Protecting Your IP

Whether you are a software developer or you require the development of software for your business, the IP rights in the software will be an essential asset of your business.

It is vital that you ensure that you have the right contracts in place to use, protect and assign (if necessary) such IP rights.

Our IT and IP Solicitors have a wealth of experience with IP rights in Commercial Contracts and are able to draw on support from Employment and Litigation Teams to assist with all aspects of IP protection and litigation.

We are able to advise and assist with:

• Computer programs;
• Copyright;
• Confidentiality Agreements;
• Database rights;
• Software: Design Rights, Patents and Trade Marks;
• Escrow Agreements;
• Employees: who owns the intellectual property rights?; and
• Employees and the protection of intellectual property

Computer Programs

There no clear definition as to what constitutes a computer program.  However, it is more commonly understood to refer to the source code and/or the object code of the program.

Source Code is the computer program instructions set out in their original form.  It is the first stage of the software development.  Computer programmers develop instructions in various forms which explain how the program is to function.  This code is intelligible by humans and therefore could be easily copied by trained individuals.  It is vital that source code is protected.

Object Code enables the source code to be read by the computer. The source code must be interpreted by a compiler into machine language which allows the program to operate on the computer.  Such object code is not legible by humans and therefore can be licensed to third parties without fear of it being easily copied.

Certain IP rights exist in computer programs.  The most important of these is copyright. However, due to the importance of the source code, most software developers also ensure the source code is protected as a trade secret and is only disclosed to third parties under a confidentiality agreement/non-disclosure agreement.

As source code is required in order to fully understand the computer program, to correct errors or bugs, or to allow its interface with other programs, a software escrow agreement is often put in place between the software owner, the licensee or user of the software and an independent escrow agent. The source code becomes accessible by the licensee/user following certain trigger events - for example, the insolvency of the software owner. In such circumstances, the licensee/user may therefore maintain and fully utilise the computer program.

Copyright

Copyright is the main form of IP right in software and computer programs.  “Computer programs” are included in the Copyrights, Designs and Patents Act 1988 as original literary work capable of copyright.  The benefit of copyright protection is that the owner can make a damages claim against or injunct any third party who has copied the computer programming.

To qualify for copyright protection, the work must be original, which means that the author must have created the work through his own skill, judgement and individual effort and must not have copied it from other works.  Copyright will subsist for the time it is recorded in writing or otherwise.  Copyright in computer programs lasts 70 years from the end of the calendar year in which its author died.  However, if the work is computer generated, which means it was created by a computer mechanically, (not simply created via a computer), copyright expires 50 years from the end of the calendar year in which the work was made.

Copyright can also exist in the preparatory design material for computer programs - for instance, flowcharts, graphs and functional or technical specifications, which were created as part of the evolution process in developing a computer program.

If you would like more advice as to whether your computer program is protected by copyright or what you can do if you think your copyright has been breached, please contact our Corporate Commercial Team or Litigation Team.

Confidentiality Agreements

Whilst copyright is the main form of protection for software, it is also strongly recommended that source code is treated as a trade secret and only disclosed to third parties under a non-disclosure agreement.  It is, in some cases, easier to take action against a third party for breaching a confidentiality agreement than it is to put forward a case for breach of copyright.

If you would like assistance with a confidentiality agreement relating to source code or computer programs or other technological know-how, please contact our specialist IT Solicitors.

Database rights

IP may subsist in databases.   Databases are collections of independent works, data or other materials arranged in a systematic or methodical way and individually accessible by electronic or other means.  To be protected by copyright, the database must be deemed original (i.e. by reason of the selection or arrangement of their contents constitutes the author’s own intellectual creation).  Database rights last for 15 years from the end of the calendar year in which the making of the database was completed.

If a database fails to meet the requirements for copyright protection, it may still be protected by certain EU law if there has been substantial investment in the obtaining, verification and presentation of the contents.  This would entitle the maker of the database to prevent extraction and re-utilisation of the whole or a substantial part of the contents.

Do contact us if you would like to discuss whether your database is protected, what you can do to protect your database or whether your database rights have been infringed.

Software: Design rights, patents and trade marks

Certain elements of a computer program such as screen displays and graphics may be

• subject to a Community or unregistered design right.  An unregistered Community design is protected for three years from the date on which it was first made available to the public in the European Community; and
• registered as a design right in the UK and the European Community.  The appearance of the whole or a part of the product resulting from features such as its lines and colours may be registered under UK registered design rights.  However, computer programs themselves cannot be registered or protected by design rights.

Many computer programs struggle to get registered as patents. A computer program can be patentable if it possesses a certain technical character. This can be difficult to determine; however, in recent years, the European Patent Office and national patent offices including the UK Intellectual Property Office, have been granting patent claims relating to computer programs.

Whilst computer programs cannot be protected by trade marks, the brands or logos relating to that program may be protected as registered trade marks or if they satisfy certain requirements, under the common law of passing off.

Escrow Agreement

An escrow agreement may need to be implemented by the interested parties when a licensee is to be licensed software from a developer (or owner) and the licensee requires access to the source code in certain circumstances.

Software is vital to the running of a business.  Integration of such software may have been time consuming, costly and difficult to replicate.  In the event the software owner’s business suffers an insolvency event or the developer stops maintaining the software, the licensee or needs comfort that it has access to the source code to continue to run its business.

Source code is a software owner’s most valuable asset.  Therefore, the software owner will not want to make the source code freely available so that it is capable of being copied.

To balance the interests of the software owner and the licensee, a tripartite software escrow agreement between the software owner, the licensee or the user, and an independent escrow agent is often entered into.  The escrow agent will hold the source code in accordance with the terms of the agreement and only allow the licensee access to the code if one of the identified trigger events occurs.

An escrow agreement must address:

• what material is to be placed in escrow
• in what circumstances material can be released; and
• what the licensee is entitled to do with the material once released.

Other key clauses include:

• duties of the owner, including making the initial deposit of the source code and any other material, updating it regularly, and providing specified supporting information;
• IP warranties;
• the licensee’s obligations on release, for instance, to keep the material confidential, only use it for specified release purposes and destroy the material if it ceases to be entitled to use the software package;
• the escrow agent’s duties and rights and payment for the escrow service.

If you would like assistance in reviewing or drafting a software escrow agreement, please get in touch with our specialist IT Solicitors.

Employees: Who owns the Intellectual Property Rights?

Inventions and Patents

Patents provide inventors with a legally protectable monopoly over their inventions. The inventor may not be the owner of the patent but will still have the right to be named in the patent, along with the owner.

Generally, an employer will own the patent in an invention where it is made in the course of the employee’s normal or specifically assigned duties and it is reasonably expected that performance of the duties might result in an invention.

It is not possible to assign the statutory rights in an invention that has not yet been created by an employee. However, the employment documents such as the contract of employment and job description can and should refer to ownership of patents for inventions created by the employee in the course of their employment. If there is any doubt as to ownership once the invention has been created, an employer should seek a written assignment from the employee soon after creation.

Employee compensation for patented inventions

An employee may be entitled to statutory compensation in respect of its patented invention where the employer owns the rights. To be successful in such a claim an employee must show that the invention is of outstanding benefit to the employer.

Inventions made outside the UK

The UK patents legislation applies to employees who are mainly employed in the UK. If it is not clear that an employee is mainly employed in the UK, the UK legislation will apply if the employee is attached to the employer’s UK base.

Local law will govern the rights of employees who are not mainly employed in the UK or attached to the UK base.

Generally, rights in the product of consultancy work will belong to the consultant however the court could imply a term otherwise, depending on the circumstances.

Copyright

Copyright protects original literary, dramatic, musical and artistic works, including films, music and computer programs. Usually the creator of the work is the first owner of copyright in it. Where an employee creates literary, dramatic, musical, artistic or film works, copyright belongs to the employer, subject to any agreement otherwise. Copyright in works not yet created, can be assigned. The assignment must be in writing signed by the assignor.

The work must be created ‘in the course of employment’ so the wording used in the contract of employment and the job description (if any) will be relevant.

Employees and employers can agree that the employer will waive its rights and copyright in works created by the employee. This must be agreed before the creation of the work but does not need to be in writing or signed by the employer. Employers therefore need to be careful not to waive their rights to ownership of copyright inadvertently.

Consultants are treated like non-employees. By default they own the copyright in the works they create during the consultancy. If this is not desired then an assignment of the copyright should be put in place. An assignment of copyright must be in writing and signed by the assignor and can also relate to future works.

Moral rights

In addition to copyright, certain “moral” rights arise in favour of the creators of most copyright protected works. Even if an employer or commissioner of a work owns its copyright (automatically or otherwise), it cannot take an assignment of the creator’s moral rights in the work since they are non-assignable. However, moral rights can be waived if the waiver is recorded in writing and signed by the owner of the right.

Database rights

Under the Database Regulations, a database is defined as “a collection of independent works, data or other materials which are arranged in a systematic way and are individually accessible by electronic or other means”. The maker of a database is the first owner of database right in it and an employer is regarded as the maker of a database made by an employee in the course of employment (subject to any agreement to the contrary).

Designs

Where an employee, in the course of employment, creates a design that qualifies for registration, the employer is entitled to apply for and subsequently own the UK registered design. The employer is also the first owner of any UK unregistered design right in designs created by its employees in the course of their employment.

The Community Design is the right to Community-wide protection of a design. This right was introduced for certain designs in March 2003. Where a design is developed in the execution of an employee’s duties or following the instructions given by the employer, the right to the Community Design vests in the employer, unless otherwise agreed or specified under national law. The right of employers to first ownership rights in Community designs does not apply to commissioned designs.

Trade marks

The Trade Marks Act 1994 (TMA) does not expressly deal with ownership of trade marks as between an employer and an employee. However, if an employer can satisfactorily demonstrate to the Trade Marks Registry that a pending application has been wrongfully applied for by an employee trying to appropriate the employer’s brand, then the application will be rejected. In the UK this will either be on the basis that the application was made in bad faith or on the basis of the employer’s passing off rights where the employer has already built up a reputation in the mark.

Domain Names

Domain names are internet addresses that are registered with a registration authority. They are contractual rather than IP rights, and often involve names in which the registrant has acquired enforceable rights as a result of the use or registration of a company name, trade mark, trade name or personal name.

It is common for an employer’s domain names to have been registered by an employee in their own name however there is usually no dispute over transferring it to the employer. In the event of a dispute, an employer’s claim to transfer the domain name (through the Uniform Domain Name Dispute Resolution Policy (UDRP)) will succeed so long as:

• The employer has a registered trade mark for the name, or has acquired enforceable common-law rights through use of the name;

• The employee does not have a separate legitimate interest in it (for example, it is not their surname, as it might be for a founding director of a company);

• The registration and subsequent use of the domain is in bad faith (for example, it can be shown that the employee registered the domain only for the purposes of selling it back to the employer for profit).

Under the dispute resolution procedure for a .co.uk domain name, an employer must show the following to the relevant registry (Nominet) in order to succeed in a claim:

• The domain name took unfair advantage of or was unfairly detrimental to the employer’s rights in the name at the time when the registration or acquisition of the domain name took place; or

• The domain name has been used in a manner that took unfair advantage of or was unfairly detrimental to the employer’s rights in the name.

The position is different with respect to contractors.

Know-how

Know-how is not strictly an IP right as there is no clear property to own. Employers can own the physical document embodying know-how (such as instruction manuals setting out secret formulae) and can also own the copyright in those documents. However, know-how can still be misused without anyone stealing the documents or copying them. The value in know-how depends on the employer’s power to prevent disclosure or misuse of whatever confidential information is contained in the documents. This includes misuse by current or former employees. Therefore, “ownership” of know-how is of less significance than keeping it secret in the first place.

If an employee uses confidential information obtained from his former employer to further the interests of a new employer, both the employee and new employer will be liable for breach of confidence. A new employer can also be held liable for acts carried out by the employee before his period of employment with the new employer began.

If an employee possesses know-how which he developed before his employment commenced, and which he then contributes to his work, he will be unable to bring a claim against his employer for breach of confidence in using that information unless he made it clear that it was proprietary to him.

Employees and the Protection of Intellectual Property

Implied Protections

In the course of employment, employers are reasonably well protected from the misuse of know-how and confidential information through implied duties of confidence and of fidelity or good faith. Employees who are also directors owe an additional fiduciary duty to act in the best interests of the company. There may be a breach of these implied duties if, for example:

• An employee sets up in competition with his or her employer or copies or deliberately memorises lists of customers to use after termination;

• A director seeks to exploit his knowledge of a maturing business opportunity to assist a competitor after termination.

However, it is advisable for employers not to rely on implied protections only, particularly if the employee’s role involves the handling of sensitive and private data, or the writing of software or the development of a new invention.  The best approach is for an employer to supplement the implied protections with express terms in an employment contact, consultancy agreement or service agreement. These protections can be in the form of confidentiality clauses, restrictive covenants and garden leave provisions.

Confidentiality

In order to ensure that certain information and data is classed as confidential for the purposes of having to potentially rely on express terms in the future, it is important to ensure that the employee is aware that the information, when disclosed to him or her, is to be treated as confidential. If this is not disclosed to the employee, the benefit of obligations may be severely diminished and possibly undermined.

There are several steps that can be taken to help to show that the information, or at least some of the information, amounts to a trade secret or is highly confidential and is therefore worthy of the protection. It is advisable to take legal advice on these steps because if the matter ends up in litigation, supplying evidence of procedure and awareness will assist the employer in proving its case.

Restrictive Covenants

It is common place to see restrictive covenants in employment contracts.  These restrictions can relate specifically to certain information (such as non-disclosure clauses) or they can prohibit certain acts, irrespective of whether specific information is being used (for example, not to compete within a certain area or not to solicit former customers or employees, in each case for a limited period post-employment). 

With regards to enforceability, the UK courts will, in general, consider any term which restricts an employee’s activities post-employment to be void and unenforceable, unless the employer can show that the restriction was imposed for a legitimate business reason which goes no further than is reasonably necessary to protect the employer and its business and IP rights.

There are various factors affecting enforceability of restrictive covenants which are derived from recent case law and which employers should be aware of. It is therefore important to seek legal advice on the drafting of any such restrictions. It is also very dangerous to use standard form post-employment restrictive covenants for all employees. They should be tailored in time and geographical area to the level of employee concerned, the nature of their duties and the risk they pose to the company.

Garden Leave

Employers can also protect their confidential information and know-how by including an express “garden leave” clause within the employment contract. An employer may place an employee on garden leave when an employee or employer has given notice to terminate. The employee will continue to receive their full pay; however they will be prevented from attending work, from using the employer’s equipment or data and from speaking with the employer’s staff, customers and suppliers for a specified period of time. The implied protections will not survive during this period so any garden leave clause should deal with this point expressly.

Garden leave clauses are particularly useful in protecting commercially sensitive information which is not classed as a trade secret. For example any ongoing or upcoming contract negotiations with new suppliers or customers. A long period of garden leave may have an adverse impact on the enforceability of any restrictive covenants and so the two should always be considered together, at the time of drafting, and the period of restraint under the restrictions should be reduced by any time spent on garden leave.

Enforcing Rights against Employees

An employer can apply to the Court for an injunction against a former employee to prevent the employee from disclosing information. However, the employer must, act quickly to do this.  The Court has recently ruled that a delay of 2 months was considered unreasonable.

It is also essential that the employer is not in material breach of the employment contract. Where this is the case, the former employee can rescind the contract and all its clauses, including the restrictive covenants.

Our specialist intellectual property team are ranked by the Legal 500 legal directory, which means that you can be certain that you will be receiving the highest quality of intellectual property advice and displays our strength in advising on complex IP issues. 

• Our intellectual property experts advise clients on a broad range of intellectual property matters, from initial registration and exploitation to protection and enforcement.
• Our specialist IP litigation team is also highly experienced in handling business disputes involving intellectual property.
• Myerson is a member of the Intellectual Property Lawyers Association (IPLA), an association of law firms with an established intellectual property office. Our membership provides our clients and us with access to a wealth of knowledge and expertise in intellectual property.
• Through our many years of service, we have close working relationships with trade mark and patent attorneys and regularly liaise with them on a wide range of intellectual property issues, such as registering trade marks, patents and design rights, and when disputes arise concerning intellectual property rights. These working relationships are a key element of the service we offer to our clients.
• Myerson is also the Manchester and Cheshire law firm member for the MSI Global Alliance, a top 20 ranked international association of independent professional firms. As the IP matters we deal with often involve an international element, we can call upon the expertise and knowledge of our fellow MSI members to ensure that our client’s global interests are protected.