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Essential Intellectual Property Clauses in Employment Contracts - Bisola Scott

posted 4 years ago

Introduction

Intellectual property
rights are valuable business assets which businesses rely on to gain and
maintain a competitive edge in the marketplace. They have the ability to
provide high returns if they are leveraged upon and adequately protected. Examples
of these assets include list of customers, sales tactics, business concepts,
trade secrets, confidential information, invented or improved products, service
methods or processes and product designs amongst others. They may be protected
as trade secrets and business confidential information, designs, trademarks,
copyrights and patent rights if they fulfil the requirements for each category
of IP protection. These assets do not only require protection from the public
or competitors but also employees who have access to and/or are involved in the
creation of the assets in the course of employment. Exposing these assets to
employees in the workplace without adequately implementing protective measures
pose risks of intellectual property theft and infringement, which may result in
low financial returns for a business and cause it to lose its competitive edge
in the marketplace.

A major strategy for
protecting these assets in the workplace is through the provision of
intellectual property rights clauses in employment contracts. Intellectual
property rights clauses are useful tools as they govern the relationship
between an employer and employee in relation to the intellectual property
assets of the employer and are legally binding and enforceable on the parties.
Some of the essential intellectual property clauses include:

Ownership and Assignment
Clause

Employment contracts
should contain clauses on ownership of intellectual property created by an
employee in the course of his employment, to prevent disputes and possible
theft and infringement, which may have a negative impact on the business of the
employer. According to the Nigerian Copyright Act (NCA), where a contract
for employment does not stipulate the owner of the copyright in a work, the
employee is assumed and stipulated in law to be the owner. However, for
literary, artistic or musical works made by an author in the course of his
employment (by the proprietor of a newspaper, magazine or similar periodical,
which is made for publication in a newspaper, magazine or similar periodical),
the proprietor shall in the absence of any agreement to the contrary, be the
first owner of copyright. Ownership of copyrights in these cases may be
determined by an employment contract and an employer may either restate the
provision of the law in relation to ownership of these rights or provide for
the transfer of the rights based on the terms agreed by the parties. This
clause may only be used to transfer or license economic rights and cannot be
used to assign or license the moral rights in a copyrighted work as they are
exclusive to the author and inalienable.

For designs and patents,
the Patents and Designs Act (PDA) stipulate that inventions or designs
made in the course of employment vest in the employer, and does not
specifically provide for the use of contracts to determine or transfer
ownership of an invention or design. In practice, however, the actual/true
inventor (in most cases the employee) would effect an assignment of his rights
to the employer to back-up the application for the issuance of letters Patent. Although
the Act specifically provides that ownership rights belong to the employer, it
may also be necessary to restate this position in an employment contract to
inform the employee of the employer’s right to the inventions and designs.

To prevent disputes
concerning whether a work was created during the course of the employment, it
is important to clearly define the scope of the employee’s job description in
the contract. This will help in determining who is entitled to ownership
of intellectual property rights as any work made outside the scope of the
employee’s job description belongs to the employee. Section 2(4)(a) of the PDA
stipulates that where an employee whose contract of employment does not require
him to exercise any inventive activity creates an invention using the resources
of his employer has put at his disposal, or created an invention which is of
exceptional importance, he will be entitled to fair remuneration taking into
account his salary and the importance of the invention and the remuneration
cannot be modified by contract.

 

Confidentiality and
Non-disclosure Clause

Employment contracts
should also provide confidentiality and non-disclosure clauses in order to
protect trade secrets and confidential information of the employer which the
employee may have access to or use in the course of employment. This is
important to prevent risks of both intentional and unintentional disclosures by
the employee. The relevance of this clause cannot be overemphasized as trade
secrets are of significant value and loses its value and protection as soon as
it is known to the public. It has also been said that businesses that
successfully protect their trade secrets also strengthen their other
intellectual property assets. For instance, the Coca Cola recipe and
Google search algorithm are of substantial value and these companies recognized
that protecting their trade secrets can help maintain their competitive edge in
the marketplace.

This clause requires that
an employee should not disclose the trade secret and confidential information
of the employer or other third party which is in the custody of the employer. The
scope and definition of trade secrets and confidential information should also
be defined in the contract including the kind of confidential information the
employee will have access to and or be required to use and other intellectual
property and business information that should not be disclosed by the employee.

 

Non-Compete Clause

Non-compete clauses are
also essential as they extend the non-disclosure of trade secrets by an
employee beyond the termination of employment. This clause stipulates the duty
of an employee not to compete with the employer, organize a competing business
and lure fellow employees to leave the employer in order to undertake
employment with the employer’s competitor(s). They restrict the use of trade
secrets by employees after their employment for a certain period and within a
specified geographical area, as an ex-employee who has knowledge of this
information may be an attractive asset to a competitor.

Generally, these clauses
are unenforceable in common law, except it is reasonable in duration,
geographical limits and the scope of protection of the trade secret. In
some jurisdictions they are void outrightly or voidable at the instance of the
employee as being in restraint of trade and the freedom of an ex-employee to
seek an employment or freely practice a profession. However, in other
jurisdictions it is enforceable if it is reasonable based on time, geographical
limits, and limited in scope to the protection of the alleged trade secret.

One of the earliest
reported English case on this clause is the case of Dyer. In
this case, a practitioner signed a non-compete agreement with his apprentice to
forgo the latter’s debt if he does not engage in his trade in the same city for
a period of six months after the cessation of his apprenticeship. The Court
nullified the clause for being contrary to public policy. However, in the
latter case of Mitchel v. Reynolds, the Court stated that
involuntary restrictive covenant in restraint of trade are void while voluntary
covenants should be allowed provided they are specific based on the interest of
the employer or former business owner to be protected, the reasonableness,
scope, time and place of the covenant. In PepsiCo Inc. v. Redmond these
clauses were applied to prevent an employee from working with a competitor.
 The court held in favour of PepsiCo on the ground that due to the
position offered by Quaker and Redmond’s access to sensitive marketing and
distribution strategies by virtue of his managerial position at PepsiCo,
Redmond would have inevitably disclosed PepsiCo’s trade secrets and confidential
information if he was allowed to accept the offer of employment immediately.

In Nigeria, the court in
Infinity Tyres
Limited v. Mr. San Jay Kumar & 3 Ors
., stated
that “…generally all covenants in restraint of trade are prima
facie unenforceable in common law. They are enforceable only if they are
reasonable with reference to the interest of the parties concerned and of the
public.
 The court also held that “whether
or not a covenant in restraint of trade is reasonable is a question of fact and
depends on the circumstances of each case; and reasonability is determined by
reference to the geographical area of coverage, the economic activity covered
and the duration of the 
applicability of the clause.”  In this case
the court held that the area of geographic coverage of Nigeria and the duration
of applicability of one year are reasonable terms. However, the economic
activity which covered “any other company in Nigeria” was too wide and
unreasonable.

In Studio Press
Plc v Kadoor & Anor
., the Court upheld the agreement of parties
which states that “For a period of two years immediately following the
termination for whatever reason of this agreement, the employee agrees not to
work in the same or similar capacity in any company whose business is the same
or similar to that of the employer in Nigeria except with the prior written
permission of the employer to do so, which permission will not be unreasonably
withheld though it will normally be withheld if the employee intends to work in
the same or similar business to that carried out by the company.”

Non-compete clauses have
to be drafted appropriately by specifying the period, the economic activity
covered and the duration of the applicability of the clause which must be
reasonable and not unnecessarily too general as Nigerian courts will not
enforce these clauses where they do not stipulate the information mentioned
above and are not reasonable to protect the business interest of the employer.

 

Conclusion

Most businesses are
sustained by their intellectual property rights which should be guarded by the
employer to maintain their relevance in their respective industries. Having
intellectual property clauses in employment contracts are vital as they inform
an employee of the obligations and rights in relation to both the intellectual
property of the employer and the ones the employee will create in the course of
employment. It is a settled principle of law that parties are bound by their
contract and where the employee breaches any of these obligations an
employer may seek remedies from the court including injunctions to restrict
further breach of contract and or infringement of their intellectual property
rights.

                  For further information
on this article and area of law, please contact

Bisola
Scott 
at S. P. A. Ajibade & Co., Lagos by

Telephone
(+234.1.270.3009; +234.1.460.5091) Fax (+234 1 4605092)

Mobile
(+234.811.389.8102, +234.817.939.0319)

Email: [email protected]

                                                    www.spaajibade.com

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