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If you are an innovative business with valuable IP how sure are you that you own it and what are the rules around IP ownership?

Your business is innovative, and you are confident that there is significant value in the associated intellectual property (IP).  But do you own that IP, or at the very least know who does?

This article is intended to get you thinking about establishing ownership of some of the most valuable property associated with your business - before it becomes an issue.  It assumes that you are already looking to identify that IP and secure the competitive advantage it provides.

One of the key elements to the definition of "intellectual property" is the ownership of an intangible thing.  Patents, design registrations, copyright, plant variety rights, and trade marks are all mechanisms for defining intangible property which can be sold, licensed, damaged or trespassed upon.

Each type of IP has different rules around who owns it on its creation.  The default position is that the creator or author is the owner of the associated IP.  From there, rules are in place around how those rights may be transferred.

It is particularly important to establish ownership when dealing with third parties to perform work on your behalf - or conversely when performing work on another party's behalf.  Most people would logically assume that "I paid for it, therefore I own it".  However, this is not necessarily the case.

The New Zealand position with regard to ownership of copyright in a commissioned work is a prime example.  The Copyright Act 1994 says that a work which is commissioned is owned by the party who commissioned it, provided: it falls within certain categories of works (e.g. artistic works and software, but not literary works); the commissioning is valid; and there is no other agreement to the contrary.  Incorrectly assuming that your arrangement meets these requirements can lead to a rude shock when it comes time to enforce your rights. 

Oraka Technologies Ltd v Geostel Vision Ltd is a cautionary tale regarding ownership of commissioned works.  The plaintiffs (collectively "Oraka") claimed to be owner of copyright in certain works relating to an asparagus grading machine - including drawings claimed to have been commissioned from the third defendant, Napier Tool & Die Co Ltd.  There was no formal agreement between Oraka and Napier Tool, but it was alleged by Oraka that it was under an implied obligation to pay for the creation of the drawings and that this constituted a commissioning. 

However, the facts showed that Napier Tool actually offered its design work as a free service (with the idea that this would lead to later tooling and manufacturing work).  This was key to the High Court's finding that there was no commissioning, and that Oraka did not own the copyright.

The decision of the High Court was overturned on appeal, with the Court of Appeal holding that the trial judge should not have separated the commissioning arrangement into two transactions (preparation of the concept and design drawings, and manufacture of the components from those drawings).  The Court of Appeal held there was one seamless transaction, with the potential benefit to Napier Tool in ongoing manufacturing work completing the statutory requirement for commissioning.

The key lesson is that although Oraka ultimately established its ownership of the copyright, it was likely at a considerable expense.  This could have been avoided if an appropriate agreement was in place from the start.

Looking at it from the other side, when performing work for another party you need to take care that you do not give away any IP which forms part of your competitive advantage.  Do not assume that something is not part of the deal.  If it is valuable to you (especially with regard to the ongoing viability of your business), take steps to ensure that you own it.

It is important to note that the example given above is just that - an example.  As previously referred to, each type of IP has slightly different rules around ownership and its transfer. 

Generally, best practice is to agree on ownership of IP in writing as early as possible (ideally before any work is carried out) so as to avoid misunderstandings and problems further down the track.  Care needs to be taken to ensure any agreements meet legal requirements specific to that IP.

In short, the intellectual property in your business is just like any other property in the sense that somebody owns it.  Make sure you know who.

This article first appeared in Connectme, a NZMEA  publication

To view additional information contained in the links in the article please see the original.