Does your company really own its intellectual property? | submitted by Jeff Peterson

Often, a new company’s most valuable assets are its intangible ones – namely, its intellectual property. It is in leveraging this intellectual property, whether to gain market share, attract investment, etc., that a new venture can succeed or fail.

A critical error often made as a new business grows and adds new employees, and works more with collaborative partners and contractors, is that intellectual property the company believes it still owns can start to "drift" from the company, with ownership rights starting to vest with new employees, partners, and contractors.

Common assumptions include: "My company paid for the work, so it owns the IP rights," or "I have a non-disclosure agreement with my contractor, so my company owns the rights," or "anything my employee creates for me is owned by the company." All of these assumptions can be fatally incorrect and lead to a loss of ownership interest in intellectual property. What adds to this confusion is that different laws and rules apply for different forms of intellectual property.

Who owns what?

For instance, under copyright law, if an employee creates an original work of authorship within his or her duties and scope of employment, the ownership of the copyright automatically vests in the company.

However, if an independent contractor creates an original work of authorship for a company, such as a logo or software application, the copyright would automatically vest in the author of the work, namely, the independent contractor.

Thus, any independent contractors that do work for a company would own any copyrights that they would have created for the company, apart from any physical deliverable they may provide to the company, and absent a specific agreement that the work be assigned to the company or be a work "made for hire" (applicable only under limited circumstances).

With respect to patent rights, all patent rights are personal. The rights in a patent rest independently with the inventor of the patent, who must be named on the patent applications by law. Therefore, individual employees and independent contractors who create patentable material will own the patents outright absent a contractual agreement with the company to transfer such patent rights to the company in exchange for the company either employing them or paying them to create a deliverable on which the patent is based.

Any trade secrets a company has, if maintained by their employees as confidential, will be maintained by the company as trade secrets. However, any independent contractors who bring trade secrets to the company may still retain the trade secrets, unless they’re specifically transferred to the company.

Additionally, potential trade secret protection for the company can be lost if no reasonable means of protection are taken to keep such information secret when working with an independent contractor. A reasonable form of protection would be to use a confidential agreement with the independent contractor.

Relationship clarity

It is critical that a company manage its relationships with its employees and independent contractors to maintain and control ownership of its intellectual property. For instance, all employees whom the company hires should sign an agreement that any intellectual property they create in the course of their employment with the company be owned by the company.

The employee should also agree to sign any subsequent legal documents necessary to perfect such assignments to the company. Likewise, when a company works with an independent contractor, such as a Web designer, graphic designer, or software vendor, the company should make it explicitly clear by contract that they own any intellectual property rights embedded in the work being done for them, or at least secure from the independent contract a license to utilize such intellectual property rights without having to pay additional monies to the independent contractor down the road.

The bottom line is this: If your company is paying for the work, it should make sure that it owns the IP rights embedded in such work by using a formal written contract, either with the company’s employees or with any third-party contactors.

Attorney Jeff Peterson is a partner in the Intellectual Property Practice Group at Michael Best & Friedrich, LLP.

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