A RECENT decision of the Supreme Court of Victoria has held that employees who "invented" a computerised on-line trading system during the course of their employment, and with the facilities of their employer, were liable to their employer for the financial benefits they had personally derived from commercial exploitation of the system.
Professor Wilson and Dr Feaver were both employed at the Victorian University of Technology.
Over a period of time (including during working hours) they undertook a research project to design an on-line trading system.
Their project eventually developed into a commercially viable product.
They patented the system and set up companies to market and sell it.
The VUT became aware of Wilson and Feaver’s activities and eventually commenced proceedings claiming ownership of the intellectual property in the on-line trading system and an account for profits derived from its commercial exploitation.
The bases for the VUT’s claim included that the invention was within the scope of their employment and was made after they had utilised the VUT’s resources and equipment.
The principal issues for determination by the court were:
p Whether the VUT had effectively introduced a policy, applicable to its employee generally and to Wilson and Feaver particularly, relating to the development, use, ownership and misuse of the VUT’s intellecutal property;
p If the policy was not in force or was not effective, whether the fact that Wilson and Feaver made extensive use of the VUT’s time and resources in development and invention was enough to make the invention the property of the VUT; and/or
p Whether, in any event, Wilson and Feaver had breached their obligations of loyalty and good faith to the VUT, for which breach or breaches they should be liable to compensate the VUT.
The court held that the relevant employment contracts contained no express provision dealing with the ownership of intellectual property developed by Wilson and Feaver during the course of their employment.
The VUT’s policy on the subject had not been effectively introduced into the terms of their employment contracts.
The mere existence of the policy was insufficient for that purpose.
Further, the court held that the existence of the employer-employee relationship would not, of itself, give the VUT ownership of inventions made by Wilson and Feaver during the course of their employment.
The VUT argued that it was enough to make the invention their property that Wilson and Feaver were paid to be researchers and that the invention in question was the product of their research.
However, the net effect of the evidence was that it was never part of the activities of the School of Applied Economics, in which Wilson and Feaver were employed, to invent Internet-based e-commerce systems.
For their part, Wilson and Feaver claimed that the invention was the product of work undertaken by them in a private capacity.
Ultimately the court rejected this upon the basis that there was a sufficient connection between their employment, the duties, they were employed to undertake and the work that led to the development of the invention.
The court held that Wilson and Feaver:
p Had a duty of good faith to the VUT not to profit from their positions at the expense of the VUT;
p Had a duty to avoid conflicts between their personal interests and duties to VUT as their employer; and
p In the exploitation of the invention had breached these duties.
On that basis the court ordered that Wilson and Feaver should compensate the VUT for the value of their shares (including any shares previously sold) in the company established by them to exploit the invention, although they were entitled to some allowance for their skill, effort and capital risk associated with the development of the invention.
The extent of their liability is yet to be assessed.
The assessment process will be messy and expensive.
This decision highlights:
The importance of ensuring that contracts of employment with staff deal with the ownership of intellectual property created by employees during the course of their employment;
The technical nature of some of the problems that might arise. The judge in the VUT case, after a review of the university’s relevant policy, concluded that even if the policy had been properly incorporated into Wilson and Feavers’ employment arrangements, it would not have been effective to secure any benefit for the university; and the complex legal issues that can arise if intellectual property is not adequately dealt with in employment arrangements.
Alan Drake-Brockman, partner - 9220 4912
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