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Author: Gaurav Shanker, Managing Partner And Yamini Mishra, Associate |

Article by Business Law Chamber

Intellectual Property (IP) laws were enacted to protect the intangible creations of human intellect. IP includes designs, names, inventions, literary & artistic works, music, images, etc. For the protection of various kinds of such intangible creations, IP has been classified under the head of patents, trademarks, designs, geographical indications and copyright. IP is an intellectual’s capital, therefore, the ownership of an IP and transfer of rights to the rightful owner are crucial in the eyes of law. One must note that in the absence of an appropriate legislation for IP protection, it may be subject to misappropriation.

Rightful owner

A rightful owner of an IP is the one who created the IP. However, disputes pertaining to the ownership of an IP are frequent between employers and employees, where, in most cases, the employer is claiming the ownership of the IP created by its employee.

A general rule followed worldwide is that when an employee creates an IP during the course of his employment, in the absence of an agreement to the contrary, the employer becomes the first owner of the IP created by the employee.

Indian scenario

Apparently, in India, the general rule is applied under the IP legislations, however, there are certain exceptions to the rule, which are laid below:

  • According to the Patent Act, 1970, the inventor of the patent shall be the first owner.
  • Similarly, the Designs Act, 2000, mandates a procedure which is provided for patent assignments under the Patent Act, 1970.

Employer v. Employee

Generally, there are employment contracts / agreements in place which obligate the employee to assign, to the employer, the work done by him during the course of his employment. However, according to the Copyright Act, 1970, even in the absence of an agreement, an employee’s work which was created during the course of that employment by him would be owned by his employer.

One must note that in cases where a person is being hired specifically to perform a job, which results in creation of an IP, then the title and ownership of such IP shall belong to the employer. An employee cannot claim ownership of such IP on the mere fact that it was created by him. However, IP created by an employee, other than in the course of his employment, shall be owned by the employee and not the employer.

In the case of Darius Rutton Kavasmaneck v Gharda Chemicals Ltd & ors., the High Court of Bombay observed that the defendant did not owe a fiduciary duty to his principal company to register the patents in the company's name, as he was not under a duty to invent, in his capacity as managing director.

Tips for employers and employees

The employer-employee disputes pertaining to the ownership of IP can be avoided by considering the following:

  • Having an employment contract / agreement prior to commencement of employment is a must. The contract must specify the scope and terms of employment, the ownership of IP and transfer of rights thereto. This will clarify the position of both employer and employee with regard to the ownership of IP.
  • The employer may identify or be aware of any IP owned by the employee prior to the commencement of the employment.
  • Incase an employee has created any IP post-commencement of the employment, then, the employer must ensure that such IP was created independent of the company's resources and the employees' duties.
  • The employer may execute a deed of IP assignment at the time of commencement of the employment and such specific deeds for assignment of existing and future IPs created, whereby, the IP created by the employee is assigned to the employer.
  • A careful examination of the non-compete agreement and the employment agreement is a must for the employee. The employee must be aware of what he has agreed to while signing the employment agreement.
  • The employee may keep a record of the creation of his ideas and time. The employee must use his own funds and equipment for creation of the IP.

These disputes between the employer and employee relating to the ownership of IP created by the employee during the course of employment can be avoided by keeping the above key considerations in mind at the time of entering and accepting the employment terms.