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Avoid jointly owned intellectual property like the plague
Donal O’Connell
March 2011
Not all the smart people work for you
Traditionally, internal innovation was the paradigm in which most companies
operated. Most innovating companies kept their discoveries highly secret and
made no attempt to assimilate information from outside their own research
and development laboratories. This was driven by the belief that "the smart
people in our field work for us". However, in recent years the world has seen
major advances in technology and society, changes which have facilitated the
diffusion of information. Companies have also come to realise that "not all
the smart people work for us, and that we need to work with smart people
inside and outside our company".
Various forms of collaborative innovation
Collaborative innovation can take many forms, including working with
Universities, cooperating closely with key suppliers and vendors, collaborating
with application developers, content providers, and technology and design
houses. This would also mean working with various communities including
'open’ communities, innovation networks and inter-operability standardisation
bodies, as well as customers and end-users. It can also involve working with
start-ups and Venture Capital funded entities. Collaborative innovation can
also vary in terms of the number of the actual parties involved, the nature of
the research or type of development work in question, the actual technology
classification, the funding model applied, timescales involved and the overall
scope of the collaboration and cooperation.
Different types of collaboration partners
Collaborating with an external innovator might be thought to mean an equal
partnership between two (or more) parties who are pursuing mutually
interesting and beneficial research or development type work.
Today,
however, many collaboration projects involve parties from very different types
of organisations and of very differing stature and funding status. External
innovators collaborate in many ways and innovators may find themselves
working together on a sponsored project.
They may make equal
contributions to the project or one may be leading the project whilst the
other is providing expertise on a smaller or more narrowly defined aspect of
the project. Interdisciplinary projects occur when innovators from different
disciplines are involved in a project in which, for example, they are looking at
a problem from different perspectives, or when a project involves a complex
set of questions that cross disciplines.
Sometimes innovators work
separately and yet collaborate on a project. This can occur in a variety of
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ways, but most frequently it is when they are working on different aspects of
the same project, but exchanging data between one another.
IP ownership
As a creator of a patent, you are considered to be an inventor, and therefore
have rights to be recognised as such. Intellectual property rights are the way
by which intellectual property can be protected and give legal recognition to
the ownership of intellectual property. A patent is an exclusive right granted
for an invention. A patent owner has the right to decide who may, or may
not, use the patented invention. The patent owner may give permission to
use the invention, or license other parties to use the invention on mutually
agreed terms. The owner may also sell the right to the invention to someone
else, who will then become the new owner of the patent.
Who owns the inventions and the resulting intellectual property rights created
when cooperating and collaborating with an external party is a key issue
which needs to be clearly defined for all parties concerned within the
intellectual property terms and conditions section of the cooperation
agreement. Ownership of the intellectual property which arises as a result of
the innovation is the most critical issue to resolve.
Intellectual property ownership in cooperation agreements
It is important that intellectual property ownership is agreed in a cooperation
agreement before any work takes place, although I accept that this is often
not possible. At the very least, intellectual property ownership should be
discussed and agreed before any money has been expended on the patenting
process. When a company pays for external innovative work to be conducted,
it will typically expect to own any resulting intellectual property. It may also
expect to manage the filing of any patent applications at the Patent Office
and to maintain any granted patents at its own expense. A company will
typically seek to own all inventions relevant to their business, but needs to
accept that the other party, especially if it is a University, can own the
intellectual property. In such a case, the company will then usually seek
exclusive access rights for a negotiable period. The rules of intellectual
property ownership can vary according to different national legislation, and it
is therefore important to take these into consideration.
Jointly owned intellectual property perceived as the 'fair' solution
With more and more companies and organisations entering into this type of
collaborative innovation joint venture, strategic alliance, or other form of
collaborative arrangement, joint ownership of IP rights has become quite
commonplace. The most common form of intellectual property allocation in
collaborative innovation projects is some form of joint ownership, because
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joint ownership is perceived to be a "fair" solution in situations involving
multiple parties.
Jointly-owned intellectual property may also be the “'easy” option, as it does
not require in-depth discussion about how the intellectual property should be
divided out, plus it does not seem to give any advantage to one party over
another. Unfortunately, joint ownership of intellectual property is fraught
with danger.
Avoid jointly owned intellectual property
It is advisable to avoid jointly owned intellectual property rights. Jointly
developed intellectual property rights may be defined as intellectual property
rights developed together by the two or more parties, where the list of
inventors includes employees from both parties and where the parties share
the cost and risk of the research and development work and its results.
Jointly owned intellectual property rights however may be defined as two or
more parties having shared ownership and control of the very same
intellectual property rights or patents. This may mean that a joint decision is
required by all parties for practically any or all disposal of the intellectual
property rights. It may mean that any exploitation rights must be handled
contractually for example, with written consent needed from one party for the
other party to enforce its rights, with perhaps some limitations specified for
the sub-licensing and/or licensing of rights and with an obligation to share
license revenues.
Challenges at each and every stage
Jointly owned intellectual property rights face challenges at each and every
stage of the patenting process and differing business needs create different
patent coverage needs. The drafting, filing and prosecution of a patent
therefore becomes complicated and more expensive, and the end result may
not be optimal for some or all of the parties involved. The licensing of jointly
owned patents dilutes the value for both owners if a license is available from
both owners. There is no effective means to grant a covenant not to sue or a
non-assert. The divestment of jointly owned intellectual property rights also
creates challenges. The value is diluted since it is only possible to transfer
the owner’s share, not the entire rights. Also warranties typically require full
ownership. When declaring essential patents for an interoperability standard,
both owners must declare and commit to the same rules to make the
declaration effective. If involved in patent litigation, most countries require
both owners as plaintiffs and without common interest to sue, the patent is
basically worthless. As far as business accounting is concerned, it may be a
tough challenge to put the correct financial valuation of jointly owner
intellectual property rights onto the company's balance sheet.
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US law regarding jointly owned intellectual property
There are differences in intellectual property law, or the interpretation of
intellectual property law, between jurisdictions. The "territorial" nature of
intellectual property refers to the fact that countries enact their own
intellectual property laws, typically by statute, and these intellectual property
laws have no application or force outside the country in which they are
enacted.
A patent can be owned jointly if devised jointly by more than one person. As
far as US patent law is concerned, the default rule is that each joint owner
can utilise or exploit the patent without the permission of the other joint
owners. Further, the exploiting joint owner has no responsibility to share
royalty revenues with any other joint owner. However, to enforce the patent,
all the joint owners must join in the law-suit. If one joint owner wishes to
sue rather than license a third party, any other joint owner can terminate the
law-suit by simply refusing to join in or by granting a license.
It is most important to realise that there are multiple regimes of intellectual
property protection. The situation with joint ownership becomes even more
complicated if multiple forms of IP are involved, each with differing default
rules. For example, contrary to the US patent rule joint owners of a US
copyright must share royalties. Almost all useful products are protected by
multiple forms of intellectual property such as patents, designs, trademarks
and copyright. Such complexity arises for example when a software product
that is covered by both patent and copyright is licensed by a joint owner.
Joint owners would need to determine which percentage of the software
product is exempt from royalty-sharing under US patent law and which
percentage is subject to royalty sharing under US copyright law.
Chinese law
The Chinese Patent Law was first promulgated in 1984 and has since been
amended twice, in 1992 and 2000. China passed the Third Amendment to
the PRC Patent Law in 2008, becoming effective in 2009. One of the
important changes in this amendment concerned joint ownership as the
existing law did not address the rights of joint owners of patents. The new
law now includes a provision that specifies the rights of joint owners of
patents. It provides that unless otherwise agreed upon by joint owners, a
joint owner is entitled to exploit the jointly owned patent alone or grant a
non-exclusive license to a third party to exploit such patent, and any fees
generated from such license must be shared among all joint owners. All
other types of exploitation of a jointly-owned patent must be agreed upon by
all joint owners. Therefore, under this new law, assigning or granting
exclusive license to a jointly owned patent must be agreed upon by all joint
owners of the said patent.
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UK law
In relation to UK patents, section 36 of the Patents Act 1977 addresses the
rights of co-owners. It states that, subject to an agreement to the contrary,
each co-owner has the right to exploit the patent itself but it must obtain the
other owner’s consent: (a) to amend or revoke the patent; (b) to grant a
licence under the patent; or (c) to assign or mortgage its share of the patent.
The issue of joint ownership of intellectual property is therefore even more
complicated when the same IP asset is protected in multiple jurisdictions
because different countries have different laws on this subject matter. In
addition, parties based in different countries, looking at joint ownership
according to their individual national laws, may have entirely different
expectations and/or experiences of what it means to be a joint owner.
Alternative approaches
There are a number of alternative and better approaches worth considering
instead of agreeing to jointly owned intellectual property. One party may
own all of the intellectual property generated as a result of the collaborative
innovation and license it to the other party. The portfolio of intellectual
property created may be divided out between the parties, based on the
vested interests of each party. If multiple parties are involved in the
collaborative innovation, and there is a large portfolio of intellectual property
in existence, then a “patent pool” type arrangement may be considered, with
an administrator appointed. Or the intellectual property portfolio may be
divvied up between the parties to distribute the costs and provide coverage
with cross licenses.
Final thoughts
Many business people and even experienced intellectual property Attorneys
and practitioners lack the in-depth appreciation of what joint ownership really
means in practice, but they accept it nonetheless because “it seems fair” or
"it has always been done that way." In reality, joint ownership of intellectual
property is fraught with danger and contrary to common perception, it is
often unfair and, even worse, is usually unworkable.
Personally, I would recommend to avoid jointly owned intellectual property
like the plague. If the parties do decide that joint ownership is the best
solution, then the most important thing to remember is that the agreement
between the parties should set out in detail the worldwide rights and
obligations of all of the parties involved in relation to the jointly owned
intellectual property. Joint ownership should never been seen as the “easy
option”.
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