IP ownership: who owns it and how should you capture it?

Understanding IP creation and ownership is important for innovative businesses, particularly those developing new products and processes.

As such, businesses often depend on the IP created by their employees, consultants or contractors.

Think about software developers, graphic designers, product designers, photographers and content producers. These relationships are typically governed by contracts, and this is where you can agree how IP ownership should be managed.

Can employees own IP?

Normally, where an employee creates IP as part of their job, the employer will own the IP. Alternatively, this can be overridden if the employment contract states otherwise. This principle generally arises under the relevant law for each respective IP right (e.g., patents, copyright, designs). For this rule to apply, the employee must have an employment contract and have created the IP during “the course of employment”. Whilst this sounds simple, it can become complicated.

Let’s take the example of an employee who works for a catering company but develops a new GPS tracker in their spare time. The employee is likely to own the IP because this is clearly outside the employee’s normal duties. However, what if the employee creates a new form of packaging? Arguably, this could relate to their job if the packaging can be applied to food. Moreover, work produced outside working hours can still be owned by the employer if it relates to normal duties.

Unfortunately, employers and employees often disagree in these scenarios. Ultimately, the answer will depend upon analysis of the facts of the relationship. Therefore, it’s important to carefully draft employment contracts. For example, setting out the scope of a job description can increase clarity.

What about consultants and contractors?

The position is notably different with consultants and contractors. Consultants and contractors are independent and so will own all the IP they create, even when working for your business. Similar with the above, this rule can be displaced with a contract stating the contrary.

To effectively protect your business, you should obtain a written assignment agreement signed by both parties. Generally, you will want the agreement to expressly assign the IP created by the consultant or contractor to your business.

Where the consultant or contractor refuses to assign all the IP in the materials they will deliver to you (e.g., because the IP they create for you will include some elements they have developed in the past and they want to retain ownership) your alternative is to require them to grant you an IP licence. This should be broad enough to cover the use you currently intend to make of the materials, plus ways in which you may wish to use the materials in future.

Not doing so could create problems from a business continuity perspective. For example, a web designer could, in theory, stop you from using your website unless a valid assignment or licence is in place. If the consultant is an employee of another company, then the assignment agreement will need to include the company. Remember, that company may own the consultant’s IP by virtue of employment as explained above.