Safeguarding innovation: What employers need to know

In today’s rapidly evolving business landscape, companies are investing significant resources into developing new products, technologies and processes to give themselves a competitive edge. However, the value of these innovations can be quickly undermined if intellectual property ownership is not clearly defined and protected in the employment context. A company will generally want to ensure that it owns the intellectual property generated by its employees in the course of their employment, and a company may even need to own the intellectual property generated by its contractors.

What is intellectual property?

Intellectual property (IP) refers to creations of the mind. IP is valuable, and it comes with legal rights known as intellectual property rights. The main types of intellectual property rights in Canada are:

• Patents: Patents apply to inventions, such as products, compositions, machines, and processes. A patent will only be granted for inventions that are new, inventive, and useful. A Canadian patent grants its owner the exclusive rights to make, use, and sell an invention in Canada for a period of 20 years from the date of the application.
• Trademarks: Trademarks are a sign or combination of signs used by a person to distinguish their goods or services from those of others, such as words, designs, tastes, textures, moving images, mode of packaging, holograms, sounds, scents, three-dimensional shapes, and/or colours. Registrations of trademarks in Canada are valid for a period of 10 years and are renewable indefinitely upon payment of the applicable administrative fees.
• Copyrights: Copyrights provide the exclusive legal right to produce, reproduce, publish, or perform an original literary, artistic, dramatic, or musical work. These works include company logos, software source code, manuals, and website content. In Canada, copyright generally lasts for the life of the author, plus 70 years after the end of the year of the author’s death (i.e., the “life plus 70” rule).
• Industrial designs: Industrial designs protect the appearance of a product, e.g., the visual features of shape, configuration, pattern, or ornament, or any combination of these features applied to a finished article. The term for the exclusive right granted by the registration of an industrial design begins on the date of registration and ends on the later of the end of 10 years after registration and 15 years from the Canadian filing date.
• Trade secrets: Trade secrets are any business information that has commercial value derived from its secrecy, such as formulas, processes, and customer lists. A trade secret can be protected until it is discovered or legally acquired by others and disclosed to the public.

Who owns what?

Within the employment context, the employer’s ownership of trademarks and trade secrets are generally uncontroversial:

• Trademark ownership in Canada arises only from a trademark’s use in association with goods and services, and so it is unlikely that an employee or contractor could successfully claim ownership of an employer’s trademark.
• An employer can protect its trade secrets by using non-compete and nondisclosure agreements with relevant parties including its employees.

Other forms of IP tend to result in more significant ownership issues. For example:

Patents

The general rule in Canada is that employees own any patent rights to their own invention unless:

• The employee was “hired to invent” for the employer; or
• There is an express contractual term to the contrary.

In determining whether an employee was “hired to invent,” Canada’s federal court may consider eight factors:

1. Whether the employee was hired for the purpose of inventing;
2. Whether, at the time of hiring, the employee previously had made inventions;
3. Whether the employer put incentive plans in place to encourage inventions;
4. Whether the employee’s conduct following the creation of the invention suggested that the employer is the owner;
5. Whether the invention was the product of the employee being instructed to solve a specific problem;
6. Whether the employee sought help from the employer or consulted the employer in making the invention;
7. Whether the employee created or developed the invention using the employer’s confidential information; and
8. Whether it was a term of the employee’s employment that he or she could not use the ideas that he or she developed to his or her own advantage.

However, provincial courts will not always apply the above factors and may simply determine what task the employee was hired to do and whether the invention was created during the employee’s performance of that task.

It is presumed that a contractor owns all rights to an invention he or she has made unless there is an agreement (express or implied) to the contrary. To determine whether there is an implied agreement, the court may look to the particular circumstances of the case and the conduct of the parties to determine whether a term should be implied into the relationship that the contractor assigned his, her, or its rights to the invention to the company.

Given the potential for uncertainty, it is recommended that the parties enter into a written agreement governing ownership of inventions and patents.

Copyright

Under Canada’s Copyright Act, the general rule is that the author is the first owner of the copyright in their work. However, a copyrightable work is deemed to be owned by the employer, rather than the employee, if all of the following criteria are met:

• There is an employment relationship in the form of a contract of services (a “traditional” employer-employee relationship);
• The work is authored in the course of the author’s employment; and
• There is no agreement to the contrary (stating that the employee retains ownership of the copyright in the works created).

Even if the above criteria are met, employees can still retain their “moral rights” (a provision within copyright law intended to codify and protect the author’s association with the creative work by preserving the integrity of the work and intent behind the work). Moral rights can be divided into two overarching categories: rights of attribution and rights of integrity to a work, which can limit how employers can use these works. These rights apply (even after an employee departs from an employer) unless the employee specifically waives these rights.

Industrial designs

With respect to Canadian industrial designs, the first owner of a design is its author, unless the design was executed for another person in exchange for good and valuable consideration, in which case that person becomes the first owner. Canadian courts suggest that an employee’s salary will qualify as good and valuable consideration such that industrial designs developed in the course of employment will be owned by the employer. However, a formal agreement that any industrial designs developed by the employee are owned by the employer is recommended to avoid uncertainty.

Takeaways

Employers should take active steps to ensure they own the IP created by their employees and contractors (if desired). Without express contractual terms, the ownership of the IP may otherwise be unclear, and disputes over the ownership of IP can expose an employer to lawsuits and other risk.

We recommend the following steps to help employers protect their IP:

1. Clearly address IP ownership in agreements: Ensure that agreements with employees and contractors include clauses that clearly define IP ownership, stipulating that any work or invention or any improvements thereto created by employees or contractors during their employment or contract for services belongs to the company.
2. Outline confidentiality obligations in agreements: Require employees, contractors, and third parties (where applicable) to execute confidentiality agreements (or include such provisions in employment or services agreements as applicable) to prevent the unauthorized sharing or misuse of confidential information and trade secrets.
3. Limit access to confidential information: Implement access controls to restrict who can view, modify, or share confidential IP-related information. For example, role-based access can ensure that only those who need to access the IP-related information are entitled to that access.
4. Monitor and audit IP usage: Regularly monitor and audit the use of IP within the company to ensure compliance with internal policies and identify and promptly address any potential risks (such as unauthorized access or use).
5. Consider registering IP at relevant intellectual property offices: Consider registration of certain IP at relevant intellectual property offices (e.g., obtaining protection of certain IP in jurisdictions such as Canada and/or the US).
6. Include IP protection in exit procedures: When employees leave the company, ensure that they return all company property, including any devices or documents containing IP. Reiterate their ongoing obligations regarding confidentiality and IP protection. Consider utilizing “reminder of obligations” letters upon learning of a departing employee’s new employment with a competitor.
7. Work with legal counsel: Consult with legal professionals specializing in IP and employment law to ensure that all IP-related policies and contracts are clear, up to date, and enforceable; to assist with IP registration; and to handle any potential disputes.

IP is a valuable asset, and these recommended steps can help companies safeguard their IP and avoid IP-related disputes.

If you have any questions about implementing any of the recommendations above, please reach out to Jaclin Cassios and Jenny Wang, or any member of Dentons’ Intellectual Property group or Employment and Labour group.