works, such as sound recordings, where the producer (rather than their employer) will be deemed to be the author, and therefore the first owner, of the copyright.
What falls within the scope of “in the course of employment” is not defined by the relevant legislation. Disputes can arise as to whether an employee is working as an employer or contractor. The courts may imply a license or assignment into agreements for certain arrangements (although they are generally reluctant to do so). This will depend among other things on the price paid, the impact on the creator of not having the rights, and whether it can sensibly be interpreted that the creator should retain the rights. If the contractor is a company director in the business, the director may hold any arising IP rights on trust for the company, as a result of the director’s fiduciary duties.
Computer-generated works (a hot topic given developments in generative artificial intelligence) will be owned by the person by whom the arrangements necessary for the creation of the work are undertaken. In practice, this will mean the business that owns or directs the use of the computer systems involved.
In addition to copyright, related moral rights will arise in relation to most copyright works. However, even if the employer owns the copyright (automatically or otherwise), the employee cannot assign their moral rights to the employer. Moral rights can be waived, provided the waiver is in writing and signed by the employee.
Germany
Inventions/patents
The employer may claim the invention, and may file a corresponding patent in their name, if the invention is made within the scope of the employee’s contractual obligations to the employer, i.e. the invention arises from work the employee is obliged to perform for the employer or is significantly based on the experience or work of the employer (known as a “service invention”).
If the employer claims the invention, the employee must receive adequate compensation that is independent of the employee’s general remuneration, and an employment agreement cannot waive this right. The appropriateness of such compensation depends on the facts, but key considerations are (i) the economic usability of the service invention; (ii) the tasks and position of the employee; and (iii) the company’s share in the development of the service invention.
Copyright
Similar to the position in the UK, the default position is that the first owner of copyright is the author of the work, not the employer, with copyright having both moral and economic characteristics. Only the economic aspect of the copyright can be transferred to the employer, with the moral aspect inseparable from the author and incapable of transfer. Generally, an author cannot waive their moral rights. However, an employee can waive the right to exercise their moral rights in certain circumstances.
An employee may assign their economic interest to their employer. This may be agreed in the employment or other agreement. However, if the parties do not agree on the scope of the rights to be assigned, such an assignment will be construed in favor of the employee and the employee will only assign to the employer the necessary rights.
The position is different for software. Unless otherwise agreed, the employer owns the rights to use and exploit software developed by an employee during the performance of the employee’s duties or in accordance with the instructions of their employer.
China
Inventions/patents
Chinese Patent Law provides for a “service invention” regime where employers automatically own service inventions that an employee completes: (i) in performing their duties; or (ii) mainly using the employer’s material and technical resources. This applies to inventions made during their employment, or within one year after leaving their employment. Both patentable inventions and non-patentable inventions (e.g., know-how, trade secrets) fall under this category.
The employer must compensate an employee for technical contributions in addition to their salaries. For example, the inventor remuneration regime requires employers to remunerate employee-inventors for their inventive contribution. The employer may enact policies or enter into an agreement with an employee regarding the amount and means of the remuneration, with the statutory amount applied when no policy is implemented, or no agreement is reached.
Copyright
Chinese Copyright Law provides for a “service works” regime where, unless agreed otherwise, and except for certain special works (e.g., software, maps, engineering drawings) that are owned by the employer, service works created by an employee are owned by the employee.
The employer has the right to use service works created by the employee that fall within the scope of their business activities. Furthermore, the employee is not allowed to authorize any third parties to use those service works in the same way as the employer within two years following the creation of the service work, unless otherwise agreed with the employer. For special works where copyright vests in the employer by operation of law, the employee has the right to be identified as the author.
The inventor remuneration regime applicable to service inventions also applies to service works if those works are “technical achievements” (e.g., software) as opposed to a mere literary or artistic work that does not have technical elements (e.g., logo designs).
U.S.
Inventions/patents
Under U.S. law, the employee is the legal owner of an invention created by an employee, absent a written assignment agreement, or specific circumstances in which the employee was hired to create something specific or solve a specific problem (known as the “hired to invent” doctrine). The U.S. Patent Act does not have a “work made for hire” doctrine.
The employer should ensure that the employee signs a proprietary information and invention assignment agreement that includes an assignment of all inventions, whether patentable or not. Absent such an agreement, the employer may still have limited rights to use an invention created by the employee, such as through an implied non-exclusive license, commonly known as a “shop right”.
Copyright
Generally, the author of a work of authorship is the person who created the work. However, under the “work made for hire” doctrine, the U.S. Copyright Act provides an exception to this rule. If a work is created by the employee as part of the employee’s regular duties, the first owner is the employer.
Moral rights are more limited in the U.S. than other jurisdictions and are limited to providing creators particular rights regarding visual arts (e.g. paintings and sculptures) and such moral rights cannot be transferred but can be waived. Creators of “works made for hire” under the Copyright Act do not obtain these moral rights protections.
Capturing ownership
How can a business ensure it captures ownership of IP created by employees and contractors?
Businesses should ensure all relevant employees and contractors enter into agreements and keep well-filed copies of the same. In those agreements, businesses should include:
- An assignment of all arising IP rights, with particular attention given to the definition and scope of rights assigned. The agreements should clarify what duties are within the employee or contractor’s scope of regular duties (including details of any works that are to be created at home and outside of standard business hours), and ensure job descriptions are up to date to reflect current roles;
- Provision for calculation and payment of compensation required by law;
- A waiver of moral rights (to the extent permitted by law);
- An obligation on the employees or contractors to disclose arising IP to the business (and to follow any applicable procedures relating to invention capture and disclosure) and not to seek to register IP independently in their own name;
- Obligations to maintain the confidentiality of IP; and
- “Further assurance” provisions (e.g. an obligation to sign assignment and other documentation which may be required for prosecution, maintenance, defense or enforcement of IP).
Furthermore, it is good practice for businesses to implement appropriate policies, procedures, governance and training, to ensure arising IP is identified and that appropriate steps are taken to protect the value of, and the employer’s interests in, that IP.
