Ownership of Intellectual Property
The issue of intellectual property has recently came up in a few business sale and purchase files, so that I had to look into this and now want to share these basic rules with you.
If you are the purchaser in a commercial transaction and intellectual property is being acquired, it is imperative for you to secure proper transfers of intellectual property rights in order for those rights to be enforceable against third parties so that you can protect its value. There are various types of intellectual property, the main of which are:
- Patents; and
- Trade secrets.
Copyright arises automatically upon creation of a work and the author is the first owner of the work, thus, determination who is the author is essential.
Author is an Employee
Under the Copyright Act the employer is deemed to be the first owner of the work created in a course of employment by an employee.
Author is Independent Contractor
There is no such deeming provision for the work created by independent consultants. If there is no term stating to whom the work belongs in the agreement between the person for whom the work is created and independent consultant who created the work, the independent contractors retain copyright in the works they create, even where the independent contractors receive consideration they agreed to for creation of the work. Thus, there must be an agreement that states whom the work created pursuant to this agreement belongs to or a copyright assignment agreement.
Having said that, it is recommended that persons for whom the work is created obtain proper transfers of copyright from all authors of a work, including employees. The burden of proving ownership rests with the entity asserting the right, and proper chain of title is critical to asserting and enforcing copyright against third parties.
In order for an assignment or grant of interest in copyright to be valid, it must be in writing and signed by the owner of the right or an authorized agent. Since an exclusive licence in a copyright is deemed by the Copyright Act to constitute a grant of interest, all such licences must be recorded in writing.
Moral Rights Waiver
Further, the transfer of ownership in a work in which copyright subsists (such as software) does not, in itself, constitute an assignment of the copyright in that work or a waiver of the moral rights of the author. Moral rights include rights of attribution and integrity of the work, and such rights cannot be assigned to a third party but may be expressly waived by the author.
Trade-marks (“TM”) can be highly valuable assets of a company, particularly where significant reputation and goodwill has been acquired in the marketplace in connection with a particular brand. TM rights arise through use of the mark and can be registered or unregistered.
Registration confers certain legal advantages, including the exclusive right of the owner to use the TM throughout Canada and the right to restrict use of its TM in a manner that is likely to depreciate the value of the goodwill attaching to it.
Common Law Protection
Unregistered trade-marks are protected by the common law through the tort of passing off, but are limited to the geographical area where goodwill has been established.
The same as with copyright of work created by independent contractors, ownership of invention must be assigned to a person engaging the independent contractor to create it otherwise an independent contractor will own it. Unlike with copyright of work made in the course of employment, inventions made by employees, are not presumed to be owned by their employers.
Assignment by Employees and Independent Contractors
In order to avoid ownership disputes and requirement to satisfy the courts that, among other things, the employee was hired specifically for the purpose of innovating, the employers are advised to have proper written assignments in place with the employees and contractors, for all intellectual property created by them.
Assignment of patent rights must be done in writing and accompanied by an affidavit of execution signed by a witness. Such an assignment should also be recorded with CIPO, as a registered assignment takes precedence over any previous unregistered assignments.
Trade secrets or know-how function to give information holders an advantage over their competitors, whether it be commercial, technical, or financial in nature.
The pillar of trade secrets is a fiduciary duty of confidentiality owed by the receiver of such information. The importance of trade secrets has been recognized by the courts who have granted protection against misuse or unauthorized disclosure of trade secrets if the information was communicated in confidence and it had the quality of confidence at the time of disclosure. Should trade secrets be shared for commercial or developmental purposes, it is advisable that the holders secure the parameters of their scope and use by contract.