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Settle intellectual ownership in advance

By Scott Moran, Partner

First published in The Press & The Dominion Post, 2 June 2008

Who owns your company’s intellectual property? A recent decision of the Federal Court of Australia has served as a timely reminder of the importance of making ownership clear before intellectual property is developed.

The recent Australian decision arose from a dispute between the University of Western Australia and a former employee, Dr Bruce Gray, over the ownership of a liver cancer treatment discovered while Dr Gray was employed by the University.
To commercially exploit the discovery, Dr Gray transferred ownership of the intellectual property rights to a biotech company. The University then challenged the transfer, claiming that it was the true owner of the intellectual property. The University claimed that there was an implied term in Dr Gray’s employment agreement which gave ownership of the invention created by Dr Gray to the University.
However, in short, the Court found that as the invention was not within the scope of Dr Gray’s obligations to the University, the work and its ownership remained with Dr Gray – presumably leaving the University substantially out of pocket.

Although this case was decided on its facts, it highlights the importance of documenting exactly who owns what – and defining the restrictions of use.
Copyright is one of the most common forms of intellectual property right that arises from employment and contractual relationships between parties.
In New Zealand, the first principle of copyright law is that the author of a work will also be the holder of ‘copyright’. This is, however, subject to a few notable restrictions as defined in the Copyright Act 1994.

Where an employee creates a work in the course of their employment, the Act provides that the employer is the copyright owner.
However, where a person commissions a work and agrees to pay for it, that person will have ownership in that work – not the person who created it. This applies in respect of the taking of photographs, the making of computer programs, or any painting, drawing, diagram, map, chart, plan, engraving, model, sculpture film or sound recording.
Therefore, when undertaking work for clients, special care needs to be taken to define exactly who will own what to avoid confusion and disputes later down the track.

From a practical point of view, if you wish to retain ownership of work being commissioned, some consideration should be given to the following:

• The work should be commissioned before the work commences – otherwise ownership will belong to the author (first principle).  
• Although no formal or written contract of commission need be entered into, it must be able to be shown that the author was engaged by the commissioning party to create the work in question.
• The commissioning party must agree to pay for the making of the work. It should be noted that if the commissioning party does not in fact pay the agreed amount, copyright will still belong to the commissioning party and not the author. What is required under the Act is agreeing to pay and not actual payment. (The author would still have a right to recover the debt.)

Parties may enter into a contract and agree between themselves as to who will own intellectual property arising from their relationship. By taking this step, they will avoid having to fit their case into the above criteria.  By agreeing in advance, the parties will be able to have far greater certainty in their dealings and escape the troubles demonstrated by the University of Western Australia.