How Intellectual Property Ownership Is Determined

Why Protect Intellectual Property?

Written by Gregory L. Phillips, Founding Partner

Written by Gregory L. Phillips, Founding Partner

Written by Gregory L. Phillips, Founding Partner

The protection of intellectual property and the proper allocation of intellectual property ownership is the pivotal bedrock upon which our rules-based society and market economy rest. A thorough understanding of how to allocate intellectual property ownership is critical for entrepreneurs and business owners to grow their businesses upon developing new ideas and new creations.

Why Protect Intellectual Property?

Property rights are enshrined in the US constitution. This hallowed legal document was created with an eye towards guaranteeing the property rights of all Americans.

However, what about intellectual property rights?

Intellectual property is a type of  intangible asset . However, these so-called intangible assets are no less valuable than traditional assets such as land and physical property. In the modern economy, intellectual property is often much more valuable than conventional assets. Many great startups and businesses are built entirely upon intangibles and intellectual property. Intellectual property protection allows these companies and businesses to benefit from their work or their investments in their ideas and creations.

While notions of protecting tangible property have existed in some form since the beginning of recorded human history, protection of intellectual property, however, is a relatively recent invention. The legitimacy of intellectual property wasn’t recognized until the Paris Convention for the Protection of Industrial Property (1883) and the Berne Convention for the Protection of Literary and Artistic Works (1886). Nonetheless, today intellectual property has become critically important and worth protecting.

Why should we protect intellectual property (IP)?

• Human progress and advancement depend on our capacity to create and invent new works in the areas of technology and culture.

• Intellectual property protection incentivizes innovation by guaranteeing originators and creators the ability to benefit from their hard work.

• Legal protection encourages investments.

• Innovation spurs economic growth.

• New industries created through innovation of novel ideas and concepts, in turn, create jobs.

• A healthy, dynamic economy is essential for social and public wellbeing.

To protect creators, owners, and investors, it is important to determine ownership of intellectual property. Ownership allocation is especially necessary for establishing business relationships with clients, vendors, distributors, and other third-parties that are important for a business to succeed.

Default (Background) Intellectual Property Ownership

Even without an agreement or a contract in place, ownership of certain intellectual property rights can be determined by common law precedent.

Ownership of intellectual property can be owned by one entity, typically the creator, in the form of Sole Ownership.

One or more creators can also own ownership of intellectual property through Joint Ownership.

3 Types of Intellectual Property Law

1. Copyrights

What is a  copyright ?

• Copyright protects original works of authorship fixed in a tangible medium of expression.
• Copyright covers both published and unpublished works.
• Copyright does NOT protect inventions, discoveries, or ideas. Instead, copyright law protects the way they are expressed. A trademark protects the words, phrases, symbols, or designs that identify and distinguish the goods or services of one party from another.

Copyright Ownership

Generally speaking, the creator or originator of an idea, work, or novel invention is presumed to own the copyright to their creations. However, if the work was created as a part of a work-made-for-hire agreement, or in an employer-employee agreement, the copyright belongs to the employer. On the other hand, contractors (and not the party that employs them) retain ownership of the copyright of the works they create unless there's an agreement in place to assign the works to the employing party.

2. Patents

What is a  patent ?

• A patent is a grant of a property right to an inventor of a novel, non-obvious, and useful invention by a government body.
• A patent guarantees a creator the right to exclude others from making, using, offering for sale, selling or importing an idea, creation, design, or invention.
• A patent does NOT grant the right to make, use, offer for sale, sell or import an idea, creation, design, or invention.
• A patent provides, generally, 20 years of protection from the date of application.

Patent Ownership

Like a copyright, the creator or originator of an idea, work, or novel invention is presumed to own the patent to their creations. In the United States, an inventor or multiple inventors must apply for a patent. Ownership can then be assigned to a corporate entity afterward. Patent ownership can also be transferred to assignees and successors who then become proprietors of the patent. This makes patents a liquid property. Patents are often sold by inventors to third parties, who then become proprietors of the patent and can exclude others from exploiting such inventions.

3. Trade Secrets

What is a  trade secret ?

• A trade secret is confidential information not generally known to the public.
• Trade secrets are formulas, processes, methods, practices that confer a competitive advantage.
• Trade secrets consist of information which is not publicly known or readily ascertainable to outsiders.
• The holder of a trade secret must make reasonable efforts to maintain its secrecy.

Trade Secret Ownership

Similar to copyright and patent ownership, a trade secret is generally owned by the creator or creators, if they are employees, the trade secret is owned by the employer. Typically, trade secret arrangements are clarified through the use of non-disclosure agreements (NDAs), or confidentiality agreements.

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3 Common Allocations of Foreground Intellectual Property Rights

1. Follow The Common Laws

The easiest way to allocate foreground intellectual property is to merely allow common laws to take precedence which allows each party to own the intellectual property they create solely. Unfortunately, this does not account for joint ownership or improvements to existing intellectual property. This approach can also create greater uncertainty.

2. Paying Party Owns the Intellectual Property

This approach works well for simple “works made for hire” consulting agreements. The party that pays for the development, design, or creation of the work owns the rights regardless of who created it or whether or not it is the result of a joint effort. When it comes to ownership of improvements to the intellectual property, however, negotiations can become more complicated. Many companies will negotiate limited exclusivity with the paying party as a compromise. Negotiating exclusivity is difficult and can be fraught with contention.

3. Improvements to Background Intellectual Property Is Owned By That Party

Many companies deal with the problem of ownership of improvements to intellectual property by merely stating that improvements to background property are owned by that party, regardless of who developed the improvement or whether it was developed jointly.

Ownership vs. Licensing

Licensing is not a formal allocation of ownership. Instead, it is a transfer from one party to another of limited rights to use or exploit intellectual property. When intellectual property is licensed, the original owner (licensor) still retains ownership rights.