Written by Associate Principal, Harry Croft
It is often assumed that a company will own all intellectual property created by a director of that company.
This is not necessarily true.
Whether or not a company owns intellectual property created by its directors is determined by a number of factors, including what written documentation is in place between a company and a director, and the legal relationship between the director and the company (for example, if the director is working for the company as an employee or contractor).
In this blog, we break down the key considerations and ‘watch outs’ for company directors in determining if a company will own IP they have created personally, and provide general guidance on good corporate governance to ensure ownership of director IP is properly documented.
Consideration 1: To What Extent Did the Director Contribute to the Work?
To determine if a director owns intellectual property personally, the first consideration is typically a question of authorship – to what extent did the director contribute to the work? Was this contribution done on their own or was there help from other individuals?
The best approach here is to assess all intellectual property assets that exist in a final work and determine if there are any issues of joint authorship (meaning the director may own IP jointly with other individuals).
Take, for example, a director who has contributed to the development of a SAAS product in their spare time. Different intellectual property components would be contained in the software and underlying code, visual designs, databases and user tools contained in this SAAS product.
A director may have created all of these components individually, may have created only one component, or created them jointly with others. This issue should be clarified and understood at the start.
Consideration 2: Is the Director an Employee of the Company, or Providing Services as a Contractor for the Company?
If a director is not an employee or contractor of the company, the starting position is that they will personally own all IP they create, rather than the company.
This is not the case if the director is an employee of the company.
Generally speaking, an employer owns all intellectual property created by its employees in the course of their employment.
Whether intellectual property was created ‘in the course of employment’ depends on factors including:
-The scope of the employee’s duties in their written employment agreement; and
-Whether the IP was created under the direction, instruction or at the request of the company.
A number of cases have held that IP created by an employee with similarities to that of the company’s usual business (for example, an employee working at a water tank manufacturing factory who created new designs for water tanks) was not created within the course of employment, meaning the company did not own that IP and had no right to commercialise its value without the consent of the individual.
If a director is providing services as an independent contractor (and not an employee) of the company, the company will not own intellectual property created by that director unless there is a written agreement confirming assignment of the director’s intellectual property in writing.
This is why it is important to properly document a director’s relationship with a company in a written agreement.
Consideration 3: Watch Outs for Directors – Be Wary of Breaching Your Director Duties.
As a company director, you have a number of duties to the company, both under general law and in the Corporations Act 2001 (Cth).
Within the context of a director exploiting personally owned director IP, the key duties to be aware of are:
-To act in good faith, in the best interests of the company and for a proper purpose;
-Not to improperly use information or the position to gain advantage or secret profits;
-Not to destroy or divert an opportunity (for example, for the director’s personal gain, without the consent of the company, an opportunity that may be pursued or considered by the company with the company’s approval); and
-Not to misappropriate the company’s property or misuse company information for your own benefit or that of a third party.
If you are a director looking to take steps personally to commercialise intellectual property you believe you own personally, and that intellectual property bears some relationship to a company you hold a directorship with, then make sure you get advice!
A Final Word: What is Good Corporate Governance for Companies to Deal with Ownership of Directorship IP?
3 key tips to ensure good corporate governance to deal with ownership of director IP are:
-Creating an intellectual property register for the company that records all intellectual property assets, their authors and on what basis they were engaged by the company (as an employee or contractor).
-Getting in place a workplace policy on intellectual property.
-Ensuring directors are engaged by the company under a properly drafted written employment or contractor agreement that clearly sets out their duties.
Key Takeaways
1. A company does not automatically own intellectual property created by a director of that company.
2. As a company director, before accepting a directorship, make sure the intention of all parties is clear on what intellectual property you create will be owned by the company, and what will not.
3. Properly document when the company will own intellectual property. This could be contained in a shareholders agreement (which a director is required to sign personally), an employment or contractor agreement, or an intellectual property deed of assignment.
4. Include any carve outs and exclusions in the documentation to make clear what intellectual property a director creates will fall outside the scope of that arrangement (for example, intellectual property created for existing projects, or side-projects in future).
5. Before commercialising any IP owned personally, directors should have careful consideration to the duties they owe to the company as a director and be careful not to breach any of those duties.
Further Information
For more information about intellectual property law, check out this blog post:
–Identifying Your Business’ IP Assets: A Guide for Business Owners
–IP in the Metaverse: A Crash Course for Creatives
–How to Deal With IP Rights When Contracting Clients: A Guide For Creative Agencies
If you’d like to speak to one of our lawyers about intellectual property law in relation to your business, please contact us through our online form or via email at hello@studiolegal.com.au.
Written by Associate Principal, Harry Croft
Published 23 July 2024.
Photo by Dane Deaner on Unsplash
DISCLAIMER
The information in this article is of a general nature. It does not constitute formal legal advice and should not be relied on as such. Please see the full disclaimer in our website terms. Please contact Studio Legal if you are seeking advice about a specific legal matter.