Intellectual property and the digital world

The digital economy is built around speed, simplicity and more efficient ways of doing things. Data security and privacy is expected but is often negotiable as consumers are enticed to trade private information for efficiency or more attractive offers. In workplaces information sharing and collaboration is more fluid than ever before, and creativity is increasingly a blend of original thought and the input of others. This article explores how the fundamental principles of intellectual property currently interface with the ever-evolving digital world.

Infringement and protection

It has never been easier to infringe intellectual property and never more important to take specific action to retain it and protect it.

Intellectual property remains the most valuable asset in the world. Value is typically linked to ownership or control over intellectual property. In the digital world where information sharing is big business, information and intellectual property lost can be practically impossible to recover. Value can disappear or be destroyed by the click of a mouse. Where once only senior employees had access to the critical IP, knowhow or information most technology platforms are now built on the assumption that most employees are able to have access.  Indeed even suppliers, customers and the general public have unprecedented potential access to IP and valuable information.   

Every business needs a carefully considered IP strategy. A core element of that strategy needs to focus on employees, contractors and suppliers. Companies often comment that their employees are their greatest asset. In a digital world they can also be their greatest risk. So how can companies best protect intellectual property and information in the context of employees, contractors and suppliers?

Understanding what is genuinely valuable?

A modern IP review is less an audit and more a strategic value discussion. A useful starting point can be assessing what current protectable intellectual property is registered and what improvements could be made to IP creation, registration and protection. However the discussion must move beyond the basics to a thoughtful consideration of value.

Many businesses first commence their IP protection when they are just starting off or have other completing demands for scarce funds. “Let’s just register our core trademark in Australia for the moment and see how the business progresses.” As a consequence we often find significant gaps in basic IP protection, and quite low levels of awareness of existing infringement. 

Recording, registering and documenting intellectual property can provide immediate comfort and modern monitoring systems can provide good early warning of infringement, which is often the key to quick and cost-effective enforcement. Beyond these basics in a digital world the biggest value add is the strategic discussion around asset value and profitability. These discussions can even lead to the creation of new intellectual property. It is vital to understand what brand value really means in a world where environmental, social and governance issues are as important to reputation and goodwill as attractive trademarks and logos. 

Even businesses without distinctive visual branding can enhance their goodwill through well-drafted documentation. Arguably in a digital world having effective non-disclosure agreements, and (where appropriate) non-compete clauses, as well as carefully crafted supply, contractor, licensing or franchising arrangements around ownership and access to IP (including co-developed IP), are just as important as having registered rights. 

The link between intellectual property and a company’s financial statements is fundamental, but often only comes into focus when a business contemplates sale or seeks external investment. The most valuable IP often does not appear on the balance sheet and if unprotected is more accurately described as a potential contingent liability because of the negative impact on revenue if IP rights are lost or prejudiced. We encourage clients to probe deeply into their competitive advantage to discover their most valuable IP. Involving finance and marketing representatives in strategic value discussions is often helpful, as they can make interesting contributions on what they see as the key contributors to business profitability. Similarly the HR team often know the most valuable employees and how much they contribute to profit and business goodwill. 

Awareness of how the law works

When we help design an IP strategy we sometimes begin with an internal training session for the senior executive team which we call IP Law 101. Although the fundamental laws relating to IP ownership have not changed, the changed working environment (including the rise of flexible working, portfolio careers and contractors) has created increased risk. As a consequence we have seen a significant increase in inadvertent loss or damage. 

Companies often focus on competitors but it is in fact third party risk to intellectual property through existing and former employees, contractors or suppliers that can be the biggest risk to IP business value. Sometimes this is inadvertent, but it can also be malicious, via a disgruntled former employee or supplier. 

We have also noticed some cultural shifts. An increasing number of employees actively or passively support the notion that they should have free access to things developed by others, and information or knowledge acquired during their involvement with a company should be a portable personal asset. The concept of “disruption” can sometimes be based around deliberate flouting of existing business structures or regulation.

The risk of inadvertent loss or damage can be addressed in 3 ways:

1. Review of internal structures and access to intellectual property, trade secrets and information. To guard against inadvertent disclosure of IP and information business should ensure internal systems are as fail-safe as possible. Is full open access necessary? Can access be tracked to a specific person?  How is access controlled when it occurs outside business premises?
2. Staff training so everyone understands how the law operates and the risk of inadvertent conduct is minimised. Part of the message is to communicate to staff how the business will treat any unlawful conduct.
3. Policies and contracts that take into consideration how the law operates differently depending on whether individuals are employees, contractors or third parties. Every party involved with a business should have a written contract that addresses IP and information issues. Contracts and policies should be regularly updated to address constant changes in technology. In some cases certain conduct will need to be explicitly prohibited, whereas in others (such as the use of Artificial Intelligence in a business environment) a carefully considered mix of permissions and prohibitions is likely to be necessary.

IP and Einstein’s law

Unlike physical matter, IP can in fact be created or destroyed. In some cases IP is created when it is first registered and in other cases it is created when it is first developed.  Documents are themselves protected intellectual property, as they are protected by copyright law. Importantly, they must also set out what happens in relation to IP rights in dealings between a company and its employees, suppliers, customers, joint venture participants and other third parties. Intellectual property can be transferred deliberately and sometimes inadvertently through documentation.

Understanding how IP can be created, transferred and damaged is an important part of developing an IP enhancement and protection strategy and creating business value. This is particularly important in a digital world. A digital economy contributor to your business may not in fact be your employee and indeed is just as likely to be a contractor or freelancer working from home. Some contractors and freelancers see no conflict in taking on other roles even if they are with a competitor and may even regard “open source” sharing of information and knowhow as a fundamental right.  

There are significant differences at law between different types of contributors. Subject to express agreement to the contrary (and noting the importance of ensuring express written agreement so that nothing is left to chance):

• Employees are typically presumed to create intellectual for and on behalf of their employer, and if the IP is developed in the course of their employment it is owned by the employer. This term is implied into all employment contracts. Nevertheless, it is prudent to reinforce this implied term with express provisions restricting the use of confidential information and further clarifying IP ownership. Non-compete clauses can further protect the value of IP, particularly where IP is not in registerable form.
• For contractors much will depend on the purpose of their engagement. Typically, IP will be owned by the creator unless there are contractual arrangements to the contrary.
• Freelancers are presumed to own the intellectual property they create unless there are clear contractual arrangements to the contrary. Freelancers are often engaged on a short-term basis and may well have worked for competitors in the past or may do so in the future. Occasionally they will have multiple projects at the same time.

The situation is complicated where there are a mix of contributors or resulting IP is attributable to many people, as there can be multiple creators with claims to authorship or ownership of a single piece of IP.

Additional challenges arise in the context of derivative IP, which is IP that has been developed based on existing IP or through collaboration. It can be difficult to determine whether there is in fact any new IP created and whether any IP is derivative or new. New IP developed from a company’s existing IP will not always belong to the company, and indeed will be governed by the same broad principles that apply to originally created IP.

Businesses need to ensure that IP ownership is retained in the context of employees and specifically assigned in the context of contractors and freelancers. Consideration should be given to augmenting IP protection through appropriate confidentiality and non-compete clauses. Where those involved are mobile or do not work from the fixed premises of the business, consideration should be given to issues such as access to information and tracking of access. Documentation should also specifically deal with derivative IP ownership and future access.

Concluding observations

IP assessment and protection is first and foremost a strategic issue, not a legal issue.  An effective IP protection strategy requires input from all areas of a business and needs constant updating as new ways of doing business emerge. IP laws can be used to ensure the strategic decisions around IP are properly implemented and enforced.

In our next article we will explore how intellectual property and Artificial Intelligence interface and suggest some strategies for exploring the opportunities provided by AI without putting your IP at risk or damaging your competitive advantage.