Beyond the Exit Door: Demystifying Intellectual Property Rights Post-Employment

Posted On - 16 January, 2024 • By - King Stubb & Kasiva

Introduction

Intellectual property (IP) plays a critical role in the ever-changing field of employment by influencing corporate valuations and directing innovation. Human intellect and creativity are crucial to a company’s identity and commercial viability, which is especially important in rapidly developing nations like India. Technological improvements enable an abundance of IP, such as copyrights, patents, trademarks, and trade secrets. Trade secrets cover an even broader range of topics, including business processes, internal systems, protocols, guidance notes, manuals, and client lists.

Given the vital importance of IP to corporate success, organization valuations are now strongly reliant on the value of their intellectual assets. The lack of dedicated trade secret legislation related to employment in India highlights the importance of adding confidentiality terms into contractual agreements as a means of protecting sensitive data. Due to the distinction between author and owner of IPs that exists throughout employment, employers often retain ownership of IP developed by employees as investors in salary and resources. It is a legal principle by default, but it is not absolute. In certain circumstances, employees may claim such IP, thus necessitating a consideration of certain key factors.

This article aims to provide an overview of the relationship between IP and employment, especially in the post-employment scenario, in the following manner:

  • Key Factors affecting the ownership of IP
  • Exploring the Legal Landscape
  • Navigating the Practicalities: Tips for Employers and Employees

Key Factors affecting the ownership of IP

  • Statutory Provisions: IP ownership in employment is governed by specific rules, particularly in copyright law.
  • Employment Agreement: The employer-employee relationship is critical. Employment contracts contain clear terms of IP ownership.
  • Nature of Work: IP developed during the course of an employee’s job duties belongs to the employer.
  • Work-Related Disputes: Various work scenarios, such as the development of IP outside of working hours, with or without employer resources, or during working hours that are extraneous to the employee’s defined work, can give rise to disputes.
  • Explicit IP Ownership Agreement: The existence and provisions of an explicit IP ownership agreement have a significant impact on the resolution of IP ownership disputes during employment.
  • Legal Principles: Courts adjudicate upon such disputes using the ‘duty to invent’ or ‘nature of work’ principles, which highlight the need for clear employment contracts in defining ownership rights.

Legislative Framework

The Copyright Act of 1957 primarily establishes the statutory framework dealing with IP proprietorship in the context of employment in India.[1] As per Section 17 of this Act, unless a contrary agreement exists, the employer is regarded as the initial proprietor of copyright in works produced under a contract of employment or apprenticeship. This provision specifically deals with copyrights and names the employer as the primary copyright holder for any work generated by an employee during the course of their employment, unless otherwise specified in the contract.

Specific statutory rules protecting ownership rights during employment, on the other hand, are glaringly absent in the case of other categories of IP, such as trade marks and patents.

As a result, it is strongly advised to include explicit clauses in employment agreements outlining how IP developed by employees during their employment will be handled.

Kind of Agreements to be executed and Clauses to be included

Determining IP ownership rights is critical in an employment circumstance to avoid conflicts between employers and employees, particularly at the end of a term of employment. Executing specific and explicit agreements can ensure harmonious relationships while minimizing the likelihood of disputes. These agreements and all clauses need to comply with constitutional and statutory provisions

Employment Agreement:

  • Confidentiality and IP Assignment Clause: Explicitly mentioning that the employer is the owner of all IP developed during employment, reducing the likelihood of ownership disputes. The arrangement can also define the terms and conditions under which the employer can acquire ownership of IP from the employee that does not fall under his nature of work, and  provide fee details for such an assignment.Dispute Resolution Clause: Clearly define the dispute resolution mechanism, such as arbitration, to streamline the process and avoid prolonged litigation.
  • Judicial Pronouncements

In the case of VT Thomas v. Malayala Manorama Co Ltd., the Kerala High Court held that Section 17 (c) of the Copyright Act does not apply to works that existed before employment.[2] The court affirmed the creator’s post-employment freedom for work existing before employment.

Tips for Employers

  • Prioritise Written Agreements: Establish IP ownership through written agreements such as “employment agreements” or “IP assignment agreements.”
  • Ensuring Timely Execution: Establish clear ownership by executing contracts before the start of employment.
  • Ensuring Compliance with the Constitution and Laws: Ensure that agreements adhere to constitutional liberties and legal requirements, including explicit language pertaining to IP generated by employees on their own time and without the use of company resources.
  • Address Misappropriation: Outline the remedies and recourse available if an employee misappropriates or infringes on company-owned IP.

Tips for Employees

  • Review Employment Agreements: Carefully examine the contents of the employment agreement to determine and understand the precise rights and obligations that have been assigned. Seek legal advice if uncertain.
  • Document Independent Work: Keep detailed records of ideas developed independently on personal time, with personal equipment, and away from business resources.

Conclusion

The intricate intersection of IP and employment necessitates a mindful approach, particularly in the post-employment landscape. To navigate this landscape, employers must prioritize clear, comprehensive agreements that specify ownership and confidentiality. On the other hand, employees must be vigilant in understanding their rights and obligations, keeping records of independent work, and thoroughly assessing any agreements that are presented. Both parties stand to benefit from legal counsel and fostering an environment of mutual respect for intellectual contributions. Maintaining transparent channels of communication and adhering to the current legal framework is critical to ensuring a seamless transfer of IP following an employee’s leave, allowing mutual growth and development in their respective spheres.

Frequently Asked Questions (FAQs)

u003cstrongu003eCan an employer automatically claim ownership of IP created by an employee during employment?u003c/strongu003e

Generally, yes. Per the Copyright Act, unless stated otherwise in an agreement, the employer is the initial owner of copyright in works created during employment. The case for patents and trade secrets, however, differs and is determined on a case-to-case basis.

What legal principles guide IP ownership disputes in employment matters?

Courts rely on principles like the ‘duty to invent’ and ‘nature of work,’ emphasizing the need for clear employment contracts in defining ownership rights.

How can employees protect their independent work from potential ownership disputes?

Employees should properly document ideas developed independently on personal time, with personal equipment, and away from business resources to establish a clear record.

[1] https://copyright.gov.in/documents/copyrightrules1957.pdf.

[2] VT Thomas v. Malayala Manorama Co Ltd., AIR 1989 Ker 49.