This article is part of the “What Should I Do (WSID)?” series where I discuss various scenarios involving intellectual property and business. Topic suggestions are always welcome.
“I’ve been asked to prove ownership of my IP. What should I do?”
Maybe you’re in due diligence with a potential investor or acquirer. Or you’re looking to partner with another entity on a project. Maybe you’re getting a formal valuation of your company in order to apply for a loan. The need to establish ownership of intellectual property can come up in a variety of contexts.
Ownership of IP is an issue that I have seen sink more companies than any other single factor. Sure, I’ve seen companies flounder because of poor management decisions, running out of cash, unexpected technical difficulties in product development, etc. However, as a single problem issue that has killed investment deals, partnership agreements, and even patent litigation cases, I think proof of ownership (or lack thereof) takes the cake.
Don’t let IP ownership become the dead end of your business growth. If there are any issues, your IP counsel may be able to help you to remedy the issues. You certainly don’t want to wait until you are in the middle of investor due diligence to find out you may have an IP ownership problem.
Here’s what I think are the Top 8 items to consider of the many issues that may arise when you are determining whether you’ve got clean ownership of your intellectual property.
- Employment agreements
If you have employees innovating for you, you should have an employment agreement in place with each of them, explicitly assigning their innovations to the company. Be sure to have a good business attorney draft the agreement language, as there is extensive case law regarding the enforceability of certain clauses (e.g., there’s a huge difference between the phrase “agrees to assign” and “hereby assigns”—see this Finnegan article and this Mintz Levin article, for example). Of course, there are always special cases where circumstances outside of the employment agreement may come into play, although that’s probably a whole post unto itself at a later time.
A special note if you are a founder of a startup. Make sure you also address ownership and division of IP in your founder’s agreement, especially if you have co-founders. There are many examples of founder disputes over IP (this Mark Suster post gives a list of common startup mistakes—I’m a big fan of Mark’s posts at his Both Sides of the Table blog).
- USPTO assignment documents
If you do make filings with the USPTO (patent and/or trademark applications), then be sure to file an assignment document as well. In the US, without an explicit agreement stating otherwise, the ownership of the invention and patent application belong to the inventor(s). If an agreement, such as an employment agreement, assigns the rights to the invention to another entity, then it’s best practice to record an assignment document with the USPTO. While there have been recent cases where outside factors trumped the USPTO-recorded assignment document, it’s always good legal hygiene to file assignments with the USPTO.
Note also that copyrights can be transferred in a similar way.
- License/technology transfer agreements
If your technology is based on licensed technology from another entity, then pay particular attention to the intellectual property clause in your license or technology transfer agreement. It makes a huge difference whether your license is exclusive or non-exclusive. There may also be language in the agreement related to derivative works or innovations that are improvements or modifications of the licensed technology. There may be clauses in the license/tech transfer agreement that give rights to the improved technology to the licensor, for instance. Be sure to have any license or tech transfer agreement reviewed by someone knowledgeable about typical agreement language.
- Research agreements
If your technology arose during a research project done for another entity, be careful about the IP rights language used in the research agreement. I’ve seen cases where the contracting company is so concerned about the technical language in the Statement of Work or Scope of Work, and neglects to notice they’ve signed away rights to any IP arising from the research project.
As an example, license and R&D agreements with government entities often include language about “Government Rights,” and research agreements with universities may include clauses referring to the university having rights to non-commercial research use of any technology arising from the research project. While such Government Rights (often referred to as “march-in rights”) are rarely exercised, and a non-commercial research license may not be of concern to your company right now, be aware of what these clauses could mean if some adverse situation arises at a later time.
- Joint development agreements
If you have participated in a joint development project with a third party, be particularly careful how IP rights are defined in any Joint Development Agreement (JDA) you may have signed. There are usually four buckets of IP that get developed within joint development situations:
1. Existing IP previously developed by either party before the start of the joint development project (“Existing IP”);
2. IP developed individually by either party during the course off the joint development project (“Project IP”);
3. IP developed jointly with contributions with both parties during the joint development project (“Joint Project IP”); and
4. IP developed individually by either party based on Project IP after the conclusion of the joint development project (sometimes called “Derivative IP”).
The JDA may define rights of the parties regarding each of the above four situations, such as IP ownership, prosecution rights, sublicense rights, and enforcement rights. Depending on how these rights have been defined in the JDA, your ownership claim to IP arising from or derived from the project may be more cloudy than you think.
- Contractor/consulting agreements
If you have worked with a contractor or consultant to create technology for you, the contractor or consulting agreement would come under scrutiny. As I’d previously mentioned, the default owner of an invention in the US is the inventor; if your contractor or consultant invented on your behalf and you’d like to own the rights to the invention, then be sure to have your contractor or consulting agreement reflect that.
- Purchase order terms of sale
This one is similar to the contractor/consulting agreement in that you have purchased a part or a service from a third party that you have integrated into your product technology. Again, make sure there’s no sneaky language in the purchase terms that may give access to your technology to the third party.
- Asset transfer agreements
A part or all of your technology assets may have come from the purchase of a third party asset portfolio, such as in an acquisition scenario. In this case, do your own due diligence (or hire someone who knows how to do it) to ensure that you are actually getting ownership of all of the assets. All of the above seven items should be examined, and make sure there is an established chain of ownership, especially if the assets have changed hands more than once. There are many horror stories of companies assuming they had the rights to a certain technology acquired through an asset transfer, until a break in the chain of ownership is discovered.
The main thing to remember is that it’s MUCH easier to deal with each agreement and properly document it at the time of the agreement than to try to remedy situations later. I’ve heard attorney horror stories about clients who had no founders or employment agreements and had to rush to create those foundational documents from scratch at the same time that they were going through deep dive due diligence for a funding event. What’s the saying about a stitch in time saving nine? That exactly applies here.
I wish you a safe and hygienic entrepreneurial journey.
About the Author and Disclaimer: Yoriko Morita has worked with innovators in a variety of contexts, in a law firm working for inventors, as in-house IP director, and as a licensing professional. She currently helps clients with such IP-related questions, as well as developing integrated business/technology/patent strategies, through her company, Patents Integrated. The contents of this article are intended to be informational only, not legal advice. The reading of this article does not establish an agent-client privilege between you and Patents Integrated, and Patents Integrated is not responsible for any damages arising from your use of the information in this article under any circumstance. Your use of the information in this article is at your own risk, and you should seek the advice of a licensed legal professional regarding your own specific situation.