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In-house lawyers and the innovation economy

In-house lawyers and the innovation economy

Lawyers

We live in an era of unprecedented technological change, and against that backdrop Australian companies are all busy disrupting, transforming, getting agile and going digital, writes Michael Milnes.

Companies are using a range of initiatives to make sure they are the ones to get an early start and not be left behind by the next big thing in their industry.

Whether it’s a hackathon, company Shark Tank, incubator or accelerator, general counsel and in-house legal teams play a crucial role in making sure their company gets the maximum benefit out of any innovation, not least by protecting any intellectual property (IP) that might be created.

For companies looking to get more serious about innovation, different types of initiative bring with them different issues. Being clear about the nature of the event from the beginning is key:

  • Who will be participating? Determine whether an initiative is internal (and only open to employees), open to the public or to specific invitees.
  • What are the company’s main objectives in being involved? Different objectives might include boosting the company's brand and innovation credentials, searching for new ideas to commercialise, getting feedback from developers on a new company product or simply to provide a forum for employees in different teams to have fun, mix and break down organisational silos. Being clear about the objectives helps ensure any legal advice is on point and relevant.
  • How will the company be involved? Consider the level of effort and involvement being put in to the initiative, and how this compares to other organisations that are involved. Some events can have many companies involved in different capacities:
    • Playing the lead role in organising an initiative or providing the logistics (for example, hosting it at the company's office and providing employees to staff an event).
    • Sponsoring an event, or part of it (for example, sponsoring a prize or paying for the pizzas and coffee for the weekend) or sponsoring a team. Several sponsors may be involved, each with their own bundle of rights and benefits.
    • Allowing employees to participate in work time, either as teams or to staff the event.
    • Making available a new technology or platform that participants can test, use and provide feedback on.

Hackathons

Hackathons are intensive collaborative efforts, usually staged over a short timeframe such as 48 or 72 hours (and often over a weekend). The idea is to bring together participants from different backgrounds, who work together to develop a new product or service.

The collaboration underpinning the event creates extra enthusiasm and getting away from the daily grind helps spark creativity. Ideally teams have a working prototype ready to pitch by end of the event.

The IP position might seem clear where the event is an internal company event during business hours. However, hackathons are often outside usual business hours and designed to take people out of the confines of their day job. This might make it more difficult to show that the IP was created “in the course of performing the employee’s duties during their employment”, the usual common law test for ownership of IP created by employees.

Consider also whether anybody attending might be a freelancer, contractor or consultant. If so, what terms have they been engaged on and who owns any IP they create? Likewise, other third parties from outside the company might also be invited.

The company might therefore wish to put in place terms and conditions of participation that clarify who will own IP created during the event. However, be careful of adopting too legalistic an approach or getting the incentives wrong. People are often giving up their free time to participate.

They may not be willing to sign up to onerous legal terms. They might also be keen to remain involved in any new project that might emerge. The hacker ethos is intended to get away from corporate command-and-control, so taking too heavy an approach can backfire.

For example, even though prizes were on offer, the Sydney Opera House faced a backlash from the software developer community where the terms of its hackathon required all entrants’ IP to be transferred to the Opera House, whether the winner or not. The Opera House relented so that participants could retain their own IP.

Other issues to watch out for include:

  • The risk of disputes between team members themselves about ownership of the idea, which could even spill over into affecting the employees’ normal work duties.
  • The risk that the company’s brightest innovators could end up being poached by a competitor or leaving the organisation to work with their hackathon team as a start-up. Legal terms and conditions will be relevant, but getting the right incentives to motivate people is more important.
  • Securing the company’s pre-existing or newly developed IP – for example, if developers are going to be granted early access to a new platform or the corporate code base, participants may need to be signed up to confidentiality agreements.

Incubators, accelerators, labs and hubs

Companies may also get involved in a range of other activities designed to foster innovation and support the start-up community, such as:

  • Labs and incubator programs, which help start-ups develop an idea, or take an idea and turn it into a viable business model.
  • Accelerator programs, which help start-ups grow more quickly by getting the business ready for investment.
  • Hubs and co-working spaces, which provide collaborative and creative working environments for start-ups.

Corporate involvement in these types of initiative might involve mentoring, support, sponsorship or even establishing its own program (for example Thomson Reuters Labs, Telstra’s start-up accelerator Muru-D or within law firms, the Mills Oakley Accelerator run in collaboration with Collective Campus).

Advising companies who participate in these activities involves being clear about the company’s objectives. Does the company just want to stay close and hear about new innovations, or recruit new talent, or do they expect to take an equity position in emerging start-ups as part of a broader innovation strategy?

In-house lawyers need a deep understanding of their company’s approach to staying relevant in the innovation economy so they can provide the type of advice that will add real value.

Michael Milnes is the head of commercial and competition law at Practical Law Australia. Before joining Practical Law, Michael worked as in-house counsel in the FMCG supply chain sector and at leading law firms in the UK, Europe and Australia. He has a broad range of experience advising on commercial law, consumer marketing, technology and strategic corporate projects and the management of legal service delivery. He holds an MBA from a leading UK business school, which included research and study of topics such as legal procurement, e-business and technology, automation, strategy and finance.

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