Intellectual Property Risks for Joint Inventors – Avoid the Mud

Rita Khodeir

Joint ventures or collaborative arrangements are often considered to be an efficient way for people to work together to achieve a common goal. However, working together without a proper legal frame work could result in a complex and quite expensive legal dispute over ownership of any intellectual property that may have been developed by parties working collaboratively.

The recent federal court decision of Neobev Pty Ltd v Bacchus Distillery Pty Ltd (Administrators Appointed) (No 2) [2014] FCA 4 considered the issue of joint inventorship and the assignment of confidential information and copyright. In this case, the Federal Court had to determine the identity of the inventor or inventors of the invention. The invention involved a process for producing a clean wine spirit used as a base in the production of cream liqueur products (CWS invention).

Bacchus operated a small distillery in Victoria and produced a small range of fortified wines, schnapps, liqueurs and cream liqueurs. At the time, Max Scott was heavily involved in developing and improving cream liqueurs.

In or about 2002, Bacchus and Max Scott reached an agreement to work together to establish a cream liqueur plant. Bacchus agreed to maintain and install the plant and equipment. Mr Scott agreed to provide his know-how and recipes, processes and testing procedures. In or about 2004, Bacchus was producing products that were made to recipes and production processes written by Mr Scott. Mr Scott was solely in control of recipes.

In or about 2004, Damien Hajdinjak a director of Bacchus asked Mr Scott to investigate the possibility of developing a less costly process for making cream liqueur products. Mr Scott carried out a number of investigations and trials and came up with a stage filtration process for making a clean wine spirit which had no acidity, flavour or odour, a clear appearance, no excess tartrates, stability, pH neutrality and alcohol at about 22% (CWS invention). Mr Hadjinjak alleged he had discussions about various filtration methods with Mr Scott, carried out a test at his factory involving the process of reverse osmosis filtration and had discussed the key steps of the CWS invention with Mr Scott. Mr Scott denied that Mr Hajdinjak had any involvement in the development of the invention.

Identity of the Inventor

Bacchus argued that Mr Scott and Mr Hajdinjak were joint inventors based on collaboration between Mr Scott and Mr Hajdinjak. Joint inventorship has been described by an American Judge as ‘one of the muddiest concepts in the muddy metaphysics of patent law' (Mueller Brass Co v Reading Industries Inc 352 F Supp 1357).

To determine whether the parties were joint inventors the Federal Court considered the following principles set out in Polwood Pty Ltd & Ors v Foxworth Pty Ltd & Ors [2008] FCAFC 9:

  1. Whether someone is properly described as a joint inventor is determined by qualitative contribution – not quantitative contribution;
  2. In some cases it is useful to look at what the invention is said to be;
  3. The key question is whether the person’s contribution had a material effect on the final invention;
  4. Who conceived the solution to a problem?; and
  5. Rights to an invention are determined by objectively assessing contributions to the invention rather than assessing the inventiveness of respective contributions.

In this case, the Federal Court found that Mr Hajdinjak’s role did not have a material effect on the final concept of the invention and concluded that Mr Scott was the sole inventor of the CWS invention. The Federal Court went on to find that the circumstances gave rise to an express trust over the CWS invention and patent in favour of Bacchus and MSC in equal shares.

Assignment of Confidential Information

At the relevant time, Mr Scott’s company MSC was the owner of the copyright material and confidential information that existed in a number of documents that contained technical data relating to 14 products produced by Bacchus. For example, a number of the documents were recipes for those products. At the relevant time, Bacchus was granted a licence from MSC to use the copyright material and confidential information. The issue between the parties was whether the licence has come to an end. Bacchus claimed the licence was unconditional, irrevocable and transferrable. Bacchus was placed into administration and the administrators were seeking to sell Bacchus’ right to use the confidential information and copyright material to a third party purchaser. The Federal Court found that Bacchus’ right or licence to use the conformation information is incapable of assignment.

Lessons

This case illustrates the importance and value of a written contract. Before parties begin a collaborative arrangement, the terms of that relationship should be clearly defined. There should be no ambiguity as to ownership of intellectual property and confidential information. As the relationship develops, you should audit your existing agreement to make sure your rights are adequately protected. The legal costs of documenting your arrangement is insignificant to the legal costs associated with legal proceedings to enforce rights or the loss of profits that would inevitably arise if your rights are lost or shared.

For further advice on Intellectual Property please contact:

Rita Khodeir, Senior Associate
Phone: + 61 2 9895 9250
Email: rkhodeir@colemangreig.com.au