Three Critical Issues in Intellectual Property Contract Terms

Ownership of intellectual property is a critical issue in many contract negotiations. Learn the basics about what entrepreneurs should know in this post.

Intellectual property is often the most valuable asset of many companies, especially startups. That’s why it is important to clearly address ownership of intellectual property in your contracts with third parties.

In this post we pose a hypothetical in which NewCo, LLC is hired by BigCorp, Inc. to invent a new toaster, a trademark, and marketing materials to promote it.

Who Owns What?

  • The Patent: Without an agreement in writing assigning the patent to BigCorp, NewCo will likely be the owner of the patent to the new toaster. That’s because the inventor will normally obtain the patent rights unless the inventor is an employee and was hired to invent things. If BigCorp wants to own the patent, they should use a written agreement with NewCo that assigns ownership to BigCorp.
  • The Trademark: Even if NewCo creates the trademark for the toaster product line, BigCorp will likely be the owner (after it starts using the mark) because trademark rights stem from use of a mark in commerce to sell a particular good or service, not from creation of a mark.
  • The Copyrights: Without an agreement in writing, NewCo will likely be the owner of the copyright to the marketing materials. That’s because, like patent law, copyright ownership vests in the creator of original works, not necessarily the party paying for it (also like patent law, if the creator is an employee and the creation is within their scope of employment, the employer might own it). If BigCorp wants to own the copyright, they should use a written agreement with newCo that (a) identifies the creations as “works made for hire” and (b) assigns the copyright to BigCo, regardless if the creations are “works made for hire.”

(Need a recap on the differences between patents, trademarks, and copyrights? Read this post: Intellectual Property 101.)

Negotiation Tips

BigCorp basically has two options here:

  • If it has more power, it can simply demand NewCo sign an assignment before they start working. (This is the standard for written contracts – the party that pays will own the IP.)
  • If that doesn’t apply for some reason, then BigCorp should negotiate for a perpetual, worldwide, royalty-free, license to use the IP.

NewCo also has several negotiating options.

  • If BigCorp will be the owner of the IP, NewCo should require a provision that says the assignment is effective only after BigCorp pays for the services.
  • If NewCo wants to retain some of the IP, it might negotiate a clause that (a) assigns the IP specifically created for BigCorp to BigCrop; and (b) states that intellectual property NewCo creates for internal use and/or for multiple clients will be retained by NewCo (along with a license to BigCorp to use that IP as contemplated above).
  • If BigCorp will be the owner of the IP, NewCo might request rights to use the IP in its marketing materials (for example, in its portfolio or on its website).

Intellectual Property Law is Not Intuitive

IP is complicated, even for many lawyers. That’s why you should always work with an intellectual property attorney that can give you guidance on these issues. If you are in or around Kansas City, feel free to contact us to discuss your IP needs.

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Image: Chris Brown
*This article is very general in nature and does not constitute legal advice.

By | 2017-03-25T13:07:00+00:00 March 25th, 2017|Contracts, Freelancers, Intellectual Property, Small Business, Startups|