Employees and inventions – important developments

IN the recent decision of Victoria University of Technology v Wilson and others, the Supreme Court of Victoria held that an employer was not entitled to full intellectual property rights in a lucrative invention two employees had created.

A private company wanting to develop an opportunity approached two university academics who had relevant expertise.

The private company wanted the university to be involved in the project and, on behalf of the university, the academics agreed to participate.

However, when it became apparent that an associated product would also have to be developed for the project to progress, the two academics, with the assistance of a former student, set about designing that product in their own time without informing the university of the opportunity the private company had provided.

The two academics and their former student decided that they should own the intellectual property in the invention, not the university.

The invention gave rise to significant commercial profits.

The university discovered the involvement of its two academics in the invention and commenced proceedings against the academics and the company they had incorporated to exploit the invention, IP3.

The university sought a declaration that IP3 and the academics held the invention, and the patent applications protecting the invention, on constructive trust for the university.

The university also sought compensation, an account of profits and payment to the university for the sale of any IP3 shares by the two academics.

It was held that the academics, who both had senior positions in the university, breached their fiduciary duty to the university by taking away an opportunity that was originally presented to the university and deriving profit from it.

The court also held that the academics failed to remedy this breach by seeking the university’s consent to their involvement in the invention.

To rectify this breach the court ordered the academics to hold their shares in IP3 on constructive trust in favour of the university.

Alternatively they could pay the university for the shares they had already sold – subject to allowances for the time and effort expended by the academics outside of their working hours for the university.

The court declined to grant the university full ownership of the intellectual property rights because of the adverse effect this would have on the rights of innocent third parties such as the student who assisted in creating the invention.

Because the university council had not formally approved the intellectual property policy, the university could not argue that the academics had breached their employment contracts by failing to abide by the policy.

In other words, the court held that the policy did not apply to the academics because the council had not ratified it and the policy was never included in the human resources manual.

It can be very difficult for an employer to call an employee to account for an invention that is work-related but created in the employee’s own time and without the use of the employer’s resources.

To avoid such a conflict of interest employers should use contractual clauses to require employees to seek express consent in writing before carrying on projects for personal profit.

Employers can retain ownership of their employees’ work related inventions through the use of well-drafted intellectual property clauses in employment contracts and intellectual property policies.

However, if intellectual property polices are to be relied on, employers must ensure that such policies have been formally approved by the organisation and that the policies are published in a human resources manual that is available to all employees.

Many employers are complying with the latter obligation by making policies available on their staff Intranet.

Kylie Groves,

associate - 9429 7475




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