IP/IT update

Few fields have as many changes as IP/IT law, given the importance of social media, the internet and cyberspace both to businesses and individuals. Since May’s IT/IP update, there has been the usual round of court decisions in relation to all four intellectual property rights, too numerous to cover here.

This article concentrates on the issue of ownership of IP rights under the new IP Act, which is an issue that arises for solicitors all the time. Far too many clients believe if they pay for work to be done for them, they will automatically own the IP rights in the product. In fact, the converse is true, unless there is an agreement to the contrary.

Ownership rights

A new Intellectual Property Act 2014 has
received royal assent and, among other changes, it addresses the issue of ownership of rights.
The basic rules on ownership of IP rights are
fairly simple:

1. works produced in the course of employment are owned by the employer unless otherwise agreed;

2. works produced by people who are self-employed, contractors, consultants, suppliers, joint venture partners and even some directors who are self-employed, or contract their services through their own limited company or an employment agency, are owned by those individuals/organisations, not those who pay for the works. As with employees’ works, the parties can agree a different position on ownership if they choose.

Until the Intellectual Property Act 2014 comes into force in October, the rules on ownership of these valuable so-called ‘intellectual property rights’ differ depending on whether the rights concerned are copyright or design right. Unregistered design right protects many important industrial and design products which are three dimensional, from the shapes of newly designed furniture to much more complex items.

Copyright protects drawings, plans, computer software, slide presentations and some databases. Database right protects databases. Patents protect registered industrial inventions. Trade marks protect business names.

All these rights together are known as ‘intellectual property rights’. Some are registered rights and some are not. Until October, if there is no agreement to the contrary between the parties for design right, the right passes to the person paying for the work, rather than remaining with the author/creator.

For copyright (a much more common right than design right as it also applies to computer software), it has always been the opposite: the self-employed author retains ownership and all the company commissioning the works obtains is a licence to use the rights concerned unless the parties agree otherwise. Such a licence to use may be all the buyer needs or it might be totally inadequate.

Cases like Robin Ray v Classic FM Plc [1998] FSR 622 established that in these cases of no-written contract or a contract without an IP clause, the courts imply, for copyright, a limited licence to use (not ownership or an exclusive licence). This will be an implied licence which is the most narrow necessary to give efficacy to the contract.

Funding research

Ownership rights, conversely, are much more desirable for those funding research or software development work. From October, the position under the Copyright, Designs and Patents Act 1988 for copyright and for designs under the Intellectual Property Act 2014 will be the same: ownership will remain with the author (or their employer if they are an employee under PAYE) and the company paying for the work will simply receive a licence to use the works on a non-exclusive basis unless the parties agree otherwise.

In practice, both before and after the change in the law, it is sensible to ‘agree otherwise’ - to have a written agreement signed by both parties dealing with these issues. This agreement is likely for consultants to cover all the issues such as work to be produced, deadline dates, confidentiality and fees, but should also include a clause on ownership of intellectual property rights.

That clause may state that:

1. the buyer will own all the rights as soon as
they are created throughout a project; or

2. the buyer will own all the rights once full payment is received for the project; or

3. the supplier/creator will retain ownership of
all the rights and the user obtains an exclusive licence to use with the conditions on use clearly set out; or

4. the supplier/creator retains ownership and
the user obtains a non-exclusive licence to use, again with the conditions set out in the agreement; or

5. the parties will jointly own the rights, joint ownership if legally possible, but complex, as the agreement will need to cover if both parties may assign/transfer their half of the rights, what licences they can grant and in what other ways they will operate together.

Complex contracts

Readers should check that consultancy agreements and contracts with directors, particularly those who are self-employed or contract their services through their own limited company, and even standard terms of purchase and sale, include a clause stating which party will own intellectual property rights.

For more complex contracts, the agreement
will normally refer to pre-existing IP rights
which perhaps are the basic building block of the business of one party (background IPR) and new rights which are being paid for which will emerge from the project or co-operation (foreground IPR).

Usually each party will keep ownership of its pre-existing background IPR, but may need to license it non-exclusively to the other party.
As to commissioned works, the foreground IPR, ownership is simply a matter of negotiations. Sometimes the author/supplier will retain ownership and the other party will obtain an exclusive or non-exclusive licence to use it, or sometimes the buyer will take ownership either on payment being made or immediately.

Do ensure that clauses cover physical transfer or electronic supply of the material, such as computer source code, or knowhow drawings and designs during the project. Sometimes the parties fall out during a project and who owns the rights at that stage and who has possession of the materials can determine the outcome.

It is also wise to insist in the contract that copyright notices are added to the works.
If registered rights such as patents for industrial inventions will be relevant, then make it clear in the contract who will own those registrations and pay the fees for them.

Block exemption

On 1 May 2014 the new EU Technology Transfer Block Exemption Regulation 316/2014 came into force (see SJ Volume 158 No 18, 6 May 2014). This sets out for patent, knowhow and software copyright licences in the EU which clauses in such contracts will be void and prohibited (such as price restrictions and some territorial restrictions), no challenge to the rights clauses and some improvements clauses.

The new regulation makes it clear that for non-exclusive licences there must be no clause stating that the licence terminates if the licensee challenges if the rights are valid or not. It replaced a similar earlier regulation and comes with accompanying IPR guidelines from the European Commission. For licences existing as of 1 May 2014 when the regulation came in, the parties have until 30 April 2015 to revise their agreements to comply with the new regulation.

For those mostly dealing with directors, do remember that not all directors are employees,
so the automatic vesting of a patent, copyright, trademarks and designs rights in the employer will not apply.

The most important practical issue is to remember that ownership of IP will not always be what the parties assume and that the solution is to have written contracts drawn up in advance which make very clear which company or individual owns IP rights, who can apply for
them and who will pay for them where they
are registered rights.

Finally, do not forget customer lists and the importance of confidentiality clauses and non- competition clauses for when a director leaves the business or an agreement ends. There is a popular myth that all restrictive covenants are invalid. This is not true. Most of those which are well drafted are valid.

In disputes, solicitors often find the IP clauses, the confidentiality provisions, and any non-disclosure agreements and non-competition restrictions, together provide valuable protection for the company. Far too many companies choose not to include a confidentiality and IP clause, nor one relating to non-competition and non-solicitation in employment contracts.

It would be wise on a regular basis to assess whether all these clauses are included in contracts. SJ

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