Who owns Intellectual Property? Don't follow the money!

“I paid them to do the work, so I own the intellectual property. Don’t I?”

Well, um, probably not.

The fundamental that must be remembered with intellectual property of any kind – ownership naturally rests with the creator, whether that is the designer, author, inventor etc. Paying someone to do a job, where doing that job results in the creation of intellectual property, does not in itself transfer ownership of the intellectual property.

Intellectual property ownership can only be transferred by an explicit contract – one that identifies the IP and to whom it is to be assigned. We suspect that there is a wealth of valuable IP whose ownership still actually rests in the hands of contracted researchers, designers, authors and the like because their contract did not make any clear arrangement for the transfer of IP created in the course of their work to the contracting organisation.

The only ‘exception’ to this rule (or so it is often said) has been the case of the employee inventor/designer/author. However, it would be a mistake to assume that ANY intellectual property produced by ANY employee is actually owned by the employer.

The line of decisions by Australian courts seems to be steadily narrowing the circumstances in which an employer will automatically own the IP output of an employee’s work.

As ever, the answer to the question of IP ownership depends on the unique circumstances of each situation, but to illustrate some general principles, here is a list of circumstances that are likely to mean the employee actually owns the IP in the output of their work:

• If the employee is not expected to create IP as part of their regular role, e.g. if they are part of the sales team, even though they may work with R&D personnel, or even if they are a researcher at a university;
• If the employee creates something new at work, that they were not ‘directed’ to create, even though they are in a role that usually involves the creation such new things;
• If the employee operates as a highly skilled specialist in their role, such that they do not operate under close supervision.

So, in what circumstances will an employer own the IP? Something like this:

• Where the employee is employed to create IP, such as a member of an R&D team, design team or software development team, but where the employee has a more functionary role – not acting as an independent specialist without technical supervision – and is working on a project that forms a part of the employer’s development plan, and is not a ‘skunk work’ with a business application.

Failing that, an employer, or user of contract IP generators, who does not institute a program of obtaining IP assignments is letting ‘its’ business IP walk out the door.


by Adam Hyland

Integrated Patent Examination of Australian and New Zealand Patents

The Prime Ministers of both Australia and New Zealand announced the creation of an initiative to integrate examination of Australian and New Zealand patent applications within a three year period. The initiative is part of a larger framework of bi-lateral measures to simplify or harmonise trade relations between the two countries.

The integrated patent examination initiative announced is still at a high level and details of exactly how the initiative will be brought into practice is something the respective patent offices (IP Australia and IPONZ) will be focusing upon over the immediate future.

The initiative is directed to the scenario where patent applications for the same invention are filed in both Australia and New Zealand. The current practice is that the Australian application is examined by IP Australia and the New Zealand application is quite separately examined by IPONZ. The initiative is designed to replace the separate examination of the applications with an integrated approach so that both applications will be examined by a single examiner at either IP Australia or IPONZ.

It must be stressed that the initiative is not aimed at a harmonisation of patent law between the two countries. There are a number of issues which distinguish the Australian and New Zealand patent legislations. In fact, more distinctions may come when the proposed draft New Zealand patent legislation comes into effect.

Consequently, the integrated examination will inevitably result in the applications being examined separately under their own separate laws, albeit by the same person. The practical hurdle that needs to be addressed in order to implement the initiative will be to train the Australian and New Zealand patent examiners to confidently and competently be able to apply the laws of another country.

To the extent that there are certain overlaps in the patent legislation of Australia and New Zealand, given examination will be conducted by a single examiner, the initiative may well reduce duplication of work and provide a consistent expression of opinion. However, will these perceived benefits be negated or outweighed by the practical difficulties of the examiner applying the non-overlapping or distinguishing aspects of the two patent laws?

by Simon Ellis

How can we afford to enforce our patents?

This question is often raised by clients with limited resources to fight an infringement action.

Most patents are never litigated - estimates range from 3 to 5% of patents ever become part of a serious dispute, and that is over the full 20 year life of a patent. For most technologies, serious disputes are most likely to arise 6 to 10 years after filing. This is a long time after the initial product development, reflecting the stage when a product is successful, and hence most likely to be copied by a competitor.

However the statistics hide a number of cases where either there is no dispute because the patentee cannot afforest the fight, or where a dispute begins but is settled on unfavourable terms because the patentee could not afford to take the dispute to trial.

The risk for a small or early stage entity is that early in the lifecycle of the product, or even before commercialisation, infringement will occur. This is often the point at which cash reserves are lowest, and where a company can least afford to spend money, time and management resources on litigation. These risks are highest where a product is quickly on the market, such as software, and lowest where long regulatory hurdles prevent rapid infringement, for example pharmaceuticals.

One tool for risk management is to take out insurance to fund the potential costs of some or all of litigation over a company’s patent portfolio. This type of insurance has recently become available on the Australian market, supported by a specialist underwriter. The insurance covers the cost of litigation to enforce patents, up to a certain limit. To support a claim, there must be a reasonable prospect of success. The insurer recovers their costs, where possible, from the fees and damages recovered from the judgement or settlement. The cost of cover is assessed on a case by case basis, and of course has to be taken out before any infringement occurs. Cover can be for Australia only, or international in scope.

We have recently attended a presentation about cover, and the premiums are within a range which may be affordable for small and start up entities. The existence of such cover could, in itself, assist in resolving disputes, by making it clear that ‘even though we are a small entity, we have insurance and our insurer has accepted the claim’. This is a valuable tool when confronting a large, well funded competitor, who may hope to prevail by sheer size and expense.

Other forms of cover can assist with other costs, such as infringement challenges to a product. Insurance coverage could also be reassuring to investors at an IPO, providing them with confidence that an IP position can be defended. If any of our readers are interested, we are able to provide contact details for providers of IP insurance in Australia.

by Peter Franke

Government Grants

The cost of doing research and development, and of protecting intellectual property may not be as much as you might think.

There are a number of federal and state government funding and/or assistance programs that can compensate your business for its outlay in R&D or market development. The trick is knowing how to find them, and then how to access them.

Some of the programs include:

• The Australian Technology Showcase grant and exposure
• Commercialisation Australia funding and support
• Export market development grants
• Enterprise Connect services and grants
• NSW Innovation Pathways and Technology Vouchers programs
• R&D Tax concession and the new R&D Tax offset

All of these programs are different - in what is offered, who is eligible and how they are accessed. Some are a cash grant, others are a company tax offset, others include in-kind services or access to markets via government contacts. Most require a formal application, which may be a one-off or may require on-going record keeping. There are usually restrictions on the type of activity that is eligible, and often (but not always) restrictions on the type or size of business that is eligible.

Franke Hyland doesn’t access these programs directly for our clients. However, if your accountant or business advisor is not fully up-to-speed with these offerings, we are aware of specialist organisations who identify which grants you may be eligible for, and who also offer assistance in applying for access to the programs.

So please let us know if you think you could use some of these friendly government people’s money to support your IP development!

From papyrus to paperless … why we never have to store another piece of paper

Everyone talks about a paperless office but very few people actually have one, particularly in legal circles. We love our paper. Records going back into the mists of time, files, journals, publications, the list goes on and on … and every piece of paper needs to be recorded, actioned, filed and stored.  An onerous and time-consuming task and, once you take into account the cost of stationery, staff to process the paper, rent for space to have it on hand in the office and later the on-going costs of archival (and retrieval, which invariably happens), each sheet of paper that comes in your front door is costing you so much they may as well be sheets of gold leaf.

So why do so few of us in the legal profession have, or even are attempting to implement, paperless or low-paper offices?  Sometimes, the reason is nothing more solid than tradition – “the firm has operated this way for over 100 years and it isn’t about to change now”. Some firms believe it just can’t be done; some paper will still have to come in and out of the office and they cannot understand that a paperless workplace is a goal and not an absolute. Most often, however, the reason given is “we tried it but we couldn’t make it work”.

It is truly amazing how many companies took up the mantra of working in a more environmentally friendly office over the last decade and “couldn’t make it work”. A large part of why not is simply because being ‘green’ is a by-product of a well-designed paperless environment, not the cause.  Admittedly, working for a young agency that began free of the shackles of parchment, it has been easy to minimise the amount of paper we have to deal with every day.  Not that we’re anti-paper … like the Telex and Cassette Walkman we remember it fondly; we just don’t want to own it in 2011.

What does it take to make an office work without paper? The same thing it does to work with paper – the correct tools, effective processes and committed people.

There are two foundations that need to work in harmony for a paperless office to succeed.  The first is an IT system that takes full advantage of current technologies such as larger monitors, high quality scanners, smart phones, wireless networks and data storage mediums such as portable hard drives and USB memory sticks.

Secondly, you need people who are well trained and understand how to make the most effective use of these new tools; people who see everyone, from senior management down, using the same tools and procedures.  People who think that not handling paper is the ‘norm’ and not the exception.  In short, you need to have everyone ‘reading from the same iPad’.

In the last twelve months we have learnt that clients will happily pay an invoice sent by email, that it is easier to keep files safe and secure when they are electronic rather than in manila folders that you are constantly misplacing (or spilling coffee on) and that stationery can be merely a petty cash issue, not a capital expenditure.

Operating in a paperless environment - it’s a mindset.  We’re already there, when are you taking the first steps?

by Andrew Hunter and Pauline Delaney

Angel Investor’s Conference

Recently I had the pleasure of attending the 4th Australian Association of Angel Investors (AAAI) conference in Newcastle, NSW. It was my first real contact with the angel investor community and it was a great experience.

The conference covered a number of topics of interest to angel investors, their clients and their advisors. I estimate there would have been at least 200 people in attendance, most from Australia but also many for the USA, the UK, New Zealand and Asia. In fact there appears to be a growing community of angel investors in India. It appears that the trend, in the US at least, is for angel investors to be getting younger and increasingly female.

So, what is an ‘angel investor’? There is a pretty reasonable description here:

http://en.wikipedia.org/wiki/Angel_investor.

In a nutshell they are people who are independently wealthy, usually following divestment from one or more companies that they have founded, and who are not ready for a life of banana chairs and cocktails. The typical angel investor wants to invest in companies that, aside from having very high growth potential, can benefit from the angel investor’s own business experience. They also look to have a defined ‘exit’ point from the investment – they typically want to take their investment through a particular phase and then cash out, usually at a point when ‘bigger money’ is required (and available). They tend not to want to ‘hang around’ as the investment can quickly become diluted by the influx of bigger money from venture capitalists, banks etc. They may typically be looking to invest anywhere from $50,000 to $5,000,000.

These angels are a tough sell, make no mistake. They are investing their OWN money, not someone else’s funds. The clear-headed realism that characterises their analysis of investment opportunities is usually hard-won; most have had their share of investment successes and failures. They tend to have a portfolio of investments, in the knowledge that many of the early stage and start-up businesses they fund will fail, but that the successes will be very significant. They often take a position on the board of their investees, but not usually in direct operational management. This does translate to them wanting to be involved in big decisions concerning the business.

I was also struck by the angels’ quite sophisticated understanding of intellectual property (IP) creation, protection and management. Angels have a very strong interest in conducting full due diligence on businesses, and IP is a big part of the due diligence process. It is well understood by angels that patents may (or may not) be crucial to the delivery of the business AND that non-patented technical knowledge must be protected in any case. They also fully realise that the value of IP in the business may have been tainted or even destroyed by errors, or simply ‘skimping on cost’ at the start of the protection process: inventors incorrectly identified; ownership imperfectly recorded or indicated; too few examples or too little real information included in the patent specification; patents simply not protecting the real commercial advantage of the company’s products. Many angels have been burned by this – they tend to learn these lessons very well!

So where can you find an angel investor? A good first point to look in Australia would be: www.aaai.net.au/membership/angel-group-directory - the AAAI is the peak body for individual angel investor groups in Australia. Angel investment groups are typically based around particular geographic regions, e.g. capital cities or economic regions such as the Hunter Valley, or around particular business or technology sectors.

by Adam Hyland

More on major changes afoot for Australian patent law

Further to our blog of 27 January 2011 “Major changes afoot for Australian Patent Law”, IP Australia has now made the draft and explanatory memorandum available to the general public.  You can view the documents from the links below.

We will provide detailed comments on the various parts of these extensive changes in future blogs.

Draft:

http://www.ipaustralia.gov.au/pdfs/news/ip_laws_exposure_draft_bill.pdf

Explanatory memorandum:

http://www.ipaustralia.gov.au/pdfs/news/ip_laws_exposure_draft_explanatory_memo.pdf

by Peter Franke