With any form of intellectual property a fundamental question, often overlooked, is “Who owns the rights?”
United States patents are issued only to natural persons: the rights are initially owned by the inventor or inventors. If the natural person is an employee, the employer may have rights to the patent, either by statute or by agreement. In that case the inventor/employee may be required to assign the patent to the employer. In other cases, the inventor can assign or license some or all of the patent rights to a corporation, partnership or other entity.
With a work protected by copyright, the copyright is generally owned by the author of the work, who is entitled to apply for registration of the copyright. However, if the work was created by an employee in the course and scope of his or her employment, the employer is likely to own the copyright under the “work for hire” doctrine. In that case the employer may be able to apply to register the copyright under the employer’s name.
A common mistake under copyright law—and a critical one—is for a work created by an independent contractor (for example, the design of a web site) to be considered to be a “work for hire.” It is not. The independent contractor who created the work owns the copyright. In order for the entity for which the work was created to own the copyright, it would have to be assigned (in writing) by the independent contractor to the entity.
In the United States a trademark is initially owned by the person or entity which created it and was first to use the trademark on or in connection with goods or services. If the trademark was created by an employee in the course and scope of his or her employment, the employer may have rights to the trademark either by statute or agreement. Under the first-to-file rule used in most other countries, the person or entity who first filed the application owns the rights.
Issues involving the ownership of intellectual property are of particular concern when the entity is to be newly formed. As it commonly occurs, one or more of the entity’s organizers created the patentable invention, trademark or copyright before formation. Options include having the owner of the intellectual property transfer it to the entity (for example as a capital contribution in exchange for stock), or having the owner license the intellectual property to the entity either on a royalty or royalty-free basis. In some cases, the organizers may not agree on who created the intellectual property—an issue that should be resolved at an early stage before the entity is formed.
We assist clients in the selection and formation of an entity suited to their needs, whether a partnership, corporation or limited liability company. Where necessary, we work with qualified corporate attorneys in preparing the formation documents, including private placement memoranda and related state and Securities and Exchange Commission filings. We also assist clients in the preparation of intellectual property licenses, assignments and other documents relating to the transfer and sale of intellectual property rights.