A Canadian Institute conference

Employment issues surrounding intellectual property

Robert Michelin, lawyer

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The Canadian Institute recently held its Licensing of Intellectual Property conference. The cross-border nature of licensing and the ever-growing field of technology transfers guaranteed the conferences relevance for lawyers in every part of Canada. Equally important for participants was the focus on practical solutions for problems which may emerge in intellectual property licensing agreements. This is a summary of the presentation given by Carol Hitchman, a Toronto-based specialist in intellectual property issues.

A license is essentially permission granted by the owner of intellectual property to do something that otherwise would not be permitted. When granting a license, the owner of intellectual property is merely saying to his or her co-contracting party, the licensee, that the licensee may use the property in question without fear of being sued.

A required precondition to any licensing arrangement must be that the licensor have an undisputed right to grant the license. For both licensor and licensee, this is an issue which must be settled prior to entering into the transaction. If the former's title to the intellectual property (or any
other right permitting the licensor to grant a license, such as the right to sub-license provided for in a previous agreement) is ambiguous, the licensor will not be legally allowed to grant the license. The maxim "you can't get what you don't have" would illustrate how the contract would be thereby unenforceable. If the licensor does enter into the transaction under these circumstances, he or she is open to legal attack from the true owners of the intellectual property whose ownership rights are being violeted. The licensor will also be open to law suits by the licensees, as in most instances the licensor would have provided representations and warranties ensuing that its title or other right was valid. The licensee is subject to legal action as well. Use of the property pursuant to an illegally granted license may result in the licensee being enjoined by the true owners from continuing to use the property or technology in question.

Inconsistencies in legislation

It was suggested by Carol Hitchman that one of the difficulties confronting any intellectual property attorney is that the ownership rights of employers and employees or consultants do not receive consistent protection from the various statutes designed for this purpose. It was further stressed by Carol Hitchman that intellectual property practitioners must be familiar with all of these statutes in order to provide thorough advice to their clients.

Patent Act¹

The Patent Act states merely that any inventor may apply for a patent. It does not specify what occurs when the inventor is an employee or a consultant. As a general rule, an employee is the owner of his or her invention even if it is made during the course of employment, unless the employee was hired expressly for the purpose of inventing.² Employees and employers may derogate from this rule in an employment agreement in which the employee assigns ownership rights to any invention to the employer. Such an assignment of rights must be expressly stated and provide that the employee/inventor must co-operate in the prosecution of the patent or in any litigation relating to it. Such co-operation is an important protection for the employer, as the employee/inventor possesses not only key knowledge concerning the development of the invention, but also the ability to help in distinguishing any prior invention.

Although assignment of ownership and other rights in intellectual property is often a standard part of employment agreements, there may be situations where it is not possible to attain such a commitment from the employee. In such situations, employers may consider requiring employees to grant the employer a right of first refusal in regard to any intellectual property developed by the employee. The parties may also agree that the employer be granted exclusive license to any intellectual property created by the employee, with the employee receiving royalties or other payments in return.

Industrial Design Act³

Under the Industrial Design Act, the author of a design is considered the primary owner unless the design was created for another person for proper and valid consideration. The statute also establishes a presumption that certification of registration is sufficient evidence of ownership. Where the issue of ownership has arisen in an employment context, the jurisprudence has focused on whether the design was created in the context of employment duties. Employers should note, however, that even where certification of registration lists the employer as owner, the presumption that the employer's title is valid can be rebutted by showing that the work was outside the scope of the employee's regular duties.

Copyright Act⁴

In copyright situations, although the statute contains provisions dealing with ownership, problems may still arise where the respective rights of the parties are not clearly established. The nature of the employment is one factor a court will consider in determining who owns the copyright on a given piece of intellectual property. Another factor to consider is whether the work in question was done by the employee in the normal course of employment. In this regard, the court will look at who controlled the work in question - whether ultimate responsibility for it fell on the employer or the employee. The court will examine the degree to witch the employee was integrate in the activities of the employer. Depending on the facts of the situation, the court may also use an economic reality test (whether the "employee" was in business for him or herself or whether an actual employment relationship existed) and a specified result test (whether the employer treated the individual in question as an employee, such as by making statutory payroll deductions or enrolling the individual in a company pension or insurance plan).

Where copyright is concerned it is also necessary for employers to consider issues such as moral rights - the right of the author to remain associated with his or her work even after an assignment of rights has occurred. Employers may consider including a waiver of these rights in any assignment of such rights from an employee or consultant so as to avoid potential conflicts. There is also reversionary interest to consider in copyright situations. Because the Copyright Act expressly states that a grant of interest in a copyright cannot extend beyond a 25-year period following the death of the author, employers should consider a copyright assignment in which the author grants reversionary interest to the employer via a will.

Integrated Circuit Topography Act⁵

The Integrated Circuit Topography Act protects the masks (topography) used to create integrated circuits. The statute also states that the topography is transferable and may be licensed. Carol Hitchman suggested that because there are no provisions expressly dealing with employment situations, the rules applied to patents are likely to be used. Where questions emerge over ownership rights between employers and employees, a court would likely focus on the scope of the employment contract to determine whether creation of the intellectual property was part of the employee's duties.

Trademark Act⁶

Where trademark is an issue, troublesome situations tend to emerge when the identity of an enterprise is indistinguishable from that of an individual. For example, when one enterprise purchases another, the principal of the purchased enterprise may become a key employee of the buyer. The trademark of the purchased business may represent a considerable asset for that buyer. The trademark may also contain the name of this new, key employee. Accordingly, when the purchased business is identifiable based on the name of this individual, the employment contract or sales agreement should include a non-competition provision referring expressly to the use, or rather non-use, of the name so as to protect the distinctiveness of the trademark.

Other practical considerations

Employees have a fiduciary duty to protect the property of their employer, including any trade secrets and confidential information. Carol Hitchman indicated that although this duty exists in common law, it is often in the interest of employers to define its scope in an employment or consultant's agreement.⁷ The protective provisions should include a definition of what constitutes a trade secret or confidential information and should expressly indicate the proprietary interest of the employer.

1 R.S.C., 1985, ch. P-4.

2 Comstock Canada et al vs. Electec Ltd. (1991) C.P.R. (3d) 29.

3 R.S.C., 1985, ch. I-9.

4 R.S.C. 1985, ch. C-42.

5 R.S.C., 1985, ch. I-14.

6 R.S.C., 1985, ch. T-13.

7 See article 2088 of the Quebec Civil Code which states that an employee is bound not to use confidential information that may have been obtained in the course of work, for a reasonable time after the end of the employment contract.

 

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