Implied Term in the Employment Contract

2837 words (11 pages) Essay in Contract Law

02/02/18 Contract Law Reference this

Last modified: 02/02/18 Author: Law student

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The purpose of this paper is to explain whether there is an implied term in the employment contract that the employer owns the inventions of an employee. Also to analyze the advantages and disadvantages for both of employers and employees of having such a term implied in the employment contract.


Employment contract usually includes two kinds of terms; the first kind is expressed and the second kind is implied. [1] Expressed terms are defined as the terms included in the employment contract and have been clearly accepted by the parties whichever orally or on paper. [2] Implied terms are known as gaps on which the parties have not really approved but which are on the other hand in use to be element of their agreement. [3] The role of the implied terms is to decrease the gap between the expressed terms which are mentioned in the contract and the needed terms that the parties couldn’t recognize since they have written their contract. [4] There are four types of implied terms: Terms implied in fact, terms implied by custom or practice, terms implied by law, and terms implied by statue. [5] Terms implied in fact usually used to make logic of what was written down in an employment contract; sometimes the courts may involve a term into the contract in fact to fill the crack. This will simply happen if the implied term is: essential to make the contract valid; so clear that it goes without mention; and realistic and fair. [6] Terms implied by custom/practice are typically used if you have a previous record of enforcing an employment circumstances but it is not definitely included in your employment contracts. [7] Terms implied by law are used by the court according to the common law if the parties haven’t agreed something else. [8] Terms implied by statue appear separately by the legislations come from statute when the contract is not regulated by an award or registered agreement and this is a major feature of the regulation of contracts for sale of goods or services. [9] This paper will examine if there is an implied term through these four types that gives the employer the ownership of his employee’s invention or to keep the ownership for the real inventor. The case UWA v Gray [2008], [2009] explains the use of implied term in the employment contract between an academic institution and an academic staff member during a matter of employees’ invention right.

Intellectual Property

It is defined as the property of brain or intelligence. It may be an invention, trade mark, design or the useful appliance of a good quality proposal. In business language, this means the ownership of knowledge, a key element of achievement in industry nowadays. It is often the frame which sets good organisations separately and as global markets turn out to be more and more competitive, protecting intellectual property becomes necessary. [10] Patents are defined as actions which can guide to the establishment of patent rights include, for example:

Creating a new product or practice

Creating a new medicine

Developing aspects of a particular machinery

Developing a genetically customized plant, animal or micro organism. [11]

It is risky for an employer to suppose that he owns an employee’s inventions purely as his employee invented them. Likewise, employees should not suppose that they possess inventions simply because they invented them at home. Inventors cause sole problems for the employer, and the response to who owns an invention may depend on the nature of invention.

Who Owns the Invention? The employee or the employer

The biases for ownership of creations protected by a copyright vary from inventions protected by a patent. [12] Let’s examine the following three examples:

A firm hired a contract software developer for $150,000 to build an interior commerce software program. The firm gave the developer a place of work at the firm’s head office. Who owns the software program? Can the developer sell the software program to other organisation, the firm’s competitors?

A sales manager invents a device for use in a company, which minimizes the mechanized cost by 10%. The company wants to produce this device and sell it by the business. The sales manager says that the invention is his, and the company doesn’t have the ownership of this invention. Who wins?

An employee patents a precious invention that he created at his employer’s work place on company time. He required a license fee from the employer to use the invention. Must the employer give him the license fee?

There are no specific answers for the above questions because it depends on the facts that the court may give the decision according to. The following are some facts the court which may affect on the decision of the court according to achieve the fairness: The creator of the invention is generally the owner of it, unless the invention was made by an employee in the range of his employment. If so, then the work is a “work for hire” and the employer should be the owner. If the author is an independent contractor, and not a member of staff, the work does not belong to the employer. It is frequently difficult to decide between an employee and independent contractor, for this reason employer should seek legal advice in establishing this relationship. The ownership of patents is unlike to ownership of copyrights. If there is no written agreement, an employee’s inventions’ ownership may not go to the employer, except for special conditions. The employment relationship does not automatically give the right to the employer to own inventions made by the employee. If the employee was hired for the definite reason of inventing a defined product or practice, the invention usually belongs to the employer. General inventions made at the employer’s cost but not at the employer’s requirement are often not the property of the employer. This does not mean that the employee has the right to stop his employer from using the invention, which he made at the employer’s expense, but he may have the responsibility to license the invention without any cost to the employer. This is called the “shop right rule.” A shop right is a nonexclusive license to use, produce and sell an invention without financial responsibility to the inventor. However, the employee has the ownership of the patent. Inventions made on the employee’s time, but not at the employer’s expense, can be the belongings of the employee, even if they relate to the employer’s industry. The non-attendance of an expressed agreement leads to these problems. Therefore, it is suitable to consult an attorney and to read the employment contract carefully in order to keep away from ownership disputes between employers, employees and independent contractors. Employees who make or invent something at some stage in the path of their employ will usually find that the invention belongs to their employer. [13] Often the employment contract or letter of employment will mention this. If it does not, then the common law will normally assume that the employer owns the invention, even though this may not essentially be the case. The next factors are important in this purpose:

Owned by Employer

Owned by Employee

Invention created on work time

using work tools, staff, equipment and existing processes

during course of employees normal duties

not related to employees duties

done mostly outside of work hours

even if work tools used

The case of University of Western Australia and Gray

University of Western Australia v Gray (No 20) [2008] FCA 498 (17 April 2008) (UWA v Gray)

Respondent: in employment in university as professor of surgery, research concerned with designing micro spheres & ensuring their effective delivery of anti-cancer agents of various kinds selectively to sites of tumours in the liver.

Plaintiff: employer’s claim against respondent employee was because of his employment he had obligations to appellant in respect of the inventions, and that as a result the appellant had proprietary rights in respect of them and of associated patent applications and patents, and that by reason of respondent having dealt with the inventions as his own, appellant was entitled to obtain certain remedies from him, primary Judge had dismissed appellant’s claim in its entirety. [14] The Federal Court presented a decision which shocked the Australian educational society and alerted Australian research organisations to the reality that they may not have a claim over inventions created by their staff in the course of their research activities. [15]

The impact of the judgment: The decision had significant impacts on ownership and management of rights to inventions by employers mainly academic and research institutions in Australia. The judge dismissed all claims by the University of Western Australia and held that ‘absent express agreement to the contrary, rights in relation to inventions made by academic staff in the course of research and whether or not they are using university resources, will ordinarily belong to academic staff as the inventors under the Patents Act 1990 (Cth)’ (UWA v Gray at [12]). [16]

Facts in this case:

UWA v Gray included claims made by UWA against Dr Bruce Gray, who was in employment in UWA as a Professor of Surgery between 1985 and 1997.

UWA’s main claims can be summarised as follows:

There existed an implied term of Dr Gray’s employment contract to the result that ownership for any inventions created in the path of his employment belonged to UWA.

Dr Gray breached his employ contract by failing to obey with UWA’s Patents Regulations and Intellectual Property Regulations, which were included by reference into his employment terms.

Dr Gray had breached his attorney duties to UWA as his employer—in particular, his duty to deal with the possessions rights and benefit of UWA so as to protect and preserve that property and those privileges and benefits for UWA by applying for the patents in his own name and in the name of Sirtex Medical Limited (Sirtex) (a research and development public company, of which Dr Gray is a director) (at [323], [1333]).

The UWA claimed against Sirtex regarding its supposed awareness of Dr Gray’s break of his fiduciary duties.

Moreover There were some claims, most principally a claim by Sirtex against Dr Gray for assumed break of his director’s duties for non disclosure of UWA’s claim of ownership in the technologies.

Issues in the case:

The level to which Dr Gray, as a researcher and his colleagues in the same field of research, were expected to be entrepreneurs and request for funds for their study, including the progress of inventions, from sources outside UWA. In other words, an implied term of the nature claimed by UWA seems not in agreement with the anticipation that he would find his own research cash.

It was also indicated that Gray was not pursuing the profitable purposes of the university, he did not have to invent something, he had a duty to commence and motivate research along with staff and students at UWA. He was working for a university, which was not like from working for a profitable employer where any inventions made in the course of his employment could benefit or affect the business of the employer.

In distinguish; Gray was not binding to advance a profitable purpose for UWA. This was “a core pillar” in the argument.

Any innovation resulting from his so doing should, in significance, attract the implied term of the employment contract. But such an argument, the court said, was “invalid” because it was not what Gray’s terms of employment required; there is no obligation for it being implied by law into the employment contracts of university academic employees, and importantly, it is not in agreement with the researcher’s freedom to share and to publish research results.

The non-appearance in the employment contract of any obligation to invent whatever thing, he had not been engaged to use his inventive facility in an approved way or for an approved reason, for UWA’s profit. [17]

The Decision:

In his judgment, French J:

Rejected the claim that there was an implied term in Dr Gray’s contract assigning rights in relation to inventions to UWA (at [1363]).

Rejected the claim that Dr Gray was in breach of his employment contract by failing to comply with UWA’s Patents Regulations and Intellectual Property Regulations because those regulations were invalid as being beyond the power of their enabling legislation, the University of Western Australia Act 1911 (WA) (the UWA Act) (at [13]).

Rejected the claim that Dr Gray breached his fiduciary duties on the basis that Dr Gray was not dealing for his own benefit with rights in relation to various inventions which UWA owned or in which UWA had an interest (at [1567]).

Rejected the claim against Sirtex because there was no breach of fiduciary duties by Dr Gray (at [1567]). [18]

University of Western Australia v Gray [2009] FCAFC 116On 3 September 2009 the Full Court of the Federal Court of Australia handed down its judgment concerning the appeal from the judgment in the University of Western Australia v Gray [2008] 246 ALR 603 which dealt with the matter of when an employer is entitled to intellectual property rights in inventions of its employees. The appeal by the University of Western Australia (UWA) was rejected and the decision at first judgment of Justice French was upheld. [19]


The judge’s concluded that UWA was unsuccessful at the threshold point was consequently held to be correct. Accordingly, if a less crude and more reasonable and sensible result are to be achieved which balances the particular benefits of a university and its academic staff members, this will need to be done by or under legislation or, if it could be devised, by an express contractual establishment appropriate to the circumstances of the individual case.

Universities will not be able to depend on the equitable duty of confidence which typically attaches to the employ bond, in order to keep private knowledge developed by academic staff. This once again points to the significance of including carefully drafted privacy terms into academic employment contracts. [20] The implied term which is expected by some employers that directly give them the ownership of their employees’ inventions is not always valid, because in the case of University of Western Australia v Gray the court showed that an implied term like this may not exist according to the different circumstances.

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