Do you know if employees in your organisation are taking home valuable corporate assets every night? What about the information they take home in their heads as they walk out the door? If you think this doesn’t matter, then you are making a major misjudgement about the value of intellectual property (IP) and intangible assets in the modern world.
IP is extremely important, according to David Henderson, managing director of Uniquest, a leading research commercialisation company with an innovation portfolio that includes Gardasil and the UQ superconductor technology used in two-thirds of the world’s MRI machines. “Increasingly, a company’s competitiveness is defined by the innovations and ideas it comes up with. IP is a critical asset and it is not fully recognised in many Australian companies at the moment,” he says.
Noric Dilanchian, managing partner at Dilanchian Lawyers and Consultants, agrees. “When you realise the main value of the fastest growing companies in the world is their IP, you begin to see the importance,” he says. “In Australia there is enormous ignorance about how to manage IP and how to recognise what IP assets are. But there is no company in Australia that is not producing IP every day in some way.”
IP protection is important in every business, not just those focused on research and development. For example, companies in the financial services industry have few physical assets, but are highly valued due to the IP created by their employees. Dilanchian argues this means IP needs to be identified and documented for the benefit of the organisation, or it will leave with staff “as they walk out the door”.
John Lee, a principal at specialist IP law firm Griffith Hack, believes that many companies concentrate on protecting the wrong assets. “It’s a common trap for organisations to spend a lot of time focusing on tangible assets – ensuring they are safe, insured and looked after – but as an intangible, IP is often overlooked. These days, most organisational value is tied up in brand, know-how, processes and staff – not plant and equipment,” he says.
Dilanchian says the continuing drive for business efficiency means many organisations are not protecting the valuable IP they are creating. “There is no record-keeping, creation of file notes or central repository of organisational information and IP,” he says. “If you are not recording and making notes, then you are not protecting your IP.”
HR’s critical role
Given this backdrop, organisations need to take a closer look at how they deal with their IP. Lee believes both the HR and legal departments need to be across the IP issue. “It is an important issue for HR as there is increased value in intangibles such as staff. HR practitioners are the guardians of an organisation’s staff, so therefore they have a vital role in this area.”
Dilanchian agrees: “HR has a gigantic role to play if the organisation wants to manage its IP well.” When it comes to protecting organisational IP, Henderson believes HR’s role starts on day one of employment. “You need to have the right policies and contracts in place to capture ideas and innovations as they are developed by members of staff. This is a critical role for HR.”
Appropriate, tailored policies need to be in place, covering all aspects of IP generation, ownership, management and protection. “Unless you have a good framework, things can get overlooked and mismanaged. An IP policy is as important as an OH&S policy and should be one of the backbones of the HR area. No organisation can ignore this area,” Lee says. “For technical areas that have researchers, you need to have detailed and well implemented IP policies, but in other areas something simpler may suffice.”
Henderson believes that a good IP policy must outline more than just the ownership of any innovations. “It also needs to cover the fact that employment creates a positive obligation on employees to come up with new ideas and what the company will do to implement them.” IP that cannot be utilised within the organisation also needs protection as its value can be realised by selling the idea or process. “IBM gets a substantial percentage of its annual profits from the ideas it develops and then sells off,” he notes.
While clear IP policies are vital, detailed employment contracts also need to be in place to avoid lengthy and expensive litigation. Dilanchian believes that many contracts focus too much on traditional issues such as salary and leave, with little attention paid to IP protection. “You need detailed documentation that references job descriptions and is up-to-date. Often, the employment agreement was signed years ago and now the employer and employee have a different perspective of what the employee is doing, which is when IP disputes arise,” he explains.
Lee agrees this is an essential step in avoiding litigation. “A lot of IP issues arise around ownership disputes, so HR need to check the organisation has captured the rights (or entitlements) from the individual,” he notes. “There can be some grey areas around whether IP is developed in the employee’s own time, so it needs to be defined in the employment contract. From the HR perspective, you can improve your position by having a documented policy and contract – you don’t want any uncertainty.”
Keeping it secret
While protecting patent or copyright IP is fairly straightforward, protecting the IP inherent in confidential information is more complex. According to Dilanchian, the value of all the confidential information in the world far exceeds the value of all the trademarks and patents. “People don’t think about the importance of this area.”
This is an area where careful documentation is essential. “One of the biggest mistakes organisations make is when they don’t identify IP and record it in the first place,” he explains. “What is not registered is not recorded, but often what is not recorded is the most valuable.”
Lee agrees that confidential information is critical to IP protection. “Most people recognise IP as widgets or inventions, but IP is much broader and can cover systems and processes. If people are introducing new processes into the business, they need to be recognised and protected. IP is anything that gives you a benefit and advantage and gives the organisation a competitive edge,” he explains.
An important task for HR is to consider what it is that gives the organisation its competitive edge and an ability to do things better. “That is IP and it needs to be protected,” Lee says.
Explaining and training
As many employees rarely think about IP, HR needs to ensure they receive ongoing education and training on the basics of IP protection.
“They don’t have to be experts on patents or copyright, all they need to know is that the organisation encourages them to develop ideas and who to put them in front of when they arise. Staff need an awareness about IP and to know they have somewhere to go with questions,” Henderson explains.
Although protecting their employer’s IP is important, employees also need training about infringing upon another entity’s IP. “This can lead to costly litigation and damages. Employees need to recognise they cannot download software or misuse materials beyond the entitlement granted to the organisation. Infringement of third-party rights is an important issue as it has significant reputational risks attached to it,” Lee says
IP infringement can be as simple as exceeding the number of licensed software users, using software after the licence has expired or reproducing cartoons or artwork in a presentation without permission. “Often there is no malice in the act and it is due to a lack of understanding and knowledge,
so that is why education is so important,” Lee explains.
Given the critical role of HR in IP protection, appropriate structures are vital. “In businesses driven by innovation, you need to set up HR systems for IP protection and then have the issue reinforced all the way through the employment process,” Henderson notes. “You also need a positive disclosure environment and to ensure employees understand their responsibilities about what they can and can’t disclose.”
Induction is a key point for educating and reinforcing to new employees the emphasis an organisation places on protecting its IP. “During the induction process is when a lot of this stuff should be done. If you teach people in the induction process what your requirements are, then they are more likely to do it than if you wait until later,” Dilanchian explains. Lee agrees IP education should be part of the induction process, with an hour or so devoted to the topic. “The objective is to get staff to recognise when there is an IP issue and to ask the question so it can be addressed by their manager, legal or HR. It is not realistic to expect every employee to understand all aspects of IP, but they need to recognise the issue.”
There are other HR processes that need to be geared towards protecting organisational IP. “Employees need to have ongoing IP education and discussions during their performance reviews – especially in the research field – on areas such as whether they can identify risks and what they are working on at the moment,” Lee says. This can be vital for identifying IP creation early in the process.
“During employment there needs to be regular reporting of what people are doing so it can be monitored and to ensure there is engagement with people about the substance of their work,” Dilanchian explains.
The termination interview is also important, Dilanchian says. “At the exit, the debriefing can involve a discussion about the rights of the employee and areas such as ownership of their contact details.” Although most sophisticated organisations remind employees about their responsibilities in relation to contacts and business processes when they leave, Lee believes protection may now need to extend further.
“The organisation may need to consider IT monitoring of downloading activity, as this may indicate an employee is thinking of leaving. Or it could put in place technical security around key intellectual property so it can’t be accessed without their manager’s approval – or even be downloaded at all,” he suggests.
Tips for managing IP
Record details for all significant documents – to ensure copyright, keep records of documents, their authors, when they were created and the author’s employment status at creation.
Establish a centralised domain-name register.
Document all names used within the organisation – a central trademark register should list all the names used in the organisation including trademarks, company names and product names.
Regularly monitor organisational activities for potential IP – check employee projects to identify work that may be patentable, so timely advice can be obtained.
Document all valuable organisational processes – if a special process has been developed internally, ensure it is fully documented and explained in detail.
Create documentation as the process is developed and revised – creating documentation contemporaneously provides better protection if a dispute arises later.
Get professional advice – seek appropriate legal and expert advice on documenting and managing organisational IP.
By Janine Mace. This article was first published in the 2013 February issue of HRmonthly.