Selena Kim of Gowlings discusses how companies engaged in R&D can successfully secure title to their intellectual property.

1. IP Ownership for R&D Companies:
Cautionary tales and best practices
Selena Kim, Lawyer and Patent Agent
June 4, 2015

2. OVERVIEW
Securing title to your Intellectual Property
1. When dealing with other companies or partners
• case study: Nature Control: don’t make these
mistakes!
2. When dealing with individuals
• use of Non Disclosure Agreements
• essential terms for your employment agreements
• ending the relationship
3. Prioritizing legal spend on IP ownership issues
2

3. WHAT IP ARE WE TALKING ABOUT?
Common types generated by technology companies:
• Patentable inventions: new, useful process or
apparatus that is registered with relevant government
authority
• Copyright: eg. software code
• Trade Secrets: any confidential business information or
technology that provides competitive advantage: eg.
formulas, manufacturing methods, business methods,
customer lists, financial information
3

4. INVENTION OWNERSHIP BY DEFAULT
Inventor is entitled to own, unless inventor is:
• employee who was “hired to invent”; or
• party to explicit agreement to the contrary.
Implications:
• employees who were not “hired to invent”, independent
consultants, volunteers, students – will own their
inventions unless agreement otherwise
• other entities with whom business conducted – eg.
partners, sublicensees: individual inventors will own
their inventions unless agreement otherwise
4

5. NEED FOR CLEAR AGREEMENTS
Securing IP when dealing with companies:
Need: written, clear, enforceable agreements
• No written agreement: parties more likely to dispute
afterwards
• If unclear agreement: Court will have to determine what
parties intended at the time of contracting
• Unenforceable: If terms are seen as unfair or obtained
under duress, Court will not enforce
5

6. NATURE CONTROL - THE TECHNOLOGY
66
Compound
A & B
Patents
flocculating
agentswaste
water
T-Bright &
NewsBright M
Patents
pulp
bleaching
& brightening
clean water
+
(1) Treatment of Pulp Waste
whitened
pulp
(2) Soil Remediation
chromium
factory
FAS
Patent
aggregates
chromium
contaminated
soil
contamination
contained

7. 7
NATURE CONTROL - TIMELINE
7
Dr. Li invents Compounds A & B in China
Dr. Li immigrates to Canada, meets Mr. Chow
Parties negotiate & sign Letter of Intent, incorporate
Nature-Control, are both Directors
-Li will transfer patents for Compounds A and B
- If “land a solid sale within 2 years” then Li will transfer technology and patent rights
Dr. Li incorporates South Mountain to import chemicals,
agrees to sell to Nature-Control at cost
Nature Control provides sales staff, warehousing, laboratory,
pays for patents for Compounds A & B

8. 8
NATURE CONTROL - TIMELINE (cont’d)
8
South Mountain starts:
-selling bleaching products & FAS on its own, and
-selling Compounds A & B to Nature-Control at a markup
Dr. Li develops bleaching products, gets patents
Chow suggests soil remediation product to Dr. Li
Dr. Li develops FAS (soil remediation), gets patent
Mr. Chow finds out, but waits more than two years
to object.

9. NATURE CONTROL –THE PARTIES’ POSITIONS
9
Nature-Control sues for:
• Breach of fiduciary duty
• Assignment of all patents
Positions at trial:
South Mountain:
-Letter of Intent only
provided limited distribution
rights for Compounds A
and B
Nature Control:
-Letter of Intent was for all
technology
-Li wrongly kept opportunities that
belonged to Nature Control

10. NATURE CONTROL: THE AGREEMENTS
1010
Letter of Intent
-Li will transfer patents for Compounds A and B
-If “land a solid sale within 2 years” then Li will
transfer all technology and patent rights
Service Consultant
Agreement
- Extended Letter of Intent
Written Agreements:
Additional unwritten agreements:
Meeting notes in Chinese
Translated by Mr. Chow or his daughter
Typed by Dr. Li’s wife
Chow denies signing
Commission
Agreement
Collaboration
Agreement
FAS
Agreement
Storage
Agreement
Parties signed the English version

11. NATURE CONTROL: THE RESULT
1111
South Mountain Owner of Compound A & B Patents
- Agreement unclear; inventor owns
South Mountain Owner of Bleaching Patents
- Li developed in China
- No timely objection regarding South Mountain’s sales
Nature-Control Owner of Soil Remediation Patent
– Mr. Chow’s idea; NC paid for development and
patent. NC has beneficial ownership.
- Dr. Li must assign legal title
Patents:
Monetary Award:
• South Mountain ordered to pay $78,000 to Nature-Control for breach of
fiduciary duties (value of markup on Compounds A and B)
• Legal fees at trial: hundreds of thousands $

12. 12
NATURE CONTROL - THE RESULT
12

13. 8 LESSONS FROM NATURE CONTROL
1. Clearly written agreements are crucial.
• Lawyer should at least review.
2. Clarify ownership of pre-existing IP:
“Whereas Li invented and owns Compound A and B patents, and the parties agree that
this will continue beyond termination . . . “
3. Decide who will pay for and own IP generated
during the relationship.
• who will pay for R&D, patent applications, etc.
• Important for dealing with sublicensees: likely to generate
improvements to your IP
4. If you are a Director, you are a fiduciary.
• Must act in best interests of the corporation.
13

14. 8 LESSONS FROM NATURE CONTROL
5. Get both legal and beneficial ownership of IP.
“Nature Control is granted all legal and beneficial title to the intellectual property generated by
Dr. Li, who will promptly and diligently sign any further documentation to record the transfer of
rights. . .”
6. Remember ownership defaults to inventor if
agreement not clear.
If dealing with company, get IP assignment from company and each
person on the project
7. If learn of breach, object promptly in writing.
8. Update agreements as situations evolve.
14

15. SECURING IP IN THE EMPLOYMENT RELATIONSHIP
Remember: Inventor owns the invention unless:
1. Hired to invent or
2. Express agreement otherwise
Contra preferendum: “against the offeror”:
If agreement unclear, preferred interpretation is one
that is against the interests of the company.
Therefore: To protect IP and reduce risk, R&D
companies require robust employment agreements and
processes
15

16. TERMS FOR THE EMPLOYMENT CONTRACT
If “hired to invent” – employer will be presumed to
own the employee’s inventions
• Usually someone hired to create for the benefit of the
company – engineer, programmer, scientist
• If employee hired to solve a specific problem or work
on a project, refer to this in contract
Other types of employees
• Even if not “hired to invent” – include requirement to
transfer inventions
16

17. 17
HIRED TO INVENT
Case study: Comstock v. Electec
• Hyde not an R&D employee (was a manager)
• made invention: system to interconnect light fixtures
• Consulted with other employees, used materials from employer, but worked on
his invention at home
• Comstock found out about the invention, filed a patent for it, naming
another employee. Hyde sued.
Result: Hyde declared to be the inventor. Not “hired to invent”, no
agreement otherwise, therefore ownership stays with him.
Lesson: Agreements with all employees should require assignment of
inventions.

18. OTHER IMPORTANT TERMS FOR THE EMPLOYMENT CONTRACT
Agree to not use IP of prior employers
“Because the Company understands the importance of protecting confidential information and
proprietary property, we expect and direct you to honour any confidentiality and ownership of
inventions/proprietary property obligations that you owe to your former employer(s) or other third
parties.”
Define what IP will be owned by the Employer
“Any work product you create or contribute to, alone or jointly with others, during the course of
your employment, is “Proprietary Property” that also belongs entirely to the Company. You
hereby assign all of your right, title and interest in and to any Proprietary Property to the
Company, and hereby waive all moral rights (as defined in the Canadian Copyright Act) you may
have in any Proprietary Property.”
Consent to informing future employers about
NDA/IP obligations
“I hereby authorize the Company to notify any of my future employers of the terms of this NDA
and my responsibilities under it.”
18

19. OTHER IMPORTANT TERMS FOR THE EMPLOYMENT CONTRACT
NDA and IP obligations survive post-departure
“You agree that both during your employment and after it ends: (1) you will maintain the
Company’s Confidential Information as confidential, and you will only use or disclose it for the
benefit of the Company or as otherwise expressly authorized by the Company (unless compelled
by law); and (2) you will not make or take or retain copies, extracts or reproductions of
Confidential Information, except to the extent strictly necessary for you to perform your work for
the Company.”
Will assist with perfecting IP ownership even after departure
“Both during my employment and after the cessation of my employment for whatever reason,
without any additional compensation to me, I will assist the Company to perfect its rights in
my Inventions throughout the world, including, by executing in favour of the Company or any of
its designees, assignments to my Inventions.”
19

20. 2020
EVEN BEFORE THE FIRST DAY OF WORK:
Job interviewing stage
Use an NDA if there is any chance that confidential
information will be disclosed
“During your (interview/employment) with the Company, you will have access to non-public
confidential and proprietary information about the Company. You agree that all such
confidential information, in any form belongs exclusively to the Company. You will forever
refrain from disclosure of such confidential information unless authorized by the Company
or compelled by law.”
No oral offer and acceptance
• Oral offer from company and acceptance by employee creates
a contract
• Oral contract has implied terms which are unfavourable to the
employer: limited obligations regarding non-disclosure,
ownership of IP
• No oral offers! Use a written offer with a reasonable signing
deadline.
20

21. GET IT RIGHT THE FIRST TIME
Once employment agreement signed, difficult to
add additional terms
Case study: Techform v. Wolda
• Wolda had worked for Techform (auto parts company) as consultant
since 1989.
• In 1993, he signed an “Employee Technology Agreement” in which he
agreed to assign all inventions to Techform
• Wolda created and patented a 3D hinge in 1996, refused to assign.
Techform sued.
Result: At trial (reversed on appeal) Court refused to uphold Employee
Technology Agreement – signed under duress, and no consideration.
Lesson: get your employment agreements right, because difficult to add
terms later
21

22. TERMINATION OF THE RELATIONSHIP
Think about the end of the agreement
Non Disclosure Agreements
Will generally be enforced
Non-solicitation clauses: departing employee agrees to refrain
from soliciting employer’s customers
Will generally be enforced
Restrictive covenants: a restriction in employee’s ability to work
in a particular competitive field for a specified time and in a
specified geographical area:
Not usually enforced. Don’t count on them.
22

23. RESTRICTIVE COVENANTS
Case study: Terra Engineering v. Stewart
• Stewart was a materials engineer.
• Signed an employment agreement including a restrictive covenant:
 20 month restriction from working in materials engineering within a 150 km radius
• Resigned and told Terra that he was going to work contrary to those terms.
• Terra sued to prevent breach of the restrictive covenant.
Result: Court held that restrictive covenant was too broad and was result of
imbalance in bargaining power. Unenforceable.
Lesson: Don’t count on restrictive covenants. Use other means to
protect company’s confidential information.
23

24. RESTRICTIVE COVENANTS
Unwise to rely on restrictive covenants – but if you
must:
• make them as narrow and specific as possible to increase
chances they would be upheld
• Include specific language in the employment agreement to show
parties of comparable bargaining power. Reduce the risk that
Court will perceive duress, unfairness
• Even with all of these measures, still a good chance that Court
would not enforce
24

25. 25
SUMMARY: PROTECTING IP IN THE EMPLOYMENT RELATIONSHIP
25
Job
Interview
Job
Offer
Package
Written
Acceptance
Starts
Work Departure
NDA
Employment
Agreement
At the end:
A B C D
At least
48 h
– Confirm
confidentiality
obligations
- Secure all
assignments
– help with future
documentation
to perfect IP
ownership
– employer to own all
inventions
- NDA and IP obligations
survive post-departure
– “Hired to invent” terms, if
applicable
During the
relationship:
- Keep employment
agreements current;
new agreements if
needed
- individual
assignments of
inventions
– Will keep
anything
learned at the
interview
confidential

26. SUMMARY ON IP OWNERSHIP
If IP is your most valuable asset, secure your ownership
through clear, written, enforceable agreements
With other companies:
• All agreements in writing
• Get a lawyer to draft or at least review
• If you get into legal dispute: be reasonable and try to settle early
With individuals:
• Get signed NDA as soon as possible in the relationship
• All employment agreements to include assignment of IP
• Use NDA combined with non-solicitation clauses to protect
confidential information. Don’t count on restrictive covenants.
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27. PRIORITIZING LEGAL SPEND
1. Creation of IP:
Clear written agreements with business partners and employees, assigning IP to
company.
2. Protection of IP:
Strategy depends on your business model.
• For some businesses: instead of patenting, may be more important to invest
resources in getting to market faster, and innovating the next generation.
• If you are a consumer-facing business: branding may take priority over patents.
3. Disputes regarding IP:
• Spend up front at the demand letter/negotiation stage
• Be reasonable, try to settle as early as possible
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28. Thank You
montréal  ottawa  toronto  hamilton  waterloo region  calgary  vancouver  beijing  moscow  london
Selena Kim
Tel: 416-862-4681
Email: selena.kim@gowlings.com