For most companies — especially small businesses, startups, and partnerships — intellectual property (IP) is either the crown jewel of the business or a key asset. For in-house counsel, this means that extra care is needed when preparing any contract that touches on IP ownership. While it seems scary, the basic concepts of IP ownership are relatively straightforward and there is much in-house counsel can do without always resorting to the use of outside counsel — if that’s even an option. There are, however, certainly times when experienced IP counsel is helpful and necessary. With Practical Law, however, you can learn the basics of IP and IP ownership and have access to a huge library of contract templates, clauses, checklists, practice notes, drafting notes, and toolkits. And, all for far less than the cost of outsourcing all of your intellectual property contracts issues to outside counsel.
When preparing or reviewing a contract involving IP ownership, the parties are generally trying to set out the key issues — namely, “who owns what” (ownership) and “how can the IP be used” (license). More about these concepts is laid out below, but without a contract in place stating otherwise, here are the general rules for IP ownership.
Copyrights, or original works of art, are owned by the author who created the work; if multiple authors are involved, they are joint owners with an indivisible interest in the work. Patents — also known as inventions — are owned by the inventor. Trademarks are the marks used in commerce and are owned by the person or business using them to identify their goods or services. Trade secrets, also known as confidential information, are owned by the creator — mostly businesses through their employees. With trade secrets, care must be taken to keep them confidential or they lose their status as trade secrets.
Of course, it’s pretty rare that a lawyer will rely on things just working themselves out based on the common law. Instead and rightfully so, they want to lay out IP ownership in a written agreement that spells out the rights and obligations of each party. This is where the hundreds of IP contract templates in Practical Law can really cut your time, effort, and cost way down. To start, you need to get familiar with the three types of intellectual property agreements: the creation of IP, the licensing of IP, and the purchase/assignment of IP.
You can create intellectual property in a number of ways. For the purposes of most businesses, IP is created by its employees or by third parties, such as contractors hired to create IP based on specifications and direction provided by the business. While businesses own IP created by their employees — if it is part of their job to create such IP — it is not wise to leave ownership to chance.
The typical solution is an invention assignment agreement signed by the employee when they first join the company. Such an agreement covers a range of IP ownership issues, from confidentiality of company trade secrets to the assignment of any intellectual property created on the job or using company resources to the company. These agreements also require employees to disclose any inventions they claim to have invented prior to joining the company so there is no dispute down the road.
When it comes to contractors, their agreements usually contain a “work-for-hire” provision which states that any work product they turn out for the company under the contract belongs to the company. The only exceptions involve IP the contractor brings to the relationship. It continues to belong to the contractor but, if necessary, the contractor provides a license for the company to use that IP to make the work product function properly. These agreements also contain confidentiality and non-disclosure provisions to ensure that neither party reveals the confidential information of the other party.
Lastly, companies sometimes partner and enter into a joint development agreement to create IP that neither party could easily create on their own. Each party contributes something to the development and then the ownership and use rights are spelled out in the terms of the agreement.
IP ownership also comes up in the context of licensing the IP. Many companies’ entire business comprises licensing software or other IP they have developed. To do this successfully, they must enter into software/IP licensing agreements with customers. These agreements set out, among other things:
While software agreements are the obvious IP licensing contracts, intellectual property licensing arises in franchise agreements; entertainment such as movies, music, and art; NFT; and many other contexts. That is, any type of IP is subject to a licensing agreement.
Lastly, IP ownership can be purchased or assigned — that is, the inventor or owner of the IP can transfer it to a new owner. Note that the assignment of IP is different than licensing IP. Under an assignment, ownership and all rights are transferred. With a license, there is no transfer of ownership and only limited rights to use the IP are given.
Some common situations involving buying IP include mergers and acquisitions of the company that owns the IP or just a straightforward purchase of the IP asset alone. For example, owners can sell copyrights and trademarks, including web addresses — many so-called patent trolls buy patents out of the bankruptcy estate of a failed business. Here are three things to keep in mind when buying IP:
Assignment of IP typically takes place when a party is contributing their IP to a joint venture or partnership, or when the founder of a technology business transfers their invention to the new business, which is generally a requirement to attract new investors. Intellectual property may be transferred to satisfy debts or a judgment, or when a subsidiary or division is “spun out” of a parent company and provided with certain IP assets to start their separate business. When assigning IP, consider these three key points in addition to those above:
Given the importance of IP to businesses — especially small business and partnerships — in-house counsel should be well versed in the contracts that govern its ownership, assignment, and licensing. It may seem daunting at first, but it is a skill you can hone relatively quickly, especially with a resource like Practical Law to back you up.
Sterling Miller, HILGERS GRABEN PLLC
Sterling Miller is a three-time general counsel who spent almost 25 years in house. He has published five books and writes the award-winning legal blog, Ten Things You Need to Know as In-House Counsel. Sterling is a frequent contributor to Thomson Reuters as well as a sought-after speaker. He regularly consults with legal departments and coaches in-house lawyers. Sterling received his J.D. from Washington University in St. Louis.