The Perils of Joint IP Ownership

Intellectual property gives its owner certain exclusive rights and can be a significant part of a company’s assets. IP can be sold, licensed to third parties, enforced in court against an infringer, and even used as collateral to secure a loan. All of these rights can add value to the company. While it is legal for IP to be jointly owned by more than one entity, and this sometimes seems to be an easy and inexpensive solution to a collaboration, joint ownership of IP can create significant problems and should be avoided whenever possible.

A joint IP ownership scenario can arise by agreement or by inattention to ownership issues. For example, a patent can issue naming multiple inventors and, in the absence of an employment or other agreement addressing ownership, each named inventor is by default a joint owner of the entire patent. A group of computer programmers may sit down to make a new app and end up as co-authors who jointly own the copyright to the combined software. Two companies collaborating on a new project might agree to share costs equally and decide to split ownership the trademark and other IP rights that flow from the joint effort as a matter of fairness.

A patent gives its owner the exclusive right to exclude others from practicing the claimed invention. When a patent is jointly owned, this exclusivity is undermined.

• Each joint owner can independently sell, license, or otherwise exploit the patent without the approval of the other and without having to account to each other for their revenues. Without the cooperation of all owners, none can grant an exclusive license to a third party and so this valuable right is compromised. Even non-exclusive licenses can be impacted as prospective licensees might play one owner off the other to get the best deal.
• A jointly owned patent cannot be enforced unless all of the owners join in the lawsuit. If a co-owner refuses to participate, the lawsuit cannot proceed. The co-owner could even license the patent to an accused infringer instead of joining in the suit. This could be an even worse outcome for the party seeking to enforce the patent.
• Even before issuance, joint ownership can be problematic when the co-owners do not agree on prosecution strategy or who will pay the patent office and attorney fees.

A copyright gives its owner the right to prevent others from copying a protected work. Copyright ownership depends initially on the circumstances of the works’ creation. An employer owns the copyright where the work is created by employees in the course of their job. When a work is created by a contractor as a “work for hire” (and the work is one of the eight specific categories), the rights vest in the hiring party. When a special ownership rule does not apply and there is no other agreement in place, the work is owned by its author.

• If two or more authors work together to create a work and their contributions cannot be meaningfully separated, each is a co-owner of the copyright. Each is free to use or license the copyright and create or authorized derivative works without the consent of other co-owners.
• As with patent, an exclusive license cannot be granted unless all owners join in. Since many publishers want exclusive rights, joint ownership can make it difficult to find distributors of the work.
• Each co-owner is obligated to make an accounting to the other owners and share any profits they make. Performing this analysis can be complicated, particularly when derivative works are involved. One owner could also license the work under terms that generate no profit to account for, such as where a co-author of software offers it under an open source license.
• Unlike patents, a co-owner of a copyright can enforce it against a third party without the other owners having to participate. However, there is still a risk of a co-other offering a license to the accused infringer.

The function of a trademark is to identify the particular source of goods or services. Joint trademark ownership is less common than joint patent or copyright ownership. When it occurs, it compromises the trademark’s fundamental source-identifying nature.

• A trademark owner is required by law to monitor and control the quality of the trademarked goods or services provided by it and its licensees. Joint owners who are each in the market might apply different standards. Even if both owners trust the other to maintain quality, one company may lose interest and slack off or be acquired by a third party that has very different ideas about quality.
• If the owners do not agree and coordinate on quality, a court could rule that the trademark has been abandoned. Alternatively, the court could award full ownership to one party depending on what each party has done with the mark. Inconsistent use of the trademark by the co-owners and differing quality standards may also result in a court ruling that the mark is generic, freeing it to be used by anyone.
• As with patents and trademarks, an exclusive license cannot be granted unless all owners agree and in an enforcement situation, one owner could decide to license activities the other owner views as infringement.

Many of the problems that can result from jointly owned IP can be resolved by agreements put in place at the start of a project. The agreements should clearly establish who will own the IP, how rights are allocated among the parties, and the various scenarios that may occur, such as enforcement, and licensing or sale of IP rights. Gottlieb Rackman & Reisman can help ensure that these issues are properly addressed before you run into trouble. When disputes arise later on, it is often because the project has been successful and there is a lot of money at stake. Fixing things at that point can be much more difficult and expensive.