​Who owns employee-created IP?

Posted 2 September 2015.

​Who owns employee-created IP?

By Anthony Drake and Rupert Gillies, Kensington Swan Lawyers

​It is generally accepted that intellectual property (‘IP’) is a business asset. However, when IP is developed by employees, or third party contractors, issues over ownership can arise. Businesses often take it for granted that they own employee-created IP, whether it is copyright works, patents, trademarks or less common forms of IP. However, in New Zealand, an employer will only be entitled to the rights in any IP created by an employee if it was created ‘in the course of employment’. Generally, where an employee creates IP in their own time they will retain ownership rights to it. Accordingly, when ownership of IP is contested in the employment context, the question to ask is whether the IP was created ‘in the course of employment’ or within the scope of what the employee was employed to do.

That question is becoming increasingly difficult to answer. The traditional work-personal life dichotomy has become muddied by new technologies and the advent of flexible working arrangements. This article considers the law around ownership of IP in the workplace, the challenges posed by the modern working environment, and what businesses can do to best protect their interests.

The legal framework

The principle that ownership of employee-created IP vests in the employer is confirmed in the Copyright Act 1994. Section 21(2) of the Act provides that where an employee makes a copyright work in the course of his or her employment, it becomes the exclusive property of the employer. While the issue of ownership in the employment context is not dealt with specifically in the legislation governing other forms of IP, the case law demonstrates that the principle applies equally.

The New Zealand courts have only seen a small number of cases involving disputed ownership of employee-created IP. Here we share two examples which demonstrate how the courts have dealt with the issue.

a. An unimpressed employer

In the case of Pearl Empress Abalone Ltd v Langdon the Court of Appeal found the employer engaged the employee to work on a project for the production of spherical abalone pearls. After commencing employment, but in his own time and without using the employer’s resources or facilities, the employee developed improved methods for making half pearls and applied to register the relevant patents. The employer claimed that it was entitled to ownership in the patent applications and in the related IP.

The question for the Court was whether the improved methods for the production of half-pearls were developed in the course of employment. Although the parties had not entered into a written employment agreement, it was established that the employee’s duties were limited to the growing of spherical pearls, not half-pearls. Ultimately, it was found that the employee was not required to invent a better method of growing half pearls as part of his role, and therefore the methods for making half pearls were created outside the scope of the employment agreement. On that basis, the employer could not claim any rights in the patent applications or related IP.

b. A hard lesson

In Abbot v Chief Executive, Whitireia Polytechnic the Employment Relations Authority found a polytechnic tutor created mathematics workbooks which she used to teach her students. The polytechnic asserted ownership of the materials and threatened the tutor with disciplinary action if she failed to provide the Polytechnic with a copy of the materials.

The Polytechnic’s IP policy provided that any IP created by staff in the course of their employment, or when using polytechnic time or resources, belonged to the Polytechnic. The policy also stated that if an employee created IP outside of work hours and without the Polytechnic’s resources or facilities, the IP belonged to the employee, even if the employee used the materials for teaching purposes. Crucially, the relevant employment agreement did not contain a specific IP clause setting out rights and obligations in relation to employee-created IP and there was no express requirement in the employee’s job description that she create the workbooks.

The Authority held that although the workbooks arose out of the employment context, the employee owned the copyright in the materials because:

• The employment agreement did not specify that she was required to create the workbooks.

• The workbooks were created in the employee’s own time. The Authority added that they resulted from the employee’s own ‘intellectual curiosity and sense of professionalism.’

• The employee could not have been subject to disciplinary action were she to cease producing the materials.

Technology and modern work arrangements

The government’s recent changes to the Employment Relations Act 2000 have extended flexible working arrangements to all employees: previously they were restricted to those with caring responsibilities. This reflects a trend in New Zealand of employers looking to diversify their workforce, and create a positive and productive working environment by introducing flexible work options, including flexibility as to location.

With advances in computing technology, it is no longer necessary for many office-based employees to attend the workplace every day to perform their duties. A growing number of employees are beginning to work from ‘home-offices’ on a permanent or semi-permanent basis or, if required to work overtime, may elect to take work home. Laptop computers, smartphones and other digital devices with remote access to an employer’s computer system are now standard issue and enable employees to work from practically anywhere at any time.

Given this increased employee mobility, the traditional distinction between work and personal life is less easily drawn in the modern employment context. As a result, employers can no longer safely rely on the general rule outlined above that what an employee creates ‘on the clock’ belongs to the employer and anything created ‘off the clock’ belongs to the employee.

Best practice

The best way to clarify rights to employee-created IP is via a written employment agreement. However, employers (and employees) should look closely at their employment agreements and policies to ensure they properly address ownership of employee-created IP as the cases indicate that the courts will read any agreements narrowly. Moreover, the employment agreement, and IP clause and job description in particular, will be closely scrutinised by the courts when determining whether IP was created ‘in the course of employment’. Therefore, the employment agreement should set out in unambiguous terms the rights and obligations of the parties with regard to IP.

Where employees work remotely, and IP may be created outside the workplace and/or normal working hours, businesses should ensure their employment agreements directly address the issue of IP ownership. To that end, employment agreements should make reference to the specific types of IP the business wishes to retain, particularly where the employee is engaged to create IP for the business or where the duties the employee is required to perform may result in the creation of IP. A list of such IP would ordinarily be included as part of the employee’s job description. In addition, employment agreements should contain a specific IP clause stating that any IP created by the employee during the performance of their duties, whether or not the IP is created on work premises or within normal working hours, belongs to the employer.

Apart from being legally enforceable, setting out an employee’s obligations in a written employment agreement has the advantage of defining the employee’s expectations in black and white before employment commences and any dispute arises.

What about independent contractors?

The employer and independent contractor distinction also has important implications for IP ownership. In contrast to an employee, where an independent contractor or other third party is engaged to create IP for a business, the contractor or third party will generally retain ownership rights, even where the IP is created within the scope of what the contractor is engaged to do. As is often the way, parties can modify the default rule by agreement. For instance, a written agreement with a contractor can stipulate that the contractor automatically assigns to the business all IP created in the course of completing the contract.