Does Your Company Really Own Their Own Intellectual Property?

By: Jeffrey D. Peterson

Oftentimes, a new company’s most valuable assets are their intangible ones, namely, their intellectual property. It is in leveraging this intellectual property, whether to gain market share, attract investment, etc., that often times can make or break a new venture. An often critical error made as a new business grows and adds new employees and works more with collaborative partners and contractors, is that the intellectual property which the company often believes it still owns can get actual start to “drift” from the company with ownership rights starting to vest with such new employees, partners and contractors.

Common assumptions that new business often have is that “My company paid for the work and so it owns the IP rights” or “I have an NDA with my contractor and 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 can lead to a loss of ownership interest in intellectual property that is created for the company. What adds to this confusion is that different laws and rules apply for different forms of intellectual property.

For instance, under copyright law, if an employee creates an original work of authorship within their 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, software application, etc. the copyright would automatically vest in the author of the work, namely, the independent contractor. Thus any independent contractor that does work for a company would own any copyrights that they would created for the company, apart from any physical deliverable they may provide to the company, 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 which 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 a trade secret. However, any independent contractors that the company works with which bring trade secrets to the company may potentially still belong to the independent contractor unless 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. Such a reasonable form of protection would be to use a confidential agreement with the independent contractor,

It is critical that a company manage its relationships with its employees and independent contractors such to maintain and control ownership of its intellectual property. For instance, all employees that the company hires should sign an agreement that any intellectual property that they create in the course of their employment with the company, is owned by the company. The employee should also agree 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, software vendor, etc., the company should make it explicitly clear by contract that they either 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, 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.

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