Businesses must protect intangible assets too

Innocent found themselves unable to trademark their logo due to an IP dispute. Picture: Contributed

SCOTTISH businesses are ever more aware of the need to harness intellectual property assets generated by employees. What is increasingly apparent is that employees have realised there is money to be made if they can take information and ideas and exploit that for themselves or with a new employer.

Our client base has experienced a marked increase in the number of instances concerning IP “theft” by employees and consultants. The first instinct might be that this is a police matter, but it is unlikely to be given close attention by authorities who could, understandably, view it as a civil matter.

Even in instances where former employees have taken information by hacking into their old employer’s computer system (an offence under the Computer Misuse Act 1990) the police have been unable to commit resources to investigate. So protection of your business’s IP is down to you.

As the name suggests, intellectual property is anything created as a result of intellectual effort, a collection of rights that protect ideas and information that may be of commercial value. IP is an intangible asset which exists in almost all creations and inventions, whether registered or not. IP which may be taken by employees is most probably going to be protected by one or more of copyright, database rights and rights of confidentiality.

The rights afforded to the owner of IP can be extremely powerful and will most likely be exclusive rights to prevent others from using the IP without their consent. Realising the value of protecting your IP can produce significant rewards.

Generally, ownership of IP will automatically vest with your business when created by an employee in the course of their normal duties (dependent on the type of IP and the circumstances surrounding its creation). This is typically provided for in employment contracts but is also the background statutory position. Employees often make the erroneous assumption that they are entitled to ownership of certain IP created as a result of their own intellectual effort. If done as part of their normal or otherwise assigned duties, that is not the case.

There is one exception, in relation to inventions which are later protected by patent. Even where an invention belongs to the employer, an employee may still be entitled to make a claim for compensation to be payable where the invention can be said to be of “outstanding benefit” to the business, recognising an employee’s contribution to the business’s commercial success.

Unlike employees, contractors are likely to own the IP in work produced by them, unless there is an agreement to the contrary. This can be a pitfall for the unwary.

A relatively new phenomena is misappropriation of a business’s social media profile. An employee who has developed your company’s Facebook page, LinkedIn account or Twitter feed will have de facto control over it. If they leave without providing a password and means of access, this can be a big problem. If they decide to change the name of the account to that of their new employer, it could be a disaster. The normal position will be that the account is owned by the individual who registered it and establishing they created it on behalf of their employer is not straightforward.

So what measures can you take which will offer IP protection? Of vital importance is setting out the position prior to and during employment. After all, IP, in particular confidential information, is difficult, if not impossible, to contain once it has leaked.

Written contracts of employment are key. Best practice dictates that employment contracts will include clear, defined ownership of IP, as well as covenants preventing any encroachment. However many businesses fail to ensure those provisions are relevant for the position employed. Standard terms of employment often cause difficulties when it comes to enforcing them: too narrow and the right might not be adequately protected; too wide and it is at risk of being struck out as unenforceable.

As a result, thought should be given to tailoring provisions for specific roles, particularly for those involved in creative/inventive roles or with access to sensitive business information.

It is also important, especially when engaging third parties and consultants, for early identification of potential IP and agreement as to where that ownership should fall.

An example of what can happen when this isn’t addressed can be seen from the difficulties faced by smoothie maker, Innocent. They were unable to register their Halo logo as a trademark as copyright in the original sketch was produced by a designer on terms which retained ownership of the copyright.

Having in place unambiguous policies concerning what happens to IP when it is removed from the workplace by employees is also of great importance. The misinformed assumption by employees that they are entitled to the IP is often the catalyst for its misappropriation. Letting your employees know who owns what can save a lot of pain down the line.

It is impossible to legislate for every eventuality and resort to the courts may be required. In our experience, the courts take a very dim view of employees and consultants taking IP assets from companies to exploit for their own ends. Litigation, however, should not be embarked upon lightly. You cannot prevent someone from using what is in their own heads and it is important to analyse what is likely to be achieved.

Also consider what potential damage can be caused to your business with the misappropriated property. That is a question the court will ask when a claim is raised, in particular where interim interdict is sought.

Many companies are prepared to litigate to send a message out to their workforce and the market that they value and protect their IP and will not allow it be taken with impunity. Whatever the outcome, increased awareness amongst the company’s work force is bound to be a welcome result.

• Colin Hulme is partner and head of dispute resolution, Burness Paull LLP

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