Intellectual Property is a creation of the mind. Accordingly, its ownership vests in the person who brings it into existence unless there is a contract to the contrary. It is a statutory presumption that the employer owns the intellectual property that an employee creates in the course of his employment. However, an employer would be careless to assume that all rights of the employee over such intellectual property are extinguished. The employee could still claim rights of an author, moral rights and rights to object to alterations to work. Hence, it becomes critical to include terms determining the ownership of intellectual property in employment contracts, independent contractor agreements or agreements with a consultant or designer.

What is intellectual property rights?

The term "Intellectual Property Rights" or “IPR” has not been defined under any Indian statute. As per the World Intellectual Property Organization (“WIPO”), Intellectual property refers to creations of the mind, such as inventions; literary and artistic works; designs; and symbols, names and images used in commerce. Primarily, there are nine categories of Intellectual Property:

  • Copyright and related rights
  • Trade Marks including service marks
  • Geographical indications
  • Industrial designs
  • Lay-out designs of integrated circuits
  • Trade secrets
  • Patents
  • Patenting of micro-organisms and
  • New plant varieties (seeds and other propagating material)

Some of the key attributes of IPR are as follows –

  • Intangible in nature
  • Creation of the mind
  • Article 300A of the Constitution of India protects IPR
  • They have negative rights which means the owner can exclude others from using the property generated
  • IPR represent monopoly of intellectual creation of the owner of such rights
  • The IPR such as trademarks, copyrights and know-how fall within the definition of 'plant' for the purpose of taxation
  • The situs of the owner of an intangible asset would be the closest approximation of the situs of an intangible asset

Meaning of IPR in employment

In case of employment, IPRs are created in various forms. The most common and well-known IPR are copyright, industrial design, patent, trademark, geographical indication, trade secrets etc. In the past, business processes, internal system, the pre-existing codes of the company, internal guidance notes, manuals, client lists, business models were covered within the meaning of Trade secrets. In India there is no specific law for protection of trade secrets. Therefore, the same needs to be protected by including confidentiality clauses in the contract of commercial relationship between the parties. 

Since the employees of the company have access to all these assets of the company there is a commercial risk of stealing the data and sharing with the competitors. Hence all those IPRs require protection from being leaked or stolen.

Ownership of IPR in employment

For any business, the employees are the biggest asset. After appointing an employee, the company invests in the form of salary, use of the company’s infrastructure, other facilities etc. In return the company expects its employee’s work, ideas, intellect, etc. which is going to contribute towards the business growth of the company. Thus, anything and everything that the employee creates during his employment vests with the employer.

As a default legal principle, IPR belongs to the employer for everything created by the employee for the basic reason that the employer pays them consideration in the form of salary, unless there is specific contrary understanding effected between the parties. Unless the work created by an employee is completely unrelated to the company’s business, the employer would usually tend to retain the IPR over all the work created by the employee during his employment. 

Nevertheless, no blanket rights are granted to the employer. There are some factors which are key factors while deciding the dispute between employer and employee about the ownership of IP in employment.

Legal provisions for IPR

As for the matter of fact, the IP ownership in India varies under different IP laws. The below mentioned are the various IP laws that govern the ownership of IP rights in India:

  1. Copyrights: Section 17 of the Copyright Act, 1957 states that the creator called the author is the first owner of copyright i.e., the employee. This position can be altered by the author transferring copyright ownership to someone else. It is also called an assignment.
  2. Patents: As per the Patent Act, 1970, an inventor is the first owner. therefore, to get a patent registered in your name over a product or process developed by some other person there must be a written instrument specifying the terms and conditions as there is no automatic assignment in case of patents.
  3. Designs: As regards assignment of designs, the Designs Act, 2000, mandates a procedure similar to patent assignments.
  4. There is no current domestic legislation protecting trade secrets or confidential information. Harm caused by a breach of trust or contractual protection of trade secrets can be remedied in the courts.

In such cases there can be a situation of occurrence of dispute between employer and employee regarding ownership rights. Thus, it is advised to include the terms in the employment contract itself clearly specifying how the IPR developed by the employee in the course of employment will be dealt with.

Key factors to decide the ownership in IPR

  1. Statutory Provisions – when there is a clear legal provision like in case of copyright then the ownership rights will be decided as per the law.
  2. Contract of service – The work of the employee must be “work for hire” by the employer in consideration of salary and under contract of service. The employer can claim the ownership right on IP produced under the employment by executing clear terms regarding the same in employment contracts.
  3. Agreement for IP ownership – Another deciding factor for Intellectual Property ownership is the existence of intellectual property assignment agreement between employer and employee. The specific agreement specifying the IPR ownership in different situations solves the ownership issue with respect to the IPR created during the employment. 
  4. Nature of work – In absence of statutory provision, it is the nature of work that the employee is engaged into that decides the ownership right of IPR created during employment. When any IPR created by the employee in connection with his work profile then the same belongs to the employer unless contrary contractual understanding between the parties exists.

Agreements to execute between employer and employee to avoid dispute 

  1. Employment Agreement

At the time of hiring of an employee, it is recommended to execute a very exhaustive and detailed Employment Agreement with inclusion of specific details mentioning the ownership of IPR generated during the course of employment. Since Employment Agreements act as a vital evidence in case of dispute between the employer and employee, it is always prudent to include the following clauses in it –

  • Confidentiality and Intellectual Property Assignment clause – In this agreement the employer can bind the employee under contractual obligation that all the IPRs vest with the employer during the tenure of employment which has been created, developed or conceived by the employee .  
  • Non- Compete and Non-Solicitation clause – Employers can restrain the employee from joining any other organization which directly competes with the business of the company for a certain period, after resignation, so as to reduce the risk of leakage of IPR like trade secrets, internal process etc. of the company. The trade secret, business processes is also part of IPR for any company, which requires protection from being infringed.
  • Governing Law – Governing law clause is important for deciding the effective mechanism to resolve the dispute between the parties. Parties can decide to settle their issues by way of Arbitration and thereby avoid the traditional and time-consuming method of litigation in courts.
  • Intellectual Property Assignment Agreement

If the employer wants to acquire the intellectual property created by an employee which is not falling under his nature of work, then the employer can acquire the same by executing an Intellectual Property Assignment Agreement with the employee. In such an agreement proper terms and conditions with regard to the ownership rights on IPR created are mentioned and appropriate fee for assignment is specifically defined.

Conclusion We can conclude by saying that in every business, be it small or big, the employer needs to understand his rights along with those of the employee in order to protect its IPR. Employers can-not always be the deemed owner of IPR created by an employee during the employment. But by executing proper contracts between the employee and employer, the risks can be mitigated to a large extent. In order to avoid disputes between the employer and employee, terms and conditions of ownership rights in IPR created during the employment need to be executed on paper with the help of a lawyer to dilute the prospective risk of tussle for ownership rights.

Disclaimer - 

The content of this article is for information purposes only and does not constitute advice or a legal opinion and are personal views of the author. It is based upon relevant facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer to relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up. The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that the Author / Treelife Consulting is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof.

Download Startup Guide
A guide with complete lifecycle of startup
Download
close-link

Treelife Ventures Services Private Limited.
All Rights Reserved. © 2020.