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Legal framework

Under English law, the intellectual property (“IP”) subsisting in materials created by employees in the course of their employment generally belong to the employer, with stronger presumptions for directors or partners. This default position does not extend to contractors where a written agreement is recommended to provide legally definitive confirmation that the IP is owned by the relevant entity that engaged them. In the absence of such agreement, the contractor/freelancer may own such IP.

How is this documented?

Generally speaking and in part due to the requirement to set out terms and conditions for employees in writing, most early-stage businesses will have some form of employment contract in place. However, the effectiveness of the IP provisions that they contain may vary.

Conversely, whether or not written agreements are actually in place with contractors  (and the quality of those agreements) is subject to variation. While the importance of having a written agreement in place to guaratee ownership of IP is gaining recognition, the same issues of the strength and quality of the IP provisions  within such agreements can differ from business to business.

What happens on an investment or acquisition?

Investors or potential buyers expect certainty that valuable IP will remain with the target company. They will therefore be looking for evidence of employment agreements containing strong IP clauses and evidence of agreements with contractors with equivalent protections; and where such evidence is lacking, an explanation for its absence. If such agreements do not exist and/or are insufficient (for example, an IP provision that fails to assign IP created in the future), then the investors/buyers may require a confirmatory IP assignment to be executed. This usually depends on how integral the IP, that such an individual created, is to the business.

What is a confirmatory IP assignment?

Confirmatory IP assignments are documents, often executed as a deed, providing documentary evidence that the ownership of the specific IP covered by such document has actually been assigned from an individual (e.g. a founder, employee, contractor) to the company. As a matter of law, ownership may already lie with the company but the confirmatory IP assignment eradicates any doubt of the contrary. If the confirmatory assignment is made with ‘full title guarantee’ then this provides further comfort to the assignee that the assignor (the person assigning the IP) has the right to make the transfer and that the IP being assigned is free from any known third party interests or encumbrances. A confirmatory IP assignment can also be useful in asset transactions as they support the registration of the new owner (e.g., at the UK IPO) without having to provide the entire asset purchase agreement to the UK IPO (thus avoiding the disclosure of any sensitive information contained in the asset sale agreement).

Key components of a confirmatory IP assignment

Key components of a confirmatory IP assignment are:

1.           Setting out what is being assigned: The individual agrees to assign any and all rights, title and interest in the IP (both existing and future), absolutely, with full title guarantee. Having full title guarantee is, save for any reason that mean this cannot be stated, optimal (as explained above).

Where IP cannot be assigned at the time or is otherwise not capable of being assigned (for example, due to pre-existing legal arrangements or where the individual in question is e.g., a contractor and may use such IP in other projects), a licence to use the IP can be granted instead. This ensures continuity and avoids any disruption or gaps in the company’s ownership or exploitation of the Assigned IP.

Tip: The definition of Assigned IP should be clear, precise and relevant to its subject matter. The more detail that can be added around what is being assigned, the better. Would a layperson with no prior knowledge understand what the underlying materials that have been created are and what IP is being assigned?

2.           Moral Rights Waiver: Company-friendly documents, where the key IP includes copyright works, often include a waiver of ‘moral rights’. These are non-economic rights working in tandem with copyrights and cover, inter alia, the right to being identified as the creator, the right to object to derogatory treatment/distortion of the work in question, and the right to preclude false attribution. By ensuring a waiver is included, the company can then ensure the individual cannot then for example, seek to rely on these rights by (as an example) relying on the derogatory treatment right to stop the work then being used.

3.           Warranties: In addition to any full title guarantee provided, the individual contractually promises that the IP has not been assigned or licensed elsewhere and that no one has permission to access or use it. The individual should also contractually promise that the IP they created is original and is not copied. As warranties, these give the company an ability to bring a claim against that individual if the promise turns out to be incorrect or broken. The company would be entitled to seek damages if it can be shown that damages flowed directly from that inaccurate or breached promise.

4.           Further Assurance: The individual agrees to take all necessary actions to perfect the company’s ownership of the IP in question (e.g. signing any additional documents required by a trade mark registry) and may also grant a power of attorney authorising the company to execute documents on their behalf. This helps to avoid delays or obstacles in registering or enforcing the IP assigned.

Tip: If including a power of attorney provision the agreement will have to be executed as a deed to ensure such provision is effective.

What if I am an individual being asked to assign all IP I have created whilst working for the company, but I want to keep ownership of some of that IP?

If the individual is a contractor, this issue is often solved simply by tightly defining the scope of “Assigned IP”. After all, there is an expectation that a contractor will work on multiple projects for different clients at the same time. The Assigned IP assigned created specifically for the company in question can then be assigned, whilst any IP (of general applicability to other clients) of that contractor may instead be licensed. The license can provide for contractual obligations to not undertake similar work for a competing product, service or software application. It is key to ensure clarity on what is considered “bespoke” and hence assigned, against what is not.

This is trickier in an employment context where, as noted above, the legal position is that the IP in materials created by employees in the course of their employment generally belongs to the employer. Whilst, as lawyers, we may not be writing legal precedents in our spare time, individuals working in video gaming companies may have developed their own code as a hobby or side project in their spare time. For example, they may work for a gaming studio that develops one particular genre of game, but they may have developed a game in an entirely different genre outside of work. In the absence of an agreement with the company, the very broad interpretation of what constitutes something created “in the course of employment”, means that all such IP in that game developed outside of work is likely to be owned by the company. However, if the employee can come to an agreement with the company, they can consider entering into a “side projects deed” or similar where it is acknowledged that the particular IP relating to that side project remains owned by the employee (subject to restrictions placed by the company such as how that IP can be used/exploited and obligations to notify the company of its development). Having this discussion at the outset can be critical for any employee wishing to retain ownership of personal side projects.

What are the risks of having to rely on confirmatory IP assignments?

The risk is that once an individual realises that a company needs them to sign a piece of paper confirming the company in question owns the IP, they may realise the true value of that IP and use this as leverage. They could demand additional payment before signing the document.

Another practical issue is that individuals’ contact details may be mislaid or lost over time. This can create difficulties in obtaining signatures from individuals when an investment or acquisition is imminent. Deals can collapse if e.g., some critical piece of software code in the core product is actually not owned by the company and the relevant individual cannot be located to sign the necessary paperwork. The individual concerned may have left the business and be difficult to trace.

Takeaways: Protecting Value Through IP

In most modern businesses, value is intrinsically linked to proprietary IP. Having agreements in place that confirm company IP ownership is critical to commercial success and ability for growth. Be proactive:

• Conduct regular IP audits.
• Include robust IP assignment (or appropriate IP licensing) clauses in employment and contractor agreements.
• If gaps are identified, implement and execute confirmatory assignments early.
• If you are an employee and want to retain certain IP that could be related to what you do on a day to day basis, speak up!