For many companies, working with people on the outside, such as contract workers, independent consultants, joint development partners and even customers, is a necessary part of developing a new product or service. However, what happens when new inventions result from collaboration with these outside individuals? Who owns the intellectual property rights to those inventions? Ideally, this is a question that should be considered early on in a working relationship, and well before patent applications are filed to protect any new inventions.
This article highlights three different circumstances where patent ownership issues can arise when working with outside parties and provides suggestions to address these issues.
1. Hiring independent consultants or contract workers
It is relatively common for companies to hire independent consultants or contract workers to help develop a new product or service. These outside workers may be hired specifically for the purpose of developing the new product or service, or they may be hired only to work on a specific aspect of the new product. In either case, during the course of the work done by the independent consultant, it is entirely possible that one or more new inventions could arise.
So what happens when an invention does arise? Who owns the rights to the invention? In 2000, the Ontario Superior Court ruled that "an independent consultant who makes an invention owns the invention unless there is an agreement, express or implied, to the contrary."
It would thus seem that the answer to question of who owns the rights to an invention boils down to what was agreed upon between the company and the independent consultant when the consultant was hired. Too often, consultancy agreements (or other engagement contracts) are silent on the subject of the ownership of intellectual property rights ("IP rights") that result from work done by independent consultants. When there is no express or implied agreement in place, there is a strong argument to be made that it is the consultant who owns the rights to any inventions made. Obviously, this is not good news for a company who has paid the bill for the consultant to generate the invention.
Therefore, when hiring an independent consultant or contract worker, it is advisable that a written agreement be put in place, such as a consultancy agreement or other engagement contract, that clearly indicates who owns the IP rights to any inventions that come out of the work done by the independent consultant, and that there is express assignment language from the consultant to the company. This will greatly help to avoid any unnecessary surprises and legal headaches down the road if an independent consultant refuses to assign his/her rights to the company.
2. Working with customers to meet customer needs
Many technology companies supply innovative products to a specific customer base. For example, there are companies that sell firefighter suits to fire departments and companies that sell surgical equipment to surgeons. It is not uncommon for these types of companies to work closely with their customers, who are end-users of their products, to make sure that the new products that they are developing meet their customers' needs.
Take for example the case of a company that manufactures surgical equipment for performing knee surgery, which we will call NeeCo. During the course of sales meetings and/or training sessions with the knee surgeons, NeeCo employees may learn about various problems that the surgeons face. This knowledge may then form the basis for new inventions that are later developed by NeeCo to help address the problems faced by their end-user customers.
When working with end-user customers in this manner (i.e., without any formal written agreements in place), one of the simplest ways to avoid IP ownership issues is to ensure that the customer is not involved in the inventive process. If a customer is not an inventor, it will be difficult for the customer to claim any ownership rights to the new invention. From a patent perspective, an individual is considered to be an inventor when the individual has contributed to the invention claimed in a patent.
Simply identifying a problem is not generally sufficient to make an individual an inventor of a new product or method that solves that problem. Therefore, when working with end-user customers, it makes sense to listen to their needs without allowing them to elaborate on how they could be met (in other words, without allowing them to suggest an actual solution to the problem). For example, there is a difference between a surgeon saying "our tools are difficult to sterilize" and a surgeon saying "it would be nice to have a tool with removable, disposable working ends that didn't need to be sterilized."
In the first case, the surgeon has simply identified a problem that could be solved in multiple ways. However, in the second case, the surgeon has identified a specific solution/invention that could solve the problem of sterilization.
If the surgeon has simply stated the problem (such as in the first statement), if NeeCo were then to develop a surgical tool with removable, disposable working ends, it would be hard for the surgeon to argue that he/she was an inventor for this invention, and therefore would most likely not be able to claim any IP rights to this invention.
However, in the second case where the surgeon has provided a specific solution to the problem, if NeeCo were then to develop the tool that was essentially suggested by the surgeon, the surgeon could be considered an inventor for this invention. Barring any pre-arranged agreement or contract, this would then give the surgeon intellectual property rights to the invention as well as to any patent applications that may be filed by NeeCo.
Therefore, when working closely with customers who are end-users, it is often advisable that the people who are in direct contact with these customers understand what type of information can and should be obtained from the customers, and what type of information could cause the company to have ownership issues to IP rights in the future.
3. Working with joint development partners
Two companies may choose to enter into a joint development agreement (either by creating a new joint venture company or via a joint development business partnership) to combine their different areas of specialization and develop a new product that each company wouldn't necessarily be able to invent without the expertise of the other. For example, in keeping with the example of the surgical tool described above, NeeCo may choose to enter into a joint development agreement with a company that specializes in developing and manufacturing medical grade plastics so that together they could form the disposable working ends for the new surgical tool.
In this scenario, NeeCo brings to the partnership expertise in the design and functioning of surgical equipment, and the plastics company brings expertise in terms of the materials that can be used for the disposable ends of the surgical tool. Together, these two companies should be able to combine their areas of expertise to arrive at a new, and hopefully patentable, invention or inventions.
So who will (or should) own the IP rights to any new inventions that result from this partnership? This is a complicated question that will be dealt with only at a high level in this article. The short answer is that it will depend on what has been agreed upon by the two parties in a mutually satisfactory agreement resulting from business and legal negotiations.
However, when negotiating such an agreement, the following questions should be considered by both parties:
How should IP rights to existing technology that is incorporated into the new product be handled? Often, existing technology belonging to one or both of the parties may go into a new product being developed. For example, assume that the disposable working ends that have been developed through the joint development venture between NeeCo and the plastics company are made from a patented formula for medical grade plastic that belongs to the plastics company. When entering into the joint development agreement, the plastics company will want to ensure that they maintain ownership, as well as the rights to use these existing IP rights (which can be referred to as their "background IP").
However, NeeCo will need some rights to this patented technology to be able to make and sell the new surgical tool that includes these disposable working ends. The plastics company will thus likely grant to NeeCo a licence to use the background IP relating to the patented formula for the plastic material. This licence may be on an exclusive or non-exclusive, royalty or non-royalty bearing basis depending on the business terms that have been agreed upon by the parties. Usually the plastics company will want to avoid assigning all of its existing IP rights to NeeCo if it intends to continue using these rights or wants the option to license these rights to other business or technology partners.
How should new inventions that relate specifically to the technology area of one of the two companies be handled? During the development of the disposable working ends for the new knee surgery tool, assume that the plastics company invents a new and inventive manufacturing process that is used to produce sterile plastic components that comply with health and safety standards for surgical equipment. This new manufacturing process was developed solely based on the expertise of the plastics company and is a technology that could be applied to other fields independent of the knee surgery tools. For example, this sterile manufacturing process may be used to manufacture plastic dentistry equipment, among other possibilities.
Therefore, when entering into the joint development agreement, the plastics company may want to ensure that it will own the IP rights to any new inventions that relate to its area of expertise (i.e., plastics or plastics manufacturing) that can be used in fields independent of knee surgery. There are a variety of different ways ownership of such inventions could be handled, which will generally depend on the business objectives contemplated when entering into the joint development agreement. Nevertheless, consideration should be given as to what happens to inventions that do not directly relate to the project at hand, and that could be used in different contexts once the joint development venture/partnership has terminated.
How should new inventions that relate to the new product that was jointly developed be handled? In the above example, the entire purpose of the joint development partnership was to arrive at a new and inventive knee surgery tool with removable, disposable working ends. Under those circumstances, who will own the IP rights to this invention? There are many possibilities, which will most likely be addressed in the written joint development agreement (or other collaboration agreement). For example, it is possible that both companies will co-own the IP rights to this new invention (which can present other types of ownership problems beyond the scope of this article). Alternatively, it is possible that the IP rights to this invention may go to NeeCo, if NeeCo is providing financial (or other) resources to the plastics company while the joint development is taking place. In yet a further possibility, it may be the plastics company who will solely own the IP rights to the new invention.
In general, business factors (such as the objectives and strategies applicable to the circumstances at hand) usually determine how the IP ownership rights resulting from a joint development relationship are allocated. However, when negotiating the portion of the joint development agreement that relates to IP ownership, both parties should consider the above questions such that the manner in which both current and future IP ownership rights are allocated is agreeable to both parties, leaving no unwanted surprises for the future.
In summary, when issues relating to IP rights are not considered at the outset of a working relationship with outside parties, uncomfortable situations and/or disputes can arise. The issue of IP ownership rights should thus be considered and addressed early on in the relationship, preferably before the work commences, to avoid and/or pre-empt such uncomfortable situations or disputes.
Emma Start, Montreal
The preceding is intended as a timely update on Canadian intellectual property and technology law. The content is informational only and does not constitute legal or professional advice. To obtain such advice, please communicate with our offices directly.