Is your startup considering hiring software developers in a foreign country to work on the latest version of your app? Is your company considering acquiring an entity with employees who have developed intellectual property (“IP”) in non-U.S. jurisdictions? From hiring independent contractors or employees (each may be referred to in this post as “Contributors”) to conducting diligence on the IP terms in employment agreements or confidential information and invention assignment agreements, the IP related issues to consider in non-U.S. jurisdictions may be unexpected for those used to working only with Contributors in the United States.
Assignment of IP Rights
In the United States, many employers rely (i) on broadly drafted provisions assigning all IP developed by a Contributor in the course of the engagement with the employer to the employer and/or (ii) work made for hire principles under the U.S. Copyright Act (17 U.S.C. §§ 101 et seq.) (“Copyright Act”) to ensure the work developed or invented by the Contributor is assigned to the employing entity. Under the Copyright Act, a work is a “work made for hire” if: (1) it is prepared by an employee within the scope of his or her employment, or (2) it is specially ordered or commissioned from an independent contractor pursuant to a written agreement and the work falls within one of the statutorily defined categories.
In other jurisdictions, however, work made for hire principles may not exist and broad present assignment provisions are not always enforceable under local law. The scope of protectable IP rights and when such rights are considered to have been developed within the scope of employment or contractor duties varies across the globe, so the definitions of the IP and other rights assigned should be reviewed to ensure the broadest application possible in the applicable jurisdiction. In particular, local laws in some European countries (e.g., France and Germany) prohibit assignment of an author’s copyrights and/or moral rights in a work either entirely or prohibit such rights from vesting initially in the employer.
Further, fallback provisions used in the U.S. to provide rights to the employer in the event certain rights may not be assigned or licensed, such as provisions in which the Contributor (i) grants the employer an exclusive license to IP that cannot be assigned to the employer under applicable law (i.e., a “waterfall license”), and (ii) agrees not to assert the Contributor’s rights in any IP that cannot be assigned or licensed by the Contributor to the employer under applicable law, may also not be enforceable (at least prior to the development of the applicable IP). Similarly, local law may limit the application of license grants by the Contributor to the employer for IP that is developed prior to the start of the Contributor’s engagement with the employer, or outside of the scope of the engagement with the employer but integrated into or necessary for the use of the IP assigned to the employer.
In such cases, a broad U.S. style assignment or license provision may be thrown out by local courts leaving the employer without the desired or necessary rights in the Contributor’s work. An attorney in the relevant jurisdiction may provide guidance as to whether a waterfall license is standard and enforceable in the applicable jurisdiction and whether a waiver of non-assignable and non-licensable rights is enforceable or a preferable alternative to a waterfall license.
Local law may require special steps, documents, processes or procedures for the employer to “perfect” or “claim” its ownership interest in the IP assigned by a Contributor to his or her employer. For example, certain jurisdictions require employees to notify the employer of IP developed or created within the scope of employment or require the employer to “claim” such IP within a certain period of time after the employee’s disclosure (e.g., four months) in order for the employer to own the IP. Counsel in the local jurisdiction may recommended the development of template disclosure or claim documents and policies for employees to notify the employer of the IP they develop or create (some of which may be mandatory under local law).
Additionally, there may be registration requirements or other documents to be submitted to government or regulatory agencies a result of the performance of the Agreement (e.g., documenting payment for services to independent contractors or upon assignment to the employer of the IP and technology resulting from such services). Companies engaging an entity as a consultant, should consider including a provision in the consulting agreement requiring the consultant to comply with any notice, claim, or registration requirements for IP created by the consultant’s Contributors. The risk of a failure to comply with any applicable notice, claim, or registration requirements can include that the employer is deemed to have given up its ownership right to the relevant IP. So, local requirements should be closely reviewed and followed.
Inventor Remuneration Payments
Local law may require special payments (other than wages and salary), known as inventor compensation or inventor remuneration, to employees as consideration for the employees’ assignment of certain IP to the employer. Such inventor remuneration may be dealt with in contractual provisions between the employer and the employee, however, in certain jurisdictions outside of the U.S., employers may not contract around mandatory minimum remuneration requirements. Particularly, inventors of patents are often due inventor remuneration at various stages of an invention’s life cycle (e.g., disclosure to employer, filing of patent application, grant of patent, etc.). Failure by the employer to make inventor remuneration payments when due may give the affected employee(s) the right to make a wage claim against the employer. Counsel in the local jurisdiction should be consulted to determine whether such inventor remuneration payments need to be addressed in employment documents, how the payments may be calculated, and when the payments are due to employees.
Mandatory Local Law
Selecting a favorable governing law, such as the state where your company’s U.S. entity is organized, in an agreement may not be sufficient to avoid the application of local law where the employee is employed or the contractor performs services (i.e., where the agreement is performed). Such local law and mandatory provisions under local law may be applicable despite a choice of governing law in the agreement. As a result, in addition to the other potential local law consequences discussed here, contractual provisions that may appear in U.S. forms, such as indemnification of the employer and post-term survival of certain provisions, may be unenforceable against the Contributor in the jurisdiction where the agreement is performed. Even where governing law of an agreement is in the U.S., it is always prudent to confirm with counsel in the local jurisdiction that the local law of the jurisdiction where Contributors perform the agreement is not applicable.
Other Practical Considerations: Translation, Further Assurances
After final agreement between the employer and Contributor on the terms of an agreement, local law or custom may dictate that the agreement be translated. Be sure to budget additional time for translation of the agreement into the local language or a bilingual version as necessary or recommended by counsel in the local jurisdiction.
Also consider the possibility that it may be much more difficult, after the termination or expiration of the agreement, to find a former Contributor residing in another country. As such, ideally, all necessary documents should be executed during the relationship with the Contributor. A further assurances clause (i.e., where a Contributor agrees to provide additional assistance to execute IP assignment documents and the like, after performance of the services) may not be of much use if you are unable to locate the Contributor. If advised by local counsel, an irrevocable power of attorney clause permitting the employer to act on behalf of the Contributor in executing documents necessary to effectuate the underlying agreement may be useful in case the Contributor cannot be located in the future.
In conclusion, consulting a local attorney may save you the unpleasant surprise of realizing further down the road, such as, in an acquisition, dispute, or when trying to enforce IP rights, that you do not own the work you paid a Contributor for. In many cases, it may be too late to find the former Contributor to address the issue post-hoc. As the saying goes, an ounce of prevention is worth a pound of cure.