Intellectual Property (IP), including Copyright is at the core of many businesses. It can be an immensely valuable asset or – should a company seek outside investment – selling point.
Valuable IP may be, but it’s all too common for us to come across a situation where the ownership of rights is either not entirely clear or not what the owners expect. This often means there is a need for a transfer of ownership or some form of licence to be put in place. This can happen, for example, where:
- a third party has developed business critical software for a company;
- a creative employee is looking to leave a company;
- a third party have been engaged early on in a business’ life without documentation to deal with the relationship; or
- software has been developed in an individual’s spare time.
Protecting a business asset
Copyright covers the expression of ideas in various forms and rights arise at the moment of creation lasting for significant periods of time. Where protection is available the owner of the copyright has a right to prevent the use of the protected work and may be entitled to any profits that have been made through its use. These rights can be further reaching than many would expect – this article, the pictures on this website and the code making your computer work are all copyrighted, but the ownership of these rights is not always as expected.
The default position for ownership is that the person who creates the work is the owner. Where the work is created in the course of employment the work will be owned by an individual’s employer.
Defining contractor copyright
A common misconception occurs around contractors or when someone has been commissioned to create some work. In this case, in the absence of any contractual wording to the contrary, and despite payment being made, the rights in the work will still lie with the creator.
So, in practical terms, where a business has engaged a developer to create, for instance an application or website, the developer’s Terms and Conditions need to be checked to ensure clarity around the ownership once the work has been carried out. If there are no terms, or the terms are not favourable, a business can find itself in a position of not owning a key asset.
Indeed, it may only – at most – have a licence to use the work. In the extreme, this can result in the business being held hostage by that third party, meaning that if for example it wishes to have another developer work on the software, or even agree the sale of the company as a whole, there could be contractual difficulties.
Asserting employee rights
While the existence of an employment relationship means that the rights in created work to work created in the course of employment generally lie with the employer, this can create problems for the employee, particularly when they wish to move on. They may not have a clear cut right to use the work even having created it. This can be particularly acute in creative industries where portfolios of work are important in gaining future work. Even if shares are owned in a company an existing shareholder does not have any greater rights and an existing employee who has a stake in a company can use the process around negotiating their exit from the company to protect their position (for example a licence). This could still be a problem when goodwill between the owners of a business has dried up.
Matters can become even more complex when works are developed in an employee’s own time. This is less clear cut then when produced within working hours but does need consideration. Where a company has been set up to house this venture this can further complicate matters, with the individual, their employee or their company all potentially being the rights holder. Where this occurs careful analysis and documentation is required.
Getting things right from the outset
While a recurring issue, the ownership of rights is straightforward to manage at the outset. All too often at the outset of a business little attention is paid to who owns what and everyone is caught up in the excitement of getting things off the ground. However where a company is yet to be formed or if employment relationships are being avoided for wider business reasons, copyright generated will again belong to the creator. As the business grows that may become a major issue as potential investors will conduct due diligence looking into the IP of a business, if ownership is unclear or even worse outside of the company this will effect potential valuations and levels of investment and may involve having to pay off co-founders in exchange for transferring rights properly in to the business. To avoid this, clear agreements should be put in place at the outset making it clear where the rights are to lie.
If work is being done by non-employees make sure the rights in the arising work goes to the correct place. If in an employment relationship, consider whether permission to use your work outside the scope of your employment is required. Both of these things are considerably easier to do at the outset of a relationship where there is goodwill and neither party has a controlling position over the other. Trying to resolve these issues when relationships have broken down or where an owner has the other party in a weak position (if deal depended or business critical) makes this considerably more challenging and in the end will cost your business much more than getting things set out right in the first place.