Technology / IP
Intellectual Property Rights - an overview
Intellectual Property is a complex area of law so it's hardly surprising that a host of intellectual property myths and half-truths have gained currency over the years. Some people think (or hope) that material circulated on the internet is automatically 'in the public domain' and therefore fair game, or that if everyone else is copying things then it's okay to do the same. Both are widely believed and both are untrue. Similarly, the commissioner of a piece of intellectual property won't always own the intellectual property outright. This is another common misconception and another reason to keep these practical issues at the forefront of your mind when it comes to dealing with (and paying people to create) important intellectual property for your business.
Most intellectual property falls into one of two categories: registrable (trade marks, patents and designs) and non-registrable (copyright, and confidential knowhow that doesn't fall into any other category). The former is much easier to protect because you can prove ownership by reference to a register of intellectual property. However, some people still think that making a few tweaks to a trade mark or design will allow them to use it with impunity. In fact, you can't just alter a few colours to escape trade mark protection, and you can't make seven changes (or five, or any other number) to avoid infringing a registered design. In general, the safest approach is to remember that you shouldn't produce something which consumers might confuse with a pre-existing mark, patent or design.
Non-registrable intellectual property is harder to defend, but there is no need to register it. Copyright protection arises automatically from the moment a work is completed, and you certainly don't need to put the © symbol on a work to benefit. However, there is also no rule of thumb when it comes to copying: you can't avoid copyright by taking only every other word of an article, or only the first few bars of a song. Moreover, you can't get around the law by saying your version is a parody (although there are moves to change this in future), or by acknowledging the original work. If the new work copies a substantial part of the original, there will be a problem.
It's clear, then, that some intellectual property myths make you think your intellectual property is protected when it isn't. Others could leave you facing a nasty shock, when the owner of intellectual property you thought was free to use gets in touch and asks you to cease and desist. There's no substitute for detailed advice, but remembering a few general rules and principles and abandoning a few myths like these can help when it comes to defending your intellectual property, or avoiding infringement of somebody else's.
Why is this important?
Ownership of work product is absolutely crucial for most companies. A company must own or have a licence to what it uses, sells, distributes or licences, otherwise it is potentially breaching someone else’s intellectual property rights. Breach of any intellectual property rights owned by a third party can give rise to a potentially expensive dispute resulting in the breaching company having to pay damages and alter its products or enter into an expensive licence agreement with the third party. Failure to secure the necessary intellectual property rights may also undermine the intrinsic value of the company and its assets.
One of the key issues an investor or buyer will look at is whether a company owns the intellectual property rights used in the course of its business. Getting this right at the beginning will save you money and time in the long run but may be more complicated than you might suppose.
Why is this complicated?
A common misconception is that if someone is working for your company, the company owns their work product. The actual position is more complicated. The company will automatically own the intellectual property rights in whatever is produced by employees (as opposed to consultants) during the course of their employment. However, there are a number of situations when work is not carried out by employees. For example, when a company is starting out, work often begins before a company structure is put in place and employment contracts are entered into. In addition, people tend to come and go on a project; there may be a number of people who contribute to a project on a consultancy basis or even more casually. In the absence of a contract of employment or an assignment, the individuals will retain the intellectual property rights in what they produce and the company will not have ownership.
What should ring alarm bells?
You need to think about who has worked on things which you consider to be owned by the company and whether or not they were employed by the company at the time of work. Situations which could cause problems include:
- where the founders started work before the company was officially set up;
- where someone initially worked on the project but was never an employee of the company;
- where work was done on company product by people who were, at the time, employed by a third party;
- where consultants have been used; and
- where open source software has been used (see section on Open Source Software).
How do we deal with this?
If any intellectual property rights in what you consider as company product are retained by third parties, even if those third parties are now company employees, you need to get an assignment of intellectual property rights from the individual to the company. An assignment (which must be in writing) is a relatively straightforward legal document but care must be taken to describe exactly what content is being transferred. If you obtain a written assignment, anything covered by it will then be owned solely by the company.
In an ideal world, the assignment will be a formality. For example, if the founders started working on company product before they became employees, they will be unlikely to have an issue with giving an assignment. Where people often run into problems is in cases where there has been a personal falling out. You can find that someone who was involved in the company but never employed by it, now wants to set up a similar business or feels that they should be paid for assigning his or her rights.
In some cases, you may not be able to negotiate an assignment on acceptable terms. If this happens, you need a licence to use what you don’t own or you will have to stop using it. Again, the terms of the licence will need to cover exactly what is being licensed and be generous enough to allow you to use the licensed materials as required. You may find that the proposed licence is too costly or not wide enough.
If you do find that a third party owns the intellectual property rights in something which is crucial to your business and you are unable to arrange transfer or licence of those rights, you may have to think about re-developing those aspects which you do not own. This is probably achievable if you are talking about a piece of software code but will be much more problematic if it is a major part of your business proposition. Do not just sit back and hope the issue will go away. If you do not resolve it, you could become embroiled in costly litigation and you could have trouble attracting investors and/or potential buyers.
What should we do from now on?
Make sure that anyone who works for you does so either as an employee of the company or under a consultancy contract or other agreement which makes it clear that the intellectual property rights in any work done for the company, are owned by the company.
"Make sure that anyone who works for you does so either as an employee of the company or under a consultancy contract or other agreement which makes it clear that the intellectual property rights in any work done for the company, are owned by the company."