Alert

Who does this affect?

Employers of academics and researchers, including universities

What do you need to do?

Include express terms in individual contracts of employment assigning inventions to the employer

Authors
Kim O'Connell  
Partner

Julian Grover  
Senior Associate

James Ellsmore  
Solicitor

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Kim O'Connell  
Partner
T +61 2 9296 2188

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Scott Bouvier  
Partner
T +61 2 9296 2472

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Melbourne
Robert Cooper  
Wayne McMaster  

Brisbane
John Swinson  

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On 3 September, in a much anticipated judgment, the Full Federal Court upheld the decision of Justice French in University of Western Australia (No 20) v Gray [2008] FCA 498, confirming that inventions generated by researchers and academics are not necessarily owned by their university employer. Click here to view our alert on Justice French’s decision at first instance.

The unanimous decision will have important repercussions for universities and other organisations involved in research and development which have previously relied on organisational policies or regulations or implied terms in contracts of employment to secure ownership of inventions made by employees. The judgment confirms that the most effective way for such employers to ensure they acquire intellectual property generated by research or academic employees is by including explicit provisions to that effect in individual employment contracts.

Background to the proceedings

Dr Gray was a full time employee of the University of Western Australia, where he researched and developed technologies for use in the treatment of liver cancer. The treatments involved the injection of microspheres into liver tissue to deliver anti-cancer therapies to tumour cells. The intellectual property which resulted from the research was ultimately acquired and further developed by Sirtex Medical Limited, a publicly listed company, of which Dr Gray was a director and significant shareholder.

The University initiated proceedings in the Federal Court seeking a declaration that Dr Gray held his shares and options in Sirtex on trust for the University, that Sirtex held its patents and inventions on trust for the University, and that Dr Gray had breached his contract of employment and fiduciary obligations owed to the University.

The Federal Court’s decision

At first instance in the Federal Court, Justice French (as he then was) rejected all of the grounds on which the University asserted an interest in the intellectual property relating to the inventions or that Dr Gray had breached his contract.

Justice French did not accept the University’s submission that a term should be automatically implied into all contracts of employment between universities and their academic research staff to the effect that intellectual property developed in the course of employment belonged to the university.

His Honour also rejected the alternative argument that the University was entitled to acquire the intellectual property created by Dr Gray based on University regulations dealing with the treatment and ownership of intellectual property. Justice French found that the statutory power to enact the regulations extended only to controlling and managing its property, and did not extend to interfering with or alienating the property rights of its employees. Furthermore, the Court held that, even if the regulations were valid, Dr Gray had not breached them because of the University’s failure to implement a process by which he could have complied with them.

Finally, the Court rejected the University’s argument that Dr Gray had breached his fiduciary obligations owed to the University since it could not be established that the University had a valid interest in the inventions.

The University’s grounds of appeal

The University’s primary grounds of appeal related to the findings of his Honour that a term should not be automatically implied as a matter of law into the contract of employment, and that Dr Gray had not breached his fiduciary duties to the University.

The University did not, at the hearing of the appeal, seek to challenge Justice French’s conclusions in relation to the validity of the University’s intellectual property regulations. It accepted, as Justice French held, that the intellectual property regulations did not operate – on their own – to vest Dr Gray’s inventions in the University (that not being a valid exercise of the University’s rule-making powers), nor could they be given contractual force by a term in Dr Gray’s employment contract purporting to apply them (since that term relied upon their validity in the first instance). The University did, however, argue that Dr Gray had breached his employment contract by not observing certain requirements of the intellectual property regulations, but accepted that the consequences of such a breach would be purely nominal damages (ie not ownership of the inventions).

The Full Court’s decision

Justices Lindgren, Finn and Bennett dismissed the University’s appeal and endorsed the findings of Justice French, the ultimate result being that the University was not entitled to the inventions developed by Dr Gray. The Full Court confirmed that in the absence of any contractual provision or valid legislative provisions, the ownership of inventions made by academics in the course of the research for which they were employed, even if made with university resources and in university time, will ordinarily belong to the employee, not the university.

Implication of IP ownership term into contracts of employment

The Full Court confirmed that the approach taken by Justice French to the implication of terms into employment contracts was the correct one in the circumstances of the case. It emphasised the often-overlooked distinction between terms implied “by law” into a contract, and terms implied “in fact”, the former being “legal incidents of the particular class of contract”, while the latter are “individualised gap fillers” for a specific contract, depending on the particular surrounding factual circumstances. It is noteworthy that the University tried to add a claim based on implication by fact but this was rejected as too late by Justice French. The Full Court did comment that this led to a narrow and, in a sense, contrived basis for deciding the question of implied terms.

In reaching its conclusion on terms implied by law, the Full Court, like Justice French, placed particular emphasis on the distinctive nature of the relationship between a university employer and its academic employees.

In particular, while the Full Court confirmed that it was appropriate to imply into certain classes of employment contracts, as a matter of law, a term pursuant to which the employer would own intellectual property developed by the employee, it drew attention to the important proviso (crucial in UWA’s circumstances) that it must have fallen within the employee’s duty to make the invention. This conclusion is summarised in the following statements of the Full Court:

“Unsurprisingly, express contractual stipulation apart, with the employer’s entitlement turning on that which it was the employee’s “duty” to do – and for which the employee was paid – the recurrent preoccupation in the case law has been in each instance with the actual subject matter and purpose of the employee’s engagement itself and with the question: “[w]hat is it that he is employed to do? …

If the employee’s invention is the, or a, product of what he or she was employed to do, and did do, it will belong to the employer unless otherwise agreed…”

The question for the Full Court then turned to: what were Dr Gray’s employment duties to the University?

The university/academic researcher employment relationship

The Full Court drew attention to the distinctive nature of universities and the role of academics within a university, particularly as regards their freedom to conduct research when and in the areas they saw fit, to publish at will, and to seek funding and collaboration with other organisations. It emphasised that there were significant differences between universities and other organisations, particularly commercial research and development organisations, which could not be ignored. Acknowledgment of recent changes to the nature and structure of universities, such as increasing engagement in commercial activities, was not sufficient to displace the University’s public purpose and traditional role as an institution of higher education and academic research.

The Full Court confirmed that the circumstances of academic employment at a university of UWA’s kind were such that it was not appropriate to imply into employment contracts between such universities and their academic employees, as a matter of law, a term entitling the university to ownership of inventions made by its employed academics, primarily because they could not be said, as a general matter, to have a “duty to invent”. According to the terms of his employment, Dr Gray was required to teach, to undertake research and to organise and generally stimulate research. The Full Court accepted Dr Gray’s submission that a duty to research is distinct from a duty to invent, even where there was a possibility that he would develop inventions capable of attracting patent protection in the course of that research.

Crucially, there were no restrictions on Dr Gray’s freedom to publish the results of his research: since such publication could destroy patentability or make public what might otherwise have remained a valuable trade secret, that freedom was considered to be inconsistent with a duty to invent (which would ordinarily have as an incident a requirement that the University’s interest in the invention be adequately protected by fetters on the ability of the researcher to unilaterally publish the invention).

A fiduciary duty?

The Full Court noted that the University’s argument that Dr Gray had breached fiduciary obligations owed to the University was premised on the success of the claim in implied contract entitling the University to the inventions in the first place. In other words, Dr Gray had no fiduciary duty – independent of his employment contract – to account to the University for inventions made in the course of his research. Accordingly, this aspect of the appeal did not succeed.

What does this decision mean?

It should be noted that the Full Court took great care to accurately characterise the specific factual and legal issues in dispute and to confine its decision to these parameters. However, some general principles can be deduced. In particular, the decision indicates that a university cannot necessarily rely on terms being automatically implied by law into employment contracts to claim title to an invention made by an academic employee, even where the invention is made during working hours, using university facilities and using university funding. Similarly, a university should look carefully at its empowering legislation to consider whether it has the power to acquire intellectual property from employees through by-laws or regulations.

Importantly, if a university wishes to own intellectual property created by its academic and research staff, the decision suggests that express terms should be included in their individual contracts of employment assigning inventions made not only in the performance of employment duties but also in the course of using university funding and resources. Express terms should also be included in specific agreements relating to their participation in research projects. Where appropriate, “invention” should be expressly included in any statement of duties.

The decision also has broader ramifications for non-university research and development organisations, although their factual circumstances are such that the decision is much less likely to endanger their intellectual property ownership positions. In particular, it should not be assumed that an employee, even in a commercial R&D business, automatically surrenders inventions made in the course of their work to their employer. The prudent course for such organisations, if they wish to own their employees’ inventions, is to ensure there is an express provision to that effect in the employment contract, or at least an express acknowledgment that “invention” is included within the scope of the employee’s duties.