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Essential Intellectual Property Clauses in Employment Contracts

posted 5 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
fulfill 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.


Source: http://bit.ly/2LpRHw2



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

 

Author

posted 6 days ago

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