March 2004

IP & IT law update - employee ownership of intellectual property & unfair internet service contracts

Ownership of intellectual property

A decision of the Victorian Supreme Court on 19 February this year is a timely reminder of the difficulties which businesses may have in establishing the ownership of intellectual property even where it is created by senior staff.

The case is Victoria University of Technology v. Wilson & Ors. Its facts were complex and the judgement runs to some 60 pages.

In summary, a senior professor of the University in its Department of Economics used University money, computer equipment and other resources for his own personal gain by developing a software product for use by the business community. Much of the correspondence with potential business partners and investors was even written on paper bearing the University's logos and trade marks. Some of the work in developing the product had been conducted in the professor's private time; but a great deal of work had been done while the professor was ostensibly on study leave, being paid by University.

The University argued that the very valuable intellectual property which he created was the property of the University. It argued that its intellectual property policy provided for ownership by the University. It also argued that the professor had conducted the research in the course of his employment and that he had breached a fiduciary duty.

The court found:

  • by using the University's resources and money, the professor had breached his contract with the University but that did not entitle the University to own the intellectual property so generated

  • despite the fact that the professor was the head of his department and that it was generally accepted that research was very much a part of the role of such academics, this research could not be considered to form part of the professor's job; and

  • the University's intellectual property policy had never been properly adopted or published to its employees and had not been properly incorporated into the terms of employment of those employees, including the professor.

These findings would have led to an apparently unjust result, and the professor might have got away with his personal gains. It was only because of some special and unusual additional circumstances which enabled the court to find that the professor had breached his fiduciary duty to the University that the University had a remedy. Ultimately, the University was held to have a constructive trust over the shares that the professor held in the company that was formed to exploit the intellectual property.

The case demonstrates the following:

  • The need to carefully document intellectual property ownership provisions in contracts of employment. This is particularly important where the role includes creative work. Organisations should consider making such provisions standard, across all employees (or at least senior staff) since there is always the chance that such a person will develop something new. The provision should cover not only patentable inventions, but copyright and designs. Linked to this should be an effective confidentiality provision.

  • The importance of having an intellectual property policy that is formally adopted, properly published and incorporated by reference into the employment agreements of all staff. Larger organisations and organisations that are involved in research and development or product development should consider adoption of an intellectual property policy. As was plain in the Wilson case reported above, the proper adoption of such a policy may have assisted the university in establishing ownership of the intellectual property concerned.

The case also shows the importance of properly publishing and adopting policies of all kinds. Many organisations may, for example, have anti-discrimination policies and other work-place policy documents. They are unlikely to help prevent or avoid unfortunate incidents unless they are formally adopted by the organisation, published to staff and incorporated by reference in employment contracts.

  • The need to educate staff, particularly research staff, of the nature of intellectual property and the "facts of life" as regards ownership. An intellectual property policy will help achieve this. Such policies can be useful to educate staff about the potentially valuable assets that they may create, and the dangers of infringement of the intellectual property of third parties.

  • The need for appropriate contracts with collaborative partners. Often new products are developed with the collaboration or resources of others, including universities and hospitals. Such arrangements should be properly documented before work commences so that the use of such resources is on an agreed basis and ownership of intellectual property is settled before valuable creative work is done.

New laws can overturn standard form contracts

New Victorian legislation prohibits the use of unfair terms in a consumer contract. Under the new laws:

  • unfair terms in consumer contracts are void

  • use of some terms may attract penalties

  • term in a consumer contract is to be regarded as unfair if, contrary to the requirements of good faith and in all the circumstances, it causes a significant imbalance in the parties' rights and obligations arising under the contract to the detriment of the consumer ? and the authorities can include specific terms by regulation

  • 'consumer contract' includes a standard form contract; and

  • 'standard form contract' means a consumer contract that has been drawn up for general use in a particular industry, whether or not the contract differs from other contracts used in that industry (note that many software and Internet related contracts may fall within the definition of 'standard form contracts').

In determining whether a term of a consumer contract is unfair the decision-maker may take into account a number of matters, including:

  • was the term individually negotiated; and

  • does the term have the object or effect of limiting the consumer's right to sue the supplier, or permitting the supplier but not the consumer to:

    • avoid or limit performance of the contract

    • terminate the contract

    • vary the terms of the contract; or

    • renew or not renew the contract?

Reports suggest there is a growing likelihood that similar laws will be implemented in other States. Meanwhile, we suggest businesses review the terms of contracts that may have a connection with Victoria and could be characterised as a consumer or standard form contract.

 

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