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Intellectual property rights: who owns the knowledge?

With the onset of the Industrial Revolution, many philosophers and sociologists have been concerned with the "deskilling" impact of automation within the workplace. Deskilling implies a reduction in the skill set and level of skills required to perform certain activities, and is usually, but not necessarily, associated with increased mechanization. Researchers foresaw a societal stratification with two classes of workers; those who have the knowledge, and thus control of the workplace, and those who have neither the knowledge nor the control.

Many social scientists have cried out for the education of the masses, access to technical knowledge and, as a result, access to more of the responsible jobs of the future. While possession of knowledge may be a requirement for the status jobs of tomorrow, knowledge alone will not be enough to guarantee security and continued employment. Control of the knowledge will become necessary to maintain one's employment status.

Technology worker

The issue of the control of knowledge manifests itself in today's society in the question of intellectual property rights--who owns the products of the mind? Such products may include new algorithms to solve old problems, computer codes to implement new ideas, or even the ideas themselves.

Recently, both the popular press and the publications of many professional societies have tried to grapple with the issues of who owns and controls the knowledge. However, with the possible exception of Hochschild, the premise is almost always that the organization owns the intellectual property. The primary argument in many of these discussions is which of the various employing organization controls the specific knowledge. It is rarely concerned with who within an organization owns the knowledge. In particular, an employee who gained the product specific or applicable knowledge to develop the product prior to the employment with the organization creates a premise similar to the argument made by Taylor, that the worker owns the muscle that he in turn leases to the organization.

Suppose, for the sake of argument that a small machine shop with a specialized market hires a numerical control(NC) programmer. Further, if the company is able to accurately determine all the NC programs that it will ever require and the NC programmer completes the programming task and documentation of these required programs within three years, the small company will have no further need of the programmer's services. The programmer is then terminated, but the company continues to rely on the NC programs and remains profitable. Has the company's treatment of the individual employee been equitable?

Or suppose that an organization hires a computer programmer to develop the proprietary software that will enable the company to function indefinitely. Again, by some quirk of fate, the organization is able to accurately predict all the software that will ever be required by the firm for the foreseeable future. The programmer is provided with the specifications for the software, and proceeds to write a system of programs to fulfill the requirements of both an accountant and a manager. Within five years (this programmer is very efficient), the assigned task is completed just as tenure with the organization is imminent. Because the company has been able to accurately predict its needs, the programmer, whose services are no longer required, is terminated. However, the company continues to be profitable using the proprietary software that was developed. Is the termination ethical on the part of the organization?

Consider a third scenario. This time, an expert system is being developed by an organization to aid in the design and analysis of the company's product line. Engineers and technicians are repeatedly interviewed and their responses integrated into the system until the expert system's recommendations cannot be differentiated from the recommendations of the experts. At this point in time, the organization decides to eliminate the redundant experts. Is this a morally appropriate action?

Initially, many managers who were interviewed as part of this research stated that the company acted appropriately in terminating the NC programmer whose services were no longer required by the organization. The primary reason given as justification for this action was it would be an unnecessary expense to retain the NC programmer on the payroll. The efficient use of resources was paramount in the mind of many managers in making this decision. The "correctness" of the decision was reinforced when the managers believed that the NC programmer would have no difficulty in gaining new employment after termination. The general belief, that a skilled NC programmer would be in high demand, seemed to ease the managers' consciences over the termination.

As in the case of the NC programmer, many managers believed that the company was well within its rights to dismiss the computer programmer once the needs of the company were met. To retain the computer programmer would force the organization to keep a person on the company payroll who is perceived to be no longer useful to the company. This could translate into dollars being spent that would not result in increases to the bottom line. Because the programmer was hired to create a specific set of required software, the managers believed the decision to release after the completion of the task was well founded.

In the first two scenarios, managers' responses would result in a workforce reduction. However, in the third scenario where the manager was replaced by an expert system, the responses shifted in favor of the retention of the professional employee. Because their positions appear to be threatened, the response changed to "the organization should not eliminate these positions." The fact that their jobs could be at risk changed the perspective and the response.

The change in response from position elimination when it does not affect the manager to position retention when it does affect the manager is understandable. Self-interest is a primary motivation for many of our actions. The desire to remain employed and not place dependents (and oneself) in economic jeopardy supersedes the desire to remain loyal to the organization. The organization's well being is not placed ahead of the welfare of the individual. While corporate profitability may be an important deciding factor (as shown in scenarios 1 and 2), it may not be the most important deciding factor (as shown in scenario 3). Utilitarian beliefs -- "the greatest good for the greatest number" -- give way quickly to deontological beliefs (e.g. "one ought never act unless one is willing to have the maxim on which one acts become universal law"). The Golden Rule seems to become extremely important to managers when it is their livelihood that is at stake.

We, as managers, do not deal with emotionally laden situations consistently. It is to our advantage that these issues, as possibilities, are resolved before they occur.

Works made for hire

The most common method of determining intellectual property rights at the individual level is that of "work made for hire." Section 201(b) of the Copyright Act states: In the case of a work made for hire, the employer or other person for whom the work was prepared is considered the author...and, unless the parties have expressly agreed otherwise in a written instrument signed by them, owns all of the rights comprised in the copyright.

It is obvious that the law regards work done on the employer's time and as part of the employment duties of the individual as the property of the employer unless the parties involved have agreed otherwise. Traditionally copyrights have been extended to books, maps, charts, musical compositions, photographs, drawings, statuary, paintings, motion pictures, sound recordings, industrial designs, and most recently, computer software. It is important to note that the emphasis of the Copyright Act is on the work done, not on the knowledge that led to the work. Form is more important than function. Providing the involved parties agree, the Copyright Act, and its definition of "works made for hire," seems to be applicable to both scenario 1 and 2. The NC programmer and the computer programmer are both hired to produce specific products for specific organizational needs. Unless the employee has negotiated up front to own the tapes or programs developed during their employment, it appears that the organization is the owner of the intellectual property produced. Adequate compensation for the knowledge used to produce the products should be incorporated in the annual salary and benefits. But, does the concept of "works made for hire" apply to the managerial expert system?

Arguments can be, and are, made on both sides of the "works made for hire" issue with respect to the managerial employee. Supporting the position that it is ethically appropriate to dismiss the manager once his expert knowledge has been garnered on the basis of the "work made for hire" doctrine is the fact that the individual was in the employ of the organization when the expert system was developed. Much of the knowledge used in the development of the expert system may be proprietary information obtained during that individual's tenure with the organization. Experts claim the combination of company specific information and knowledge gained during the individual's employment with the organization makes a compelling argument that the knowledge and its representation belong to the organization and not to the individual, or individuals, whose knowledge has been gleaned. According to the doctrine of "works made for hire," whatever has been accomplished during working hours automatically belongs to the employing organization unless agreed otherwise up front by the parties involved.

The argument concerning proprietary information coupled with the argument of knowledge gained on company time combine to form a powerful and compelling argument for advocates of the doctrine of "works made for hire" as a means of determining the ownership of intellectual property within an organizational framework.

On the other hand, opponents would argue, although the expert system is the property of the employer under the doctrine of "works made for hire," and the knowledge used in the expert system is also the property of the employing organization, much of the information necessary to make the appropriate decisions is not company specific. If even a portion of the knowledge necessary is obtained away from the workplace, "works made for hire doctrine" would not be applicable without a pre-employment agreement. Whether or not the expert system is protected by copyright law is another subject. (For more insight into this matter, see Intellectual Property Issues in Software, Computer Science and Telecommunications Board.)

A lesser argument against the use of "works made for hire" is that many managers were employed before the expert systems technology was readily available. It is relatively simple to design an agreement delineating the ownership of known intellectual properties. It becomes very difficult to determine ownership of intellectual properties not yet defined. Is it morally acceptable for an organization to use an agreement, whether explicit or otherwise, to determine ownership of the intellectual property that was executed before the technology exists to create the property? However, the most compelling argument against the use of the "works made for hire" doctrine is that copyright protection is extended only to expressions of ideas, not to the underlying ideas themselves.

If the preceding statement is correct, then the organization has no basis for claiming expert system knowledge ownership by means of "works made for hire." They may claim ownership and control on other grounds but it is clear that the organization may not use section 201(b) of the Copyright Act as justification for ownership. It appears then that the doctrine of "works made for hire" as established by section 201(b) of the Copyright Act may indeed be used as a guide to determine ownership and control of the products of the numerical control programmer in the first scenario and the computer programmer in the second scenario. But the ownership of the knowledge of the manager in the third scenario is not necessarily determined in the same manner. How then can the ownership of intellectual property be determined and controlled? There are several potential models of property protection already in use, including the model of the lending library, the model of residual payments, and a model of joint ownership.

The lending library

One of the better known models for the protection of intellectual property rights is that of the lending library. A library purchases a published work, which members may use as many times as necessary without additional charge. However, when the resource is no longer in a useable condition, the library purchases a newer edition to replace the now outdated or damaged resource or repairs it to allow for continued use of the same document.

Because the work is available only through a publishing house, in addition to the advance or guaranteed sales, the author receives royalties every time a copy of the work is purchased. Therefore, the author is continually being reimbursed for intellectual contributions for the duration of the publication of the work. In this case, the ownership of the intellectual property is shared between the author, or developer of the ideas, and the publisher, or marketer of the ideas.

To determine if this "lending library" model of intellectual property rights has any validity within the industrial environment, it may be useful to reexamine the three scenarios presented at the beginning of this discussion. Although the "works made for hire" doctrine is applicable to the first two scenarios, it is not the only protection scheme available to an individual within an organization. If an organization were to implement a lending library approach to the situation of the NC programmer or computer programmer, the effects would not be felt until the media containing the information became corrupt or until the programs required alteration. New copies then would be made and the originators would receive a royalty for each copy. As long as the original intellectual property remains intact, there is no additional cost to the user regardless of the number of times the knowledge is accessed.

A variation on the lending library model that allows multiple copies to be used is the implementation of a site license, commonly used by organizations with large bases of installed users of particular computer programs. Prior arrangements to allow the user organization to make a predetermined number of copies of a particular software application preserves the intellectual property rights of the owner are preserved with minimized complications and purchases on the part of the user. Again, when the original becomes obsolete, updated copies are purchased and new site licenses are renegotiated, all of which is to the monetary advantage of the intellectual property's owner.

There are advantages and disadvantages to both the employing organization and the employee who elect to follow a "lending library" approach to intellectual property protection. The employing organization incurs additional administrative costs to preserve the integrity of the agreement guarding against unauthorized use of intellectual property by keeping track of who is using the intellectual property at any given time and disciplining individuals not authorized to use the material. Failure to discipline unauthorized use sends a message to employees that intellectual property is not a valued asset. Discipline and tracking usage places an additional administrative burden on the employer but may reduce the number of associated lawsuits. It also may result in valued employees remaining with the organization.

From the employee's perspective, the "lending library" system of protecting intellectual property sends a message that creativity and productivity are valued by the employing organization. While individuals will not be compensated each time a piece of intellectual property is accessed, the individual employee is assured that he or she will receive credit for the knowledge that has contributed to the success of the organization. According to many researchers, the acknowledgement of abilities and accomplishments maybe the single best method of improving productivity among white and gold collar workers. While the "lending library" is a win-win situation for the employee and the employer in that each party receives something of value, this approach does not address the issue of continuing compensation for intellectual property. It also does not address individual control over or liability for continued use of the intellectual property by other parties.


An alternative model for the protection of intellectual property is provided by the entertainment industry. Each time a commercial is aired, a program is rebroadcast, or a song is played, the appropriate individuals are compensated. Upon completion of an artistic endeavor, an agreement can be reached that provides the author or actor with additional compensation each time the work is performed. Detailed records are kept and periodically accounts are settled per the agreement. As with other models of intellectual property protection, this arrangement must be negotiated up front.

A similar model could be developed for intellectual property. The author would receive a small sum each time the product was used. Software products could easily be adapted to maintain appropriate counts. By modifying the code to keep track of the usage of the software, the authors could easily be compensated. While intellectual property such as books and video tapes may require more sophisticated systems to track residuals owed, systems similar to those required currently exist for songs and commercials.

The major disadvantage of the residual system is the accounting burden it places on the employing organization. Not only is it important that usage be logged, but accounts must be settled on a periodic basis. Once the individual has made his or her intellectual property available to the organization, the organization cannot renege on its obligation to compensate the individual developer for all the uses of the product. As with the "lending library" model, complete adherence to the agreement by everyone in the organization is of utmost importance.

The cost of the residuals may also place a heavy burden on the organization. The cost of using the intellectual property must be weighed against cost of other methods of property protection. Of the three models, residuals are the most heavily biased in favor of the employee.

A fourth model for administration of intellectual property rights within an organization is one that addresses the concerns of both the employer and the employee by making each equal partners. Joint ownership of the intellectual property ensures that neither party can make the intellectual property available to a third party without the other's knowledge.

An example of this model is currently used by several university systems, the intellectual property in question being videotaped classroom content for use in distance education. Under the "work-for-hire" doctrine, the university would be well within its rights to exercise control over the distribution of the video-taped lectures. Dismissal of the lecturer at the completion of the course and hiring a graduate student or administrative assistant to administer the course in the future could lower expenses, eliminate faculty schedules conflicts and allow the course to be offered anywhere anytime. Certain classes would not even require updates as many math and science basic concepts remain constant. Needed resources could be allocated. Faculty, however, would be reluctant to participate in such a program if it meant their eventual termination. Even if termination were not the final result, many faculty members would be reluctant to continually prepare new course and material to add to the organization's expanding library. The analogy to other forms of intellectual property should be apparent.

Joint ownership

On the other hand, if the faculty maintained complete control of the video tapes, they could negotiate to sell the entire course (or individual tapes) to multiple organizations. While the course was developed and executed on university time, the university would receive no benefit from the additional distribution. Neither option is attractive to both parties.

An alternative is to allow both parties to share ownership of the intellectual property. In joint custody of intellectual property, neither party can affect the distribution and use of the product without the other's knowledge. This agreement protects the employee and his or her future while allowing the organization the use of the intellectual property. Both parties are protected. Neither party has unilateral control.

As with the other models for the protection of intellectual property, up front discussion and agreement of all parties involved is important. In fact, the discussion may be even more important than the agreement.

Risk and reward

The discussion of various alternatives to protect intellectual property at the individual level has concentrated on the benefits to both the employee and the organization. Certainly, the employer should want to create an environment where valued employees remain. Continued employment of skilled individuals enhances the resource base of any organization. It also enhances the profitability. On the other hand, the individual who believes that his or her work is valued and protected has little reason to seek employment elsewhere. But protection of ideas and knowledge has another facet.

With shared protection should be shared risk. If the organization chooses to adhere strictly to a "work-for-hire" doctrine, the preponderance of liability should rest with the organization. It is unfair for the organization to accept of the rewards associated with the distribution of the intellectual property without also accepting the responsibility for the same. If the organization represents work as being from the organization, then the same organization should stand behind work. One cannot have one's cake and eat it too. To be truly ethical, one must either accept both the responsibility and the rewards, or neither. To reward only one party while the other party is burdened with the associated risks is unacceptable.

The "lending library" model and the residuals model do not address the issue of risk and reward directly. However, by addressing the issue of reward at the onset of the project, the issue of risk also can be discussed. The implication is that if one owns the intellectual property as is demonstrated by the rewards, one also owns the associated risks (at least to a limited degree). The aspect of shared liability may cause many individuals to reconsider models of shared reward.

Of the four models presented, only the joint ownership model directly deals with both the issue of reward and the issue of risk. In this model, both the rewards and the risks are shared between employer and employee. Acknowledged shared ownership of the ideas as represented by the shared control of the intellectual property indicates the reality of shared risk. Although neither party can claim all the benefits accrued to the use of the intellectual property, neither party must accept the entire responsibility for any flaws.


Intellectual property rights are at the forefront of issues that will confront managers in the near future. While many organizations are concerned with the issue of which organization (the producer or the purchaser) control the use of the property, few have addressed the issue of who within the producing organization actually owns the intellectual property. If the product is the result of the knowledge of individuals and years of experience, is it reasonable to assume that the employer should have sole claim to the rewards associated with the product? Or can organizations, by recognizing the contribution of its employees to the success of the organization, improve on the current assumption of the "work-for-hire" doctrine? Are individuals entitled to be compensated for their thoughts and their knowledge? Or, are their thoughts and ideas simply commodities that can be appropriated at any time by the employing organization? What are the consequences of each course of action?

None of the agreements associated with any of the previously mentioned models should be entered into lightly by either of the parties affected. Serious consideration must be given to the consequences of any course of action taken. It is incumbent on both parties to obtain legal advice to secure the desired protection for both the employer and the employee. Decisions made today will be felt tomorrow. The issue is not an easy one to resolve. Creative solutions must be found. If we fail to protect intellectual property, we may find that we have failed to protect our own employment.

With increased emphasis on the quality life in the work place and the increased number of knowledge workers in tomorrow's industrial society, we must consider the impact of ownership of intellectual property on the work place. Three alternative models for protecting individuals' intellectual property have been discussed. While there is no one right answer with regard to who owns the knowledge, unless we consciously address this question, we will face a crisis that will only be resolved after many bitter battles. By discussing these issues with both our employers and our employees and coming to agreement on the ownership of intellectual property, morale and productivity can be enhanced. Profitability will continue and therefore the organization will continue to survive. In addition, the employees will be more likely to remain with an organization that they believe has their best interests at heart.

No one model of intellectual property protection is appropriate for all organizations. If an organization is concerned with the additional costs that a residual model may incur, then they may wish to consider one of the other forms. If an organization is not concerned with retaining skilled employees, then intellectual property protection may not be an important issue. However, all organizations must face the issue that skilled employees will want to protect the assets that made them valuable in the first place.

For further reading

Braverman, H., "Labor and Monopoly Capital: The Degradation of Work in the Twentieth Century," Monthly Review Press, New York 1974.

Callahan, A.L., Situation and Individual Differences as Predictors of Voice in the Organization, Unpublished Dissertation, Stanford University, Stanford, CA, 1989.

Computer Science and Telecommunications Board National Research Council, "Intellectual Property Issues in Software," National Academy Press, Washington, D.C., 1991.

Freudberg, D. "The Corporate Conscience," American Management Association, New York, NY. 1986.

Hammer, R.R. The Church Guide to Copyright Law, Christian Ministry Resources, Matthews, NC, 1990.

Hochschild, A.P. "The Managed Heart: Commercialization of Human Feeling," University of California Press, Berkeley, CA, 1983.

Kant, I. tr. Lectures on Ethics, Century Company, New York, 1931

Kelley, R.E., "The Gold Collar Worker: Harnessing the Brainpower of the New Workforce," Addison-Wesley Publishing Company, Inc., Reading, MA, 1985.

Kischuk, S. & M. Anderson "The Enigma of Engineering Ethics: A Historical Perspective." Florida Engineering Society Journal, 1991.

Martin, M.W. & R. Schinzinger Ethics in Engineering. McGraw-Hill Book Company, New York, NY, 1983.

Marx, K., Capital, Foreign Languages Publishing House, Moscow (First published in 1867), 1954.

Marx, K. & F. Engels, "Manifesto of the Communist Party," Foreign Languages Publishing House, Moscow (First published in 1848), 1955.

McCarroll, T., "Creativity: Whose Bright Idea?" Time, 1991.

Mill, J.S., Utilitarianism, ITT Bobbs-Merrill Educational Publishing Company, Inc., Indianapolis, IN (First published in 1861), 1957.

Reidenbach, R.E. & D.P. Robin, "Ethics and Profits: A Convergence of Corporate America's Economic and Social Responsibilities," Prentice Hall, Englewood Cliffs, NJ, 1989.

Rundus, D.J. "Personal Communication," University of South Florida, 1992.

Schermerhorn, J.R. Jr., Management for Productivity (Third Edition). John Wiley & Sons, New York, 1989.

Staw, B.M. "Intrinsic and Extrinsic Motivation," Readings in Managerial Psychology (Fourth Edition). The University of Chicago Press, Chicago, IL, 1976.

Stewart, T.A., "Brainpower," Fortune, June 3, 1991.

Taylor, F.W., The Principles of Scientific Management, W.W. Norton & Company, New York, NY (First published in 1911), 1967

Tuleja, T.F., "Beyond the Bottom Line: How Business Leaders are Turning Principles into Profits," Facts on File Publications, New York, 1985.

Anita Callahan, Ph.D., is currently an assistant professor in the Industrial and Management Systems Engineering Department at the University of South Florida. She currently serves as an officer in her professional society and is a registered P.E. in South Carolina. John Callahan is currently pursuing a Ph.D. in finance at the University of Central Florida. His past experience includes positions as an electrical engineer and product marketing manager. Sandra Kischuk has served as senior information specialist for the University of South Florida College of Engineering for the past three years. She co-authored The Enigma of Engineering Ethics: A Historical Perspective.
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Author:Callahan, Anita L.; Callahan, John J.; Kischuck, Sandra J.
Publication:Industrial Management
Date:May 1, 1993
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