It might come as a surprise to laypersons that employers don't own employee intellectual property (such as inventions), even if the invention was created in the course of employment. The Patents Act 1990 (Cth) sets out ownership of an invention in s 13, and details who is entitled to a patent in s 15. Neither section expressly states that employees inventions are owned by employers, or entitle employers to patent these inventions. It appears from the Act that the owner of the invention is the person or team of people who performed the intellectual and practical work involved in the development of the invention (see this article for more on patent ownership).
Employers can expressly stipulate in their employee contracts that inventions are owned by the employer. However, employers must be careful not to limit employee activities and freedoms in a way which is considered illegal restraints on trade. Employers can sometimes rely on an implied term giving employers ownership of employee inventions. In Patchett v Sterling Engineering (1955) RPC 21 the House of Lords did imply such a term when the employee was employed to invent, and creating inventions was part of the employees role. This can be interpreted quite narrowly, as it must be an invention for which the employee was paid to invent.
Some employers have argued that a fiduciary duty arises in the course of employment. In VUT v Wilson (2004) 60 IPR 392 the court held that a fiduciary relationship can arise between an employer and an employee. The court found that professional employees, such as professors, do owe a fiduciary duty to the university. Therefore although the university were only partially successful in arguing that the invention was within the scope of the professors' employment, breach of a fiduciary duty meant that the professors held the intellectual property on trust for the university.
In UWA v Gray (No 20)  FCA 49, Gray patented a method for treating liver cancer in his own name, and later transferred these rights to a patent company, and later to a medical company which he later publicly floated. The University of WA where Gray was employed argued that they owned these patents, and therefore were entitled to shares in the Medical company. There was no provision in the employment contract between Gray and UWA regarding intellectual property. University policy was that inventions were to be reported to a 'patents committee', however even if this policy was binding on Gray, the patents committee had long been abandoned.
The UWA then tried to argue that a term was implied into the employment contract that inventions of employees belong to the employer, however they failed to get up on this argument. The court did not accept this argument on the basis that Gray was hired to research, not invent. The court also found that a duty to invent was not congruent with the duty of an academic to publish their work (as this would destroy the patentability of any invention). Furthermore, Gray funded most of his work on the invention in question himself.
The court also did not accept the fiduciary relationship argument. The fiduciary argument was put that Gray had a duty to deal with the property in a way consistent with UWA’s interests. This supposes that UWA is owner of the property. As the court found that UWA does not own the intellectual property, this argument failed.
The university have applied for special leave to appeal to the High Court. It will be interesting to see if leave is granted or not, considering the appointment of French CJ to the High Court (who gave the judgement in the Federal Court before his Honours appointment to the High Court).
I think Gray is a good illustration that employers need to expressly state in employee contracts that IP of employees in the course of their employment belongs to the employer. Employers should also revisit employee contracts regularly to ensure that their IP rights in employee inventions are adequately protected.