This article is written by Swapna Gokhale, pursuing a Diploma in Intellectual Property, Media and Entertainment Laws, from Lawsikho.com.
“Creator, originator or author of Intellectual Property need not always be an owner of it” … strange?
Yes, it’s true! The person who owns the intellectual property may not be the same person who created that property.
Generally, any person who makes, creates or generates any work holds an ownership right, title and interest over it. But this general rule varies in certain cases.
Let’s examine the below situations:
- An artist creates or generates graphic designs, logos or any other artistic work for which he is employed by an advertising company.
- When any writer is employed by a newspaper publishing company to write a story specially for children in the newspaper.
- When a composer is employed by a music production company for composition of the song.
- When an organization mainly involves scientific research, employ a scientist in their organization as a part of the R & D team.
In all these examples, different IPs are there, like copyright in artistic work, copyright in literary work, copyright in musical work, patent in innovations. But whether the employees in above examples, who are creators of the work, can claim ownership rights on it?
Well, the answer is ‘NO ‘. Then who can be the owner of it? and Why?
In this article, we are going to discuss the Types of Intellectual Properties and Ownership during employment, occasions of tussle or conflict between employer and employee for ownership of IP, legal provisions, Dispute Resolution Mechanism and opinion of the court.
Meaning of Intellectual Properties in employment
Intellectual property is the most valuable intangible asset for its owner. It includes human intellect and creation of the mind. Creativity and uniqueness are the characteristics of intellectual property.
In fast developing countries like India, with the rapid growth in technology, there is a tremendous increase in the creation and formation of a variety of IPs in various industries. Thus, this gives an opportunity to the entity to use intellectual property commercially and create additional income. Nowadays the business valuation is majorly depending upon the value of IP created by the company.
In case of employment intellectual property comes in various forms. The most common and well-known Intellectual Properties are Copyright, Industrial Design, Patent, Trademark, Geographical Indication, Trade Secrets etc. In the recent past, business processes, Internal system, the pre-existing codes of the company, Internal guidance notes, manuals, client lists, business models are also 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 those data and sharing with the competitors. Hence all those IPs require protection from being leaked or stolen.
Ownership of Intellectual Property in employment
There is a difference between owner and author in the case of Intellectual Property. Author is who creates the IP and the owner is who owns the IP created by someone else for him.
For any company or organization, its employees are the biggest asset. While appointing an employee, the company invests in the form of his 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 employee creates during his employment vests with the employer.
As a default legal principle, Intellectual Property ownership belongs to the employer created by the employee for the reason that the employer pays them in the form of salary, to do that particular work, 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 IP rights over all the work created by the employee during his employment.
Nevertheless, no blanket rights 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.
Governing Legal Provisions for IP ownership in employment
In India not every IP law specifically defines the ownership of IP rights in employment. Only Copyright Act 1957 specifically contains a provision with regard to the ownership of IP. As per S-17 Copyrights Act 1957, “The author or creator of copyright is the first owner of the copyright and in the case of a work made in the course of the author’s employment under a contract of service or apprenticeship, the employer shall, in the absence of any agreement to the contrary, be the first owner of the copyright therein”.
Thus, in case of copyright, the employer becomes the first owner of copyrights created by the employee provided the IP created by employee while working under the contract of service and there is no contrary understanding between employer and employee.
But in case of other IPs like Patent, Trade Secrets etc. there are no specific statutory provisions defining the ownership of IP created during the employment. In such cases there is a possibility of occurrence of dispute between employer and employee regarding ownership rights. Thus, it is strongly advisable to include the terms in employment contract specifying how the Intellectual Property developed by the employee in the course of employment will be dealt with.
Prospective occasion of disputes between employer and employee
In absence of adequate statutory provision dealing with Intellectual Property ownership in employment, the variety of disputes takes birth with development of new Intellectual Properties. When any person creates some work using his own intellectual labor, talent, skills etc. he naturally wants to become the owner of the same. But in case of employment the situation changes. Here employee creates the Intellectual Property for the consideration in the form of salary. Therefore, the same belongs to the employer. But still there are occasions where there exists tussle between employer and employee for claiming ownership right on IP.
e.g. If Intellectual Property created by an employee:
- apart from working hours but using employer’s resources; OR
- apart from working hours and without using the employer’s resources; OR
- during the working hours using his own resources; OR
- is not related to his part of work, during the working hours of the company.
Who is the owner of the IP in such a situation?
In such a situation, in absence of contractual agreement between employer and employee, our court have applied the principle of ‘duty to invent’ OR ‘nature of work’ while deciding the matter of ownership rights.
In the situation of disputes like mentioned above, if the work created by an employee under the contract of service and in connection with the nature of his duty then the same will belong to the employer irrespective of the same is created outside working hours or using personal resources. But if the IP created has no connection with the duty for which the employee was being hired, then the same will belong to the employee even if they are created during the working hours.
Thus, an Accountant in a Software Development company can own the Copyright in the gaming software developed by him for kids, though it is created during the employment, since the same was not part of his duty or nature of his work. In such a case the employer can get the ownership rights in the software, by executing an ‘IP Assignment Agreement’ with the employee and by paying appropriate assignment fee to the employee.
While dealing with similar situation Hon’ble Bombay High Court in “Darius Rutton Kavasmaneck v/s Gharda Chemicals Ltd & ors ( in NOM 3567 of 2011 in suit no 2932 of 2011) pointed out the contract of employment, which only stated managerial powers, along with the Indian law principles did not suggest that the patent filed by the employee will always belong to the employer.
Thus, the above mentioned decision of the court is significant in terms of precedence for decision of dispute in IP ownership in case of employment. The importance of a clear employment contract addressing the ownership right is again highlighted. But obviously it depends upon the facts of each case.
Key Factors which affect the ownership of IP
As stated above, not all the statutory provisions for IP in India define the ownership right of IP in employment, the same can be decided based on following elements.
- Statutory Provisions – when there is clear statutory provision like in case of copyright, which provides the ownership right in case of employment then the ownership rights in absence of employment contract can be decided as per that law.
- Contract of service – The most important factor in employment is there should be an employer and employee relation existed between the parties. The work of the employee must be hired by the employer in consideration of salary and under contract of service. Unlike independent contractors, the employer can claim the ownership right on IP produced under the employment by executing clear terms regarding the same in employment contracts.
- Agreement for IP ownership – Another deciding factor for Intellectual Property ownership is the existence of IP agreement between employer and employee. The specific agreement specifying the IP ownership in different situations makes a great impact on the ownership issue with respect to the IP created during the employment.
- Nature of work – In absence of statutory provision, contractual terms with regard to the ownership of IP it is the nature of work that the employee is engaged into that decides the ownership right of IP created during employment. When any Intellectual Property created by the employee in connection with his work profile then the same belongs to the employer unless contrary contractual understanding between the parties.
Thus, in the examples given in the beginning of this article, the creator/author was employed to do that particular work in consideration of salary. Therefore, in absence of contrary understanding between the parties, the IP rights involved in the work will belong to their employer as long as the same is part of his work.
Agreements to execute between employer and employee to avoid dispute
In case of employment it is the employment contract that binds the employer to the employee to do the work. The possibility of disputes between employer and employee get minimize when there are clear contractual terms executed between the employer and employee in employment contract about the rights of possession of IP. In case of such disputes arises then they can be resolved by using terms of the contract. The contractual terms bind the parties to that contract statutorily and any breach of which can be rightfully challenged in relevant court of law.
While appointing an employee, it is highly recommended to execute a very precise and detailed Employment Contract with inclusion of specific IP agreement between employer and employee. Since Employment Contract acts as 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 IPs created, developed or conceived during the employment shall vest to the employer as per the terms of the agreement or through operation of law.
- Non- Compete and Non-Solicitation clause – Employers can restrain the employee from joining the other employment which directly competes with the business of the company for a certain period, after resignation, so as to reduce the risk of leakage of IP like trade secrets, internal process etc. of the company. The trade secret, business processes is also part of IP for any company, which requires protection from being infringed.
iii. Governing Law – Governing law clause is important for deciding the effective mechanism to resolve the dispute between the parties. Here party can decide to settle their issues by way of Arbitration and they can avoid to approach the traditional and time-consuming method of litigation in court.
IP Assignment Agreement
If the employer wants to acquire the IP created by an employee which is not falling under his nature of work then the employer can acquire the same by executing an IP Assignment Agreement with the employee. In such an agreement proper terms and conditions with regard to the ownership rights on IP and appropriate fee for assignment should be specifically defined.
But while signing all these agreements during employment, both the parties need to be very careful about the consequences and the statutory provisions. These clauses should not contain any terms which would be violative of any constitutional rights granted to the person.
- In a case of ‘Neetu Singh vs Rajiv Saumitra & Ors’, on 8 January, 2018, Delhi High Court ownership of copyright in the book English for General Competitions, which was authored by Singh in 2012, was in question. Court held that there is nothing on record to show that the partitioner authored the book as part of her duty and obligations as Directors. Court while imposing injunction on respondent observed that the reproduction of work in the course of instruction in education would amount to fair use of copyrights work under section 52 of Copyrights act. But copying the work of the plaintiff which is a close copy of plaintiff’s original work would not have defense of fair use. Therefore, it would amount to infringement of IP.
- In a very famous case decided by Kerala High court “V T Thomas v/s Malayala Manorama Co Ltd.” AIR 1989, in CMA no. 230 of 1987, Hon’ble Court decided a very interesting question. The dispute was between a famous and established publishing house- Malayala Manorama Co. Ltd. and a reputed cartoonist V. T. Thomas, alias “Toms”, about the artist using the cartoons created after leaving employment. The job profile of Toms was, as a journalist and Sub-Editors and assigned the main function “to draw Boban and Molly” in the Manorama Weekly. Hon’ble Court imposed injunction on popular Manorama publishing company and restrained them from claiming ownership over cartoon characters created by an artist and regularly used in the Manorama publications. The Court clearly laid down that though Section 17 (c) of Copyright Act did provide that where work is created by the employee during employment belong to the employer but in the present case, the work was not created during Tom’s time in Manorama but prior to that and though the cartoons were used in the Manorama publications during Tom’s employment, once Tom’s employment ended with Manorama, he was free to use the cartoons he created, on grounds that a) he was the author to begin with, which made him the first owner b) his obligations under Section 17(c) though present during the employment, ceased to exist once he left employment.
Dispute Resolution Mechanism
District court/ High Court
In case of suit for infringement of IP or IP ownership disputes it is the appropriate district court or High court who has the authority to decide the matters under relevant IP law. Normally in such cases the aggrieved party seeks an injunction order from the court imposing restriction to the infringer either temporary or permanent injunction.
Alternate Dispute Resolution
Our traditional Dispute resolution mechanisms of filing suit, petition, appeal etc. to the court of law, is a very time consuming and costly matter. Because of excessive delay in Indian Judiciary, there was another statutory provisions of an Alternate Dispute Resolution in the form of Arbitration and Conciliation or Mediation etc.
Supreme Court Of India in Booz-Allen & Hamilton Inc Vs SBI Home Finance Ltd. & Ors and subsequently Bombay High Court In Eros International Media Limited Vs Telemax Links India Pvt Limited decided that when matters of commercial disputes and parties under the contract specifically included a clause of Arbitration then the aggrieved party can refer the same to the arbitration to enforce the right against the contractual party, which shall be governed by Arbitration and Conciliation Act.
Alternate Dispute Mechanism is more famous because of its cost effective and time saver characteristics. But in absence of the arbitration clause in the IP contract the traditional remedy of approaching appropriate district court is available to the parties.
To sum up we can say that while doing business, be it small or big, the employer needs to understand his rights as to that of an employee in an IP. Employers can-not always be a deemed owner of IP created by an employee during the employment. But by executing proper IP contracts with the employee employer can secure IP right on the same. In a view of the growing number of IP disputes between the employer and employee, draft terms and conditions of ownership rights in IP created during the employment needs to be executed on paper with the help of lawyer to dilute the prospective risk of tussle for ownership rights in IP created during the employment.
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