In the current climate, it has never been more important for SMEs to protect their intellectual property. Unlike government departments and large corporations, there are no default contact clauses when it comes to IP protection for SMEs, so getting the right advice is crucial.
Most businesses that rely on developing or exploiting any form of intellectual property (IP) have some understanding of the relationship between staff working on a project and the ownership of the IP.
The general rule is that the employer owns IP developed by the employee in the course of the employee’s duties. However, when it comes to engaging outside contractors or partners to work on projects involving the creation of IP, then the reality of ownership can be quite different. In this case, the general rule is that the contractor or partner will own the IP they create, unless the contract provides otherwise.
For larger organisations, including government departments, there is often a default clause in contracts that states just where the IP ownership resides. Also, many organisations, including large corporates, universities and research institutes, have written IP policies covering development, protection and commercialisation of IP. But for smaller businesses, there is often no such default situation or no written contract at all. So thought must be given at the engagement stage as to how you want to deal with the issue of IP ownership, and this needs to be clearly outlined in any project contract.
A few options that could be considered are:
- If the development is only going to give you a short-term advantage, then you may look at licensing the IP from the contractor or partner to gain revenue.
- If the IP resulting from whatever you are developing is going to give you a competitive edge, then maybe it is wise to own the IP.
- If the IP is critical to your success, then you may also look at taking out a patent on the ‘business process’ before engaging in any scope of work. This is often the example in the area of software development with outside contractors.
If the IP is being developed for a particular client, you will also need to consider what the client contract provides in relation to IP ownership. If the contract provides that the client is to own the IP, you will need to acquire ownership of the IP developed by any of your contractors or partners.
If, for whatever reason, there is IP that your business needs, there are two main ways to go about obtaining it: a licence, or commercial negotiation to own it outright.
A licence can be for all uses of the IP or can be limited to a specific application or industry. It can also be exclusive or non-exclusive. Gaining an industry-wide licence will allow you to benefit from the IP while shutting out your competitors. This is a popular option in situations where the IP has application in a number of industries, giving the owner of the IP the opportunity to commercialise it quite widely. In areas where innovation takes place quite frequently, a licence, usually for a shorter period, is often a reasonable option.