Protect intellectual property with comprehensive contracts

29 May 2009 8:09am

The surest way to assert ownership over intellectual property (IP) and confidential information created by or disclosed to employees is to include relevant express terms in employment contracts, according to Allens Arthur Robinson partner, David Yates.

Relying solely on the current legislation is risky, he says.

While provisions of the Commonwealth Copyright Act 1968 and Designs Act 2003 stipulate that property created or designed by staff in "pursuance of the terms" of employment is owned by the employer, he says, what constitutes "pursuance" is often hazy, and police can be reluctant to investigate should IP theft occur.

With many employers currently forced to make redundancies, taking steps to protect IP and confidential information is more important than ever, Yates says.

"A redundancy process is typically a highly emotive situation for both the employer and employee and one that is never easy," he says.

"The vast majority of those employees who go through it act responsibly and with dignity. A small minority take the opportunity to walk away with intellectual property which they don't own but which will help them set up as, or assist, a direct competitor."

All employers are vulnerable, Yates says.

Some organisations are more information-sensitive or IP rich than others, he says, but employers from industries as diverse as eyewear retail, financial services, steel manufacturing and the grocery sector have all been caught up in recent information-theft-related litigation.

But prevention of IP theft is easier than the cure, Yates says.

"Employment contracts should be the focus."

Contracts must cover all IP

In a recent Allens Arthur Robinson report, Yates says that employment contracts should include a clause stating that all designs, inventions, copyright and other forms of IP created by the employee that relate directly or indirectly to his or her role are assigned to the employer.

"This might avoid an argument by the employee that he or she created the IP outside the terms of his or her employment," he says.

The terms of a contract must be updated when an employee is promoted or demoted to ensure that the IP clauses correlate with the new position, Yates says.

And employers should avoid contracts where IP protection relies on the incorporation of terms from separate documents, such as policies or regulations - because their "currency" is far less certain.

Restraint clauses

IP or confidential information can also be protected by restraint of trade clauses, Yates says.

Restraints can prohibit the use or disclosure of confidential information outside of the workplace, or certain conduct where IP can be used to the owner's (or employer's) detriment.

With the former, however, the employer needs to precisely identify the confidential information it wants to protect, Yates says, so that if it applies for an injunction to restrain an employee a court can be "specific enough" to enforce compliance.

A restraint clause, Yates notes, can go no further than what is necessary to protect the "reasonable interests" of the employer.

Ex-employees can be prevented from using or divulging trade secrets, he says, but skills and general know-how developed on the job are considered transferable in the eyes of the law.

Employee emails in breach of employment contract

In a recent case reported by HR Daily's associate publication, Workplace Express, the NSW Supreme Court found that an employee of Luxottica subsidiary OPSM, breached her employment contract by emailing Luxottica copyright to her husband, who worked for competitor, Specsavers.

The employer started restraint proceedings after the employee resigned - to accept a position with Specsavers - and a manager inspected her email account.

Justice Richard White found that Luxottica was entitled to damages for the employee's breach of contract and copyright infringement.

The employee's contract of employment, Justice White found, contained terms prohibiting the employee from directly or indirectly disclosing confidential company information for her own or another person's benefit, either during or after her employment.

The contract also included a list of what constituted confidential information, including pricing formulae, supplier details, commission structures and marketing strategies.

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