Intellectual property (IP) is one of your company’s most valuable assets. As the director of a company, you are responsible for the management of that company while meeting your common law and statutory duties. However, you may also hold an employee role with contractual obligations and responsibilities. In this article, we look at what to consider when determining when a director personally owns IP that you create for the company, while you serve as a director. Broadly, this depends on:
- the nature of your engagement with the company;
- the IP in question; and
- whether ownership would result in a breach of your directors’ duties.
Nature of Engagement
Different presumptions about IP ownership apply depending on your role in the company. The table below outlines various roles you may hold and the presumption about ownership that operates.
|Relationship to Company||Presumption About IP Ownership|
Directors owe various common law and statutory duties.
Depending on the circumstances, a director’s personal ownership of IP they create may be a misuse of corporate opportunity. This occurs when a director diverts an opportunity away from the company for personal gain.
It is presumed that IP created by an employee in the course of their employment is owned by the employer company.
Whether a work was created ‘in the course of employment’ depends on various factors such as:
Note that it is possible to be an employee even without an employment agreement detailing your role in writing.
Contractors are workers with greater independence than employees, typically engaged for a specific period of time or project.
Contractors are presumed to retain IP rights to what they create, unless otherwise agreed by the parties.
Note that it is possible to be a contractor in the absence of a contractors agreement.
It is possible for a director to have more than one legal relationship with a company. In these cases, it is important to consider the implications of those multiple relationships and their accompanying obligations. You should seek advice on the facts of your particular situation.
Authorship and Ownership
You should also look at issues of authorship and ownership when determining whether a director personally owns IP.
If you are a director who authored the IP by yourself, look at:
- the circumstances in which you created it;
- whether you completed it at your place of employment; and
- whether you used your employer’s property to create it.
The more the IP is connected to your specific role of employment, the less likely you are the personal owner.
If the IP was authored by you and other contributors, look at:
- who the other contributors are;
- whether there are any communications or contracts between the parties governing the creation of the IP and its use; and
- whether you collaborated with other employees to create a product that you now wish to use.
If you have used the work of another person as a base, consider this example. You may have bought source code and then added to that code. In that instance, you have at least two authors in question. Unless the first author assigned their IP rights to you, it is unlikely that you have ownership rights to the code as a whole. However, you may have rights to the part of the code that you authored. In this example, it is important to review any communications relating to the transaction or contracts between you and third parties.
Potential Breach of Directors’ Duties
Directors owe various fiduciary duties to the company due to the high level of responsibility vested in a director. These duties arise in common law and statute and include obligations to:
- act in the best interests of the company;
- act in good faith; and
- avoid a conflict between the fiduciary’s duties and personal interests.
You should think about whether ownership of IP would be a breach of your fiduciary duties, if it would amount to a misuse of corporate opportunity. A corporate opportunity is one that arises in the course of your role as director. When determining this, think about whether:
- the opportunity was of concern or relevance to your employer company’s scope of business (i.e. would the opportunity have been valuable to them?);
- there is an obvious link in timing and reasoning between the opportunity and your role as a director (i.e. is it clear that the opportunity only came to you because you were a director?);
- the opportunity arose due to information accessed in your role as director; and
- the opportunity was connected to your activities as director.
This is not to say that a director is barred from making a personal gain while acting as director. But there are negative presumptions about personal gain that operate if you answered ‘yes’ to any of the above circumstances.
Remember: A misuse of corporate opportunity is a serious matter and can give rise to a breach of directors’ duties. Cases about misuse of corporate opportunity depend on the particular situation and how the court interprets these facts, so it is vital to seek legal advice.
Your next steps depend on whether you have a valid ownership claim to the IP or not.
If you have a valid claim, consider drafting a deed of assignment to conclusively state that you own the specific IP. Have this deed signed by the relevant parties.
If you do not have a valid claim:
- you may be able to negotiate to buy out the other shareholders for an agreed price between the parties. However, you you cannot force a sale of shares (in the absence of a contractual obligation to do so). It must occur by agreement between the parties; and
- consider negotiating an asset or company sale with the relevant parties. However, ensure the price set is fair, otherwise this too may be a breach of duties. Purchasing the IP asset may be preferable to a share sale as it does not carry the potential liability associated with shares. Your preference may depend on whether you want the IP assets alone, or if you wish to obtain the company entirely.
Make sure you conduct due diligence before entering into an agreement for an asset or share sale. Additionally, seek advice to negotiate, document and settle the sale. Proper documentation and settlement can provide clarity and finality to what is a significant transaction.
Directors may have multiple relationships with a company. These relationships affect whether a director personally owns IP. You should determine whether you have a valid claim to ownership, as well as whether personal ownership would amount to a misuse of corporate opportunity. Whether you do have a valid claim to IP ownership will determine what steps you can take next to acquire your IP.
For legal advice on the specific facts of your situation, get in touch with LegalVision’s IP lawyers on 1300 544 755 or fill out the form on this page.
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