Ownership and control of IP: report 3

Following the Ownership and control of IP conference lunch-break solicitor-advocate Bratin Roy (Bristows) emphasised, in "Inventions and Innovations Created by Employees: who owns, who controls?", that the three main concerns raised here are exploitation, compensation and termination. Commercial exploitation depends on having the right to exploit commercially; compensation may be payable where the exploitation is sufficiently profitable, and termination of the employment relationship may trigger competing claims to ownership.

Bratin explained that much depends, under the Patents Act 1977, s.39, on the nature of the duties of the employee and the manner in which those duties are expressed. Thus, for example, a physician's duty is to treat his patients, not to create an invention in order to treat a patient. However, a qualified engineer's duties might create the expectation that he would exercise inventive skills even though his role was managerial. The situation was fluid, not least since a consultant might still be subject to implied duties towards his client that corresponded to the duties owed by the employer to the employee.

The rules relating to copyright were contrasted with those for patents. Under the Patents Act 1977, s.42 any contract in a contract of employment that seeks to give the employer any greater right than its statutory rights is unenforceable, while under copyright an employer can in principle contractually take all rights in all works created by an employee. Confidentiality rules also come into play, particularly at the point at which the employment relationship terminates.

The penultimate speaker, Claire Howell (Aston University), tackled the rules governing the payment of compensation to employees in respect of the outstanding benefit conferred on their employers or even third parties on account of their patented inventions. She gave a bouncy and enthusiastic explanation of both the entitlement of employees to compensation and the means of its assessment in two recent cases known to readers of this weblog, Kelly & Chiu v GE (the Myoview case) and Shanks v Unilever.

Claire's presentation closely analysed the terminology of the Patents Act 1977, s.40, which triggers the entitlement to compensation, to show how difficult it was to bring an outstanding benefit from a patent within the scope of that provision in terms of causation and the potential multiplicity of routes by which the benefit to the employer might be obtained. This is important: for example, a benefit derived from the period of data exclusivity to which the developer of a pharma product is entitled is not derived from any resultant patent, even though it results from the invention which has been patented. Commenting on how hard it is to place a value on intellectual property, especially in the case of a patent for a unique product for which there was no comparable alternative, Claire ran through the list of criteria in s.41 of the 1977 Act which reduce the scale of any compensation to which inventive employees would be entitled.

Finally, David Morris (WilmerHale) addressed the mechanics of actually acquiring IP rights, looking at best practices for buyers and sellers of target assets. He reminded participants that the same rules -- and therefore the same practices -- would not hold for all jurisdictions or for all IP rights. Basic issues such as the accurate identification of the assets being bought and sold and the need for due diligence, were however constant.

David spoke of binding contracts with "gaps", offering flexibility and taking account of timelines while also giving parties the chance to fill in the details subsequently in the light of competition law requirements or other sensitive matters. Waxing lyrical on the joys of due diligence, David contrasted vendor due diligence -- where for example several prospective purchasers are competing to acquire an auction product -- with the real thing, purchaser due diligence which assures the purchaser of the properties it acquires and enables it to ascertain whether it is getting value for money. Lists of IP are handy, showing what is being acquired, when it needs renewal, and so on.

Moving on to formalities, warranties and risk assessment, David reminded the audience of the ease with which registered rights can be dealt with, in contrast with unregistered rights, and the need to comply with statutory requirements such as making sure that copyright assignments are in writing and signed by or on behalf of the licensor (Copyright, Designs and Patents Act 1988, s.90(3)). Indemnities ("a pound-for-pound remedy") were highly praised as a means of guarding against the damage caused by infringing third-party rights. David's Five-Minute Finale consisted of five classic issues:

1. Contractors retain ownership of their IP unless the contrary is established or there's an implied licence;
2. Agreements to assign are not the same as assignments: they need to be implemented or they may confer no more than an equitable entitlement;
3. Shared-use IP: what happens when a group or business sells just part of itself? Some sort of agreement splitting or sharing IP may be needed. Best practice is to agree everything in advance, bearing in mind any possible insolvency risk;
4. Overlapping rights: two or more IP rights can cover the same product. All may need to be addressed;
5. Problem agreements: an agreement may be well drafted and explicit, but it addresses a business objective which has changed and needs changing or updating. Amendments will need consideration.

David also offered a list of Top Tips -- basically, assess the position early, be alert, be cautious, "measure twice, cut once", act quickly once you've made up your mind what to do, and basically be perfect ....