In this article, we will be looking at the issue of intellectual property (“IP”) created by employees, and how your business can retain ownership over such IP. Any references to IP in the article would cover only patents and copyrights.
The current knowledge economy relies a lot on knowledge workers, many of whom are involved in the creation of IP as part of their job scope. This, of course, applies to tech startups too, for which unequivocal ownership over its IP can make a break a company.
A common misconception is that copyrights are only associated with artistic work, including paintings, writings, films etc. The truth is copyright extends well beyond, to cover even software source codes, graphic user interfaces, content on websites etc. provided that they are in a recorded form.
The Malaysian Position
Chances are that you would have come across articles from websites in the United States of America talking about Assignment of Inventions Agreement, and how it is essential for companies to have those agreements with their employees to ensure that the IP created by the employees remain the property of the companies. However, the legal regime on IP is slightly different in Malaysia.
In the USA, there is no presumption that IP created by an employee in the course of an employment belongs to the employer company. Hence, the need for a separate Assignment of Inventions Agreement between employee and employer.
In Malaysia, the default positions are provided in the Section 20 of the Patents Act 1983 (“Patents Act”) and Section 26 of the Copyright Act 1987 (“Copyright Act”) respectively.
Section 20 of the Patents Act provide that the rights to a patent for an invention made in the performance of such contract of employment is deemed to be the property of the employer.
Section 26 of the Copyright Act provide for a similar position, wherein a copyright made in the course of the author’s employment shall be deemed to be transferred to the author’s employer.
It is worth noting at this point that the position of the acts notwithstanding, the terms in the employment agreement will take precedence, for reasons mentioned later.
To better illustrate the positions of the aforementioned acts, let’s consider the example below:
Adam is a professional computer programmer employed by Tech Corp Sdn Bhd, which develops software. The right to the patent for a ground-breaking computer programme written by Adam for the company will be deemed the company’s. If Adam were to invent an energy efficient engine in his free time, the patent would belong to Adam.
The difference between the computer programme and the engine is that Adam was employed to write programmes, whereas tinkering with engines is something he does outside of work. Adding a twist, if Adam uses the company’s data or resources to invent his engine, the law presumes the invention to belong to the company and not Adam.
Made in the Performance of Contract of Employment?
Therefore, whether or not the IP was made “in the performance of contract of employment” becomes a central question in determining ownership of the patent in the event of the dispute.
Unfortunately, most situations are not as clear cut as the one in our example above. The nature of knowledge work means that the lines between ‘work’ and ‘outside of work’ are increasingly blurred, especially with the increasing availability of work from home arrangements and flexible working hours. Companies can no longer rely on whether or not an employee is “on the clock” to determine whether a patent is created in the performance of contract of employment.
This makes the well drafted contracts of employment essential for companies hoping to secure their interests in employee-created patents. It is also interesting to note that the law provides for the possibility of an employee inventor claiming for equitable remuneration to the invention where the invention acquires an economic value much greater than the parties could reasonably have foreseen at the time of signing the employment contract. The burden of proving such a claim will however rest on the employee.
Employment Contract Tips
In the contract of employment, there should be sufficient clarity and specificity on the job scope and duties of the employee. This could potentially be scrutinised by the courts to determine if the IP under dispute was created in the performance of the employment. With the job scope adequately described to include a duty to invent certain products, processes or create content, there is more certainty that the IP created by the employee in the performance of such duty be deemed to be the property of the employer.
On the flip side, if you are presented with an employment contract for a Chief Technology Officer position, and wish to preserve your rights over the IP created pursuant to your role, your contract of employment should incorporate provisions expressly asserting your ownership (or more realistically joint-ownership) over the IP, and that your employer waives any claims or acknowledges joint ownership over the IP.
Notwithstanding the presumption that all works or inventions created by the said employee as part of his duties as an employee of the company would belong to the company, it will be prudent for a company to ensure that its employment contracts extend to cover situations where employees discharge their work remotely, after business hours, and even where work is discharged with the employees own resources. The specific types of patents the business foresees to be created or wishes to retain should also be clearly set out in the contract.
The confidentiality or non-disclosure clause is another important clause to secure a company’s IP. The definition of confidential information in the employment agreement should be broad enough to include intellectual property created by the employee while in the employment of the company. Additionally, it should oblige an employee to not reveal the employer’s confidential information (ie non-disclosure), and to not use it in any manner outside the course of employment, and that the obligation would remain even after the end of the employment relationship.
About the Author: Shawn Ho is a partner of Donovan & Ho. He is experienced in corporate matters such as acquisitions, cross-border transactions, restructuring exercises, sale of businesses, joint venture arrangements, shareholder agreements, and franchise businesses. His background in tax advisory has enabled him to assist several multi-national companies achieve considerable tax-savings through cross-border tax planning, implementing tax-efficient structures using Labuan companies, and incorporate tax advice into commercial transactions.
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