WHO OWNS AN INVENTION DEVELOPED BY AN EMPLOYEE?

POSTED : 10th September 2008

University of Western Australia v Gray: The Implications for New Zealand Research Organisations

The recent decision of the Federal Court of Australia in University of Western Australia v Gray (No 20) [2008] FCA 498 highlights the need for research organisations to clarify who will own inventions developed by employees. It challenges any presumption that Universities, in particular, will automatically own inventions their employees invent, and highlights the need to have clear terms relating to ownership of intellectual property in employment contracts and policy documents. It is of particular relevance to any research organisations with a duty to commercialise intellectual property or transfer it to outside organisations.

The facts in University of Western Australia v Gray

The fact situation in University of Western Australia v Gray could arguably have arisen in any number of research organisations. The University of Western Australia (“UWA”) appointed Dr Gray as Professor of Surgery in 1985. He was required to teach and to conduct and stimulate research. The terms of his contract incorporated various UWA policies, including its Patent Regulations.

During the course of his tenure, Dr Gray developed a range of cancer technologies. In 1997 he assigned the intellectual property rights in those technologies to Sirtex Medical Limited. In 2000, Dr Gray became a director of Sirtex and the company was floated to commercialise the technologies.

In 2004 UWA decided to initiate proceedings to assert its rights in the intellectual property. Sirtex and the Cancer Research Institute (which was also involved in the research project) were among the parties joined to the proceedings.

Key findings on ownership of the invention

The case dealt with a number of legal claims, most of which concerned the general issue of whether UWA, as Dr Gray’s employer, owned his invention.

General Principle as to ownership of employee inventions

After a thorough review of relevant cases from a number of jurisdictions, Justice French found that employers will own inventions developed by their employees only if there is an agreement between the parties with terms to that effect. Such terms can be either express or implied.

Implied term

However, Justice French found that Dr Gray was employed to research, and not to invent. Therefore, the invention was not made “in the course of his duties”. As a result, the Court could not imply into the employment contract any agreement that the invention was owned by the University. Justice French said, at paragraph 12:

“Absent express agreement to the contrary, rights in relation to inventions made by academic staff in the course of research and whether or not they are using university resources, will ordinarily belong to the academic staff as the inventors under the [Patents Act 1990]. The position is different if staff have a contractual duty to try to produce inventions. But a duty to research does not carry with it a duty to invent.”

Express term

Justice French also found that there was no express agreement in the employment contract to the effect that inventions would be owned by the University. Although the employment contract made reference to UWA regulations, the relevant policy documents were beyond the powers authorised by the UWA Act, which only empowered UWA to make regulations pertaining to its own property, not to the property of others. The relevant policy documents were also insufficiently promulgated to rebut a presumption against alienation of property rights. The policy documents were therefore unable to be imported into the employment contract.

Overall there was no term, either express or implied, in Dr Gray’s employment contract that said the UWA owned the relevant invention.

Justice French also questioned whether universities should even try to implement such contracts, given the transaction costs involved and the question of their utility. He suggested that there might be more benefit gained from offering highly competent commercialisation services in exchange for a negotiated interest in the relevant intellectual property. It is not surprising that this suggestion has stimulated a fair amount of discussion in the research sector.

The decision is subject to an appeal.

Implications for New Zealand research organisations

The issue is relevant for all research organisations and for any other organisations which contract with them.

Although it is not binding on New Zealand courts, a ruling of the Federal Court of Australia will be considered a highly persuasive decision unless it is overturned on appeal. The relevant provisions of the Patents Act 1990 are similar to those in New Zealand. Section 6 of the New Zealand Patents Act 1953 requires that only an inventor or their assignee can apply for a patent. Section 15 of the Australian Commonwealth Patents Act 1990 requires that the applicant must be the inventor or a person who would, on the grant of the patent for the invention, be entitled to have the patent assigned to them.

Of course, University of Western Australia v Gray was decided on its facts. Dr Gray’s employment contract was some 20 years old. One can only speculate whether a New Zealand university researcher employed in today’s research environment, particularly in an applied science discipline, may indeed have a “duty to invent”. However, while some have argued that the judgment is anachronistic, it could be counter-argued that courts typically tend to favour a narrow construction of the employment contract in cases of this nature.

The landmark case in New Zealand, which was considered in University of Western Australia v Gray, is Empress Abalone v Langdon [2000] 1 ERNZ 147 (EMC); [2000] 2 ERNZ 5 (CA); [2000] 2 ERNZ 481 (EMC). In Empress Abalone, the employee’s entire salary was paid from the budget of a Foundation for Research, Science and Technology (“FRST”) research contract, but his day to day activities included a range of other activities including some that were claimed to be relevant to the invention at issue. There was no written employment contract. In the first instance the Employment Court held that the invention was created outside the scope of the FRST contract and therefore outside the scope of employment. On appeal, the Court of Appeal held that it was necessary to consider a range of circumstantial evidence to determine the scope of the employee’s duties.

However, in the Court of Appeal judgment, Justice Keith drew the long-standing distinction between that which is done in the course of duties and that which is done during a term of employment. In other words, if an employee is employed to do one thing, and then creates an invention while doing another thing, that invention will belong to the employee even if it is relevant to the employer’s business.

The Court of Appeal referred the case back to the Employment Court to consider the wider range of evidence. Having done so, Palmer J of the Employment Court reached the same conclusion that he had originally; that the invention was created outside the course of employment and that the employer therefore had no property rights in the invention.

The decision in University of Western Australia v Gray also sounds a note of caution to organisations wishing to amend employment contracts through policy amendment. UWA had implemented new policies during the term of Dr Gray’s employment, but the deficiency in the way that these policies were promulgated was a key factor in finding against the University.

Last, but not least, the issue impacts on companies and other organisations who have entered into research contracts with research organisations. If title to any resulting inventions is not clear, the research organisation may be unable to meet its contractual obligations.

How to minimise the risks

Research organisations that need to control ownership of their employees’ inventions can take a number of steps to minimise the risk of finding themselves in UWA’s shoes. The precise requirements may differ from one organisation to the next, but the following points are all worth considering.

Do all employment contracts expressly deal with intellectual property ownership?
Do all employment contracts expressly import the organisation’s policy statements?
Are there clear policies specifying ownership and management of intellectual property subsisting in employee inventions? Have these been formulated lawfully in accordance with delegated authority and promulgated in a transparent and consultative manner?
Do contracts and policies require employees to do all things necessary to give effect to those contracts and policies?
Before signing any research or development contract with an outside organisation, does the organisation ensure that relevant researchers are aware of the terms of that contract and have agreed to do all acts necessary to give effect to those terms?
Are employees advised to seek independent advice before relinquishing any intellectual property rights?
Are the employee inventors employed to invent, according to their job descriptions or employment contracts?

Addressing all of the points above represents good business practice and is already being done by many research organisations in New Zealand. The decision in University of Western Australia v Gray is perhaps a reminder of the need to apply this practice consistently.