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Who owns that IP?

Date: 01 September 2009
Author: Chris Owens
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On 3 September 2009, the Full Federal Court of Australia handed down its appeal decision in University of Western Australia v Gray ([2009] FCAFC 11). This was an appeal from a decision of the Federal Court given on 17 April 2008 (see University of Western Australia v Gray (No 20)  [2008] FCA 498; (2008) 246 ALR 603; 76 IPR 222).

The case concerns ownership of employee inventions and at face value goes against accepted wisdom.  This newsletter explores why the court came to the decision to deny the employer rights to an invention made by its employee and the ramifications for employers of research staff.

Background

Australian patent law has no specific provision that deals with ownership of an invention by an employer where the invention is made by one of its employees. Instead reliance is placed on common law principles.  A general principle established by the British High Court in Patchett v Sterling Engineering Coy Ltd (1955) RPC 50 (HC) is followed by Australian courts.  In this decision the High Court found:

“...inherent in the legal relationship of master and servant (is) that any product resulting from work that a servant is paid to do belongs to the master.”

What other considerations apply?

It is possible to vary this outcome by way of contract or agreed employment terms and conditions.  Where there is an express agreement in a contract that ownership of an invention belongs to the employer, then there is no claim to ownership by the employee.  However, if there is no such agreement, then ownership of the invention will depend on a number of factors, including the relationship between the employer and employee, the employee’s duties, the nature of the invention and how the invention was conceived.
 
The critical question to be determined in each case is “what was the employee employed and paid to do?”

Contrasting decisions

In Triplex Safety Glass Co Ltd v Scorah (1935) 55 RPC 21 the British Court held that:
 
“invention or discovery made by the employee in the course of employment of the employer in doing that which he or she is engaged, paid and instructed to do during the time of employment...is the property of the employer, not the employee.”
 
However, courts do not always find for the employer even if the employee made an invention during working hours, using the employer’s resources.  In 2003 the Federal Court of Australia in Spencer Industries Pty Ltd v Collins (2003) 58 IPR 425; [2003] FCA 542 took such a view.

Collins was employed as a Sales Manager whose primary duty was to increase sales for the company.  Collins developed an improved product.
 
His employer, Spencer Industries, applied for a petty patent for the invention, which was subsequently granted.  Since Collins had devised the invention, he asserted he owned the rights to it and refused to assign rights in the invention to Spencer Industries.
 
The Australian Patent Office found in favour of Collins as did the Federal Court on appeal. 
 
In coming to this decision the Federal Court reasoned that:
  • the invention was not made by Collins in carrying out his normal duties as a Sales Manager;
  • he was not paid to invent; and
  • the assembly was not a product of work that Collins was paid to perform.

The impact of Fiduciary Duty

Another key concept in determining who owns IP is the notion of fiduciary duty. 
 
A fiduciary, or trustee, is expected to be loyal to the principal to whom the duty is owed.  He or she cannot have a conflict of interest or profit from his or her position, unless given consent by the principal. 
 
The scope of the fiduciary duty from employee to employer depends on the nature of the actual employment.  For example, a manual worker who may have a low salary, and who would not be expected to act on behalf of the employer, would be unlikely to owe a duty.  However, an executive or highly paid employee is likely to represent the employer and would therefore have a fiduciary duty to the employer.
 
Not only can a court take into account the position of the employee within the organisation but, in the case of an invention, the court can also consider:
  • whether the invention was made during or outside working hours;
  • whether the facilities and materials of the employer were used; and
  • the extent to which the employee’s duties or position prompted the invention or provided access to funds to make the invention.

Fiduciary duty in research institutions

In 2004, the Federal Court of Australia found a breach of fiduciary duty when deciding the matter of Victoria University of Technology v Wilson (204) 6IPR 392; [204] VSC.
 
Prof. Wilson and Dr. Feaver were employed at the university as senior academics in the economics faculty.  Wilson and Feaver were approached by a third party requesting that the university develop a range of online business and trade subjects.  This involved software development with which Wilson and Feaver had no experience.  They took it upon themselves to study software literature in the economics field and eventually developed software that enabled international traders to perform trading transactions online and included an online education and training course.  All of this was done without disclosure to the university.

Wilson and Feaver formed a company, filed a patent application and sought investment in the software development overseas using the university’s name and logos, so that it gave potential investors the impression that the development was under the control of the university.
 
The Court stated that Wilson and Feaver’s development of the software and system was not sufficiently related to the duties they were retained by the university to perform, given they were not employed to write and develop software.
 
However the Court held that Wilson and Feaver breached the fiduciary duty they owed the university. They used their positions to acquire funds to assist in the software development, and did not inform the university of their activities or otherwise seek the university’s consent.  The university missed an opportunity to develop the system and possibly profit from such a development.  Wilson and Feaver used the university’s name, without the university knowing, for the purposes of acquiring investment. 
 
Wilson and Feaver’s breach of fiduciary duty was penalised, with the Court imposing a constructive trust over shares in the company in favour of the university, on the grounds that they had sought to profit from their position at the expense of the university and allowed their own commercial interests to conflict with the university’s interests.

University of Western Australia v Gray

This brings us to University of Western Australia v Gray in which issues of invention ownership and fiduciary duty were raised. 
 
Gray was involved in the development of microsphere technology for liver cancer treatment.  He was appointed as Professor of Surgery by the university in 1985 and ended his tenure in 1999.  In 1996 Gray formed a company to negotiate venture capital funding for the technology, and at various times filed and refiled patent applications for inventions in the technology.
 
The university claimed ownership of the various inventions on the basis that they were developed or made in the course of Gray’s employment with the university and that he breached his fiduciary duty.
 
In the first instance, the Federal Court of Australia found that Gray did not have a duty to invent.  Instead he had a duty to undertake research and stimulate research amongst staff and students at the university, as well as teach, conduct examinations and supervise work in his field.  He was free to publish his discoveries and observations.
 
Of the inventions at issue, the Court determined that all but one had been conceived prior to Gray joining the university.  The one exception was made during his tenure, but the university was unable to establish any ownership rights in that invention as it was difficult to determine the exact contribution by Gray while employed by the university.
 
The Federal Court held that although Gray did owe a fiduciary duty to the university, he did not breach it, since the university failed to establish that he was dealing for his own benefit with inventions and interests owned by the university.


The Court of Appeal

On appeal the Full Federal Court of Australia upheld the earlier decision. 
 
In finding for Gray, the Court was critical of the university for not adhering to its stated IP policy as referenced in Gray’s contract of employment.  The contract included a term incorporating the university’s patents regulations to the effect that an employee making an invention during and in the course of their employment must promptly notify the Vice Chancellor.  The Vice Chancellor is to refer the matter to the Patents Committee for a recommendation as to whether the university should assert rights in the invention and apply for a patent.  The university had failed to maintain the patent committee mechanism and as such had failed to maintain the mechanism on which its rights were dependent,  thereby failing to fulfil a contingent condition. 
 
It was Held on the evidence, that the university had abandoned the patent committee mechanism and the term incorporating the patent regulations did not avail the university.
 

Lessons for employers

1. Ensure that an adequate IP management is in place, adhered to, and its details conveyed to employees.
 
2. Safeguard ownership of the IP and rights in inventions arising from an employee’s work by expressly providing for it in their employment contract or terms and conditions.  Ensure that these terms and conditions are up to date with the current IP management strategy.
 
3. Include in employee contracts specific provisions relating to:
          • assignment of intellectual property rights worldwide from the
              inventor/s to the employer;
          • full disclosure of all inventive concepts;
          • restraints on invention disclosure without permission; and
          • rights and obligations of the employee after finishing employment
              with the employer.

4. Communicate to employees their fiduciary duty to the employer and the obligations that arise in fulfilling that duty.

 
For further or more specific information on Ownership of IP in Australia, please contact Chris Owens or any of the other practitioners of FB Rice & Co.
 

This Newsletter is for the general information of our clients. Its contents are not a complete statement of the law on any subject. Professional advice should be sought before any course of action is pursued.

Tags:  IP Ownership
 
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