Who Owns that Jointly Developed IP?
Technology has enabled large scale global R&D collaboration among companies.
Tools designed to support physically disbursed working groups and the availability of cloud based processor-heavy tasks such as CAD (Computer-Aided Design) have made it easier than ever for companies to join forces to develop new products, technology, and intellectual property.
Joint development projects are nothing new. For years, companies with synergistic expertise have worked together to develop new and better solutions. For example, hardware and software developers often collaborate on projects designed to embed high level software on chips. These projects are often not as simple as just taking existing software and porting it to a language optimized for running on a chip. As a result of technical difficulties experienced along the way, "work-arounds" are often developed, resulting in the creation of new solutions and intellectual property.
However, as joint development projects become more common and the legalities become more complex, business executives and attorneys must carefully negotiate and draft contracts involving jointly developed intellectual property (IP).
Jointly Developed IP
When discussing joint development, the difference between “background IP” and “foreground IP” must be distinguished. “Background IP” is IP that a company has before entering a deal. “Foreground IP” is new IP that is developed during the course of a project. Foreground IP can either be developed by one party or jointly developed. Foreground IP that is developed by one party is generally owned by that party. Legal issues can arise when Foreground IP is developed jointly by the parties.
US patent law makes it easy to record jointly developed IP in the form of a patent:
Inventors may apply for a patent jointly even though (1) they did not physically work together or at the same time, (2) each did not make the same type or amount of contribution, or (3) each did not make a contribution to the subject matter of every claim of the patent.
Sharing is Good, or is it?
Jointly developed IP can be afforded patent and other IP protection. The questions that often arise are who owns the jointly developed IP and how will it be treated?
Many joint development agreements stipulate that newly developed IP from the joint development will be owned jointly.
Sounds fair, and simple. But there are problems with this approach, and executives and attorneys are cautioned against taking an overly simplistic approach to determining joint ownership of jointly developed IP.
In the absence of a clear determination as to who owns jointly developed IP, both parties may be required to agree as to what will be done with it. How will it be used, how will it be licensed? How can it be sold? Further questions that arise:
- What if jointly developed IP is useful to the Background IP of a collaborator, but this use is not specifically addressed in the parties' agreement? If the jointly developed IP is also jointly owned, can one party use the IP in connection with its business outside of the collaboration? Does it have to pay a license fee to its partner? Can and should the partners compete in the use of this newly created IP?
- In considering the foregoing questions, should it make a difference which party developed the IP (i.e., employees of the company receiving the benefit, or employees of the other company)?
- To the extent the jointly developed IP is of greater benefit to one party, who will decide how to protect the IP (patent, trade secret, etc.) and who will pay for such protection?
Potential Contractual Solutions
There are many different ways to address these issues. The three basic approaches:
- A ‘sharing’ approach, where both parties own all of the jointly developed IP, and the terms for using that IP are spelled out in detail.
- ‘Splitting’ the jointly developed IP so that a portion is owned by each party. For example, “anything invented by people working for ‘company x’ is owned by ‘company x’ and anything invented by people working for ‘company y’ is owned by ‘company y’." Another approach would be to define ownership based on the IP's field of use, with each partner owning the rights to the IP applicable to its field of use.
- Determining that one party owns the jointly developed IP but is required to license it to the other partner on a worldwide basis for no consideration.
From a legal perspective, the third approach is the easiest to implement. If one company owns the IP and licenses it to the other party, there are far fewer issues to fight over.
In the ‘sharing’ approach, it is difficult to anticipate all possible uses of the IP, especially when the jointly developed IP can benefit a party in areas not considered at the time the agreement was drafted. For example, if an agreement remains silent on a term, it will be difficult to negotiate that term later on.
‘Splitting’ the IP is also challenging because there is often ambiguity. When development is done collaboratively, vis-à-vis brainstorming sessions or joint workshops, it may not be possible to claim that “this IP was developed just by this engineer.” Defining field of use, can also lead to ambiguity, for instance, if a company’s business changes and it wants to use the IP in a different field of use.
Combining the above approaches is also a possibility and is often the best approach. If there is a clear distinction as to the Background IP owned by each party, defining ownership of new developments based on whether they are more closely related to and improve upon one party’s Background IP as opposed to the other’s will allow the appropriate party to benefit. Likewise, by providing a worldwide, non-exclusive license of an invention to the non-owning party for no consideration, the non-owning party will also benefit. Ensuring mutual benefit from a joint collaboration is a win-win situation, and a great way to guarantee that joint development will continue.
