It’s mine . . . NO, IT’S MINE!
Sound like a scene from the kindergarten sandbox? It could be, but this is about a struggle between your company and another individual or entity (such as university or company) over patent rights. Not something you want, particularly when you are out looking for funding.
It may seem impossible at first. How can it be that a company files a patent application it doesn’t own it? But with start-ups being founded from research developed at universities, employees moving between companies, licensing deals for technology and the use of contract organizations, intellectual property (IP) ownership can become a mess of tangled spaghetti.
When you go to file a patent application, how can you be sure that the invention described and claimed in the application belongs to the company? Here are a number of things to consider:
(1) Who is/are the inventor(s);
(2) Are the inventors current employees of the company?
(3) Are there any inventors who work for another institution or company?
(4) Does the company have agreements in place with each inventor assigning ownership of the invention to the company?
(5) Has the company used materials, technology or information from a 3rd party that brings along requirements for the company to share or assign ownership to another entity?
In the US, if there are no agreements in place, the invention belongs to the inventors. This is the default state. So, start there – who is/are the inventors?
In patent-speak, inventorship is determined by which individual(s) contributed to “conception,” defined as the formation of a definite and permanent idea of the complete and operable invention. In a practical sense, inventorship starts with what is claimed (not what is described) in the patent. An individual need only be an inventor to one claim (even if there are many claims in the patent), to be an inventor on the patent. There is no difference for an inventor that contributed one claim versus another that contributed the other 19; both are listed as inventors on the face of the patent and absent other agreements, both would co-own the patent.
Also, while the legal definition of conception of the invention includes the words “complete and operable,” this does not mean that everyone who physically worked on the research will be an inventor. For example, an individual solely carrying out experiments at the direction of another is not an inventor. Inventorship can be a pure mental exercise, in some cases involving no experimentation at all. On the flip side, conception must include every feature of what is claimed. Just coming up with a research goal or plan is not an invention. In some circumstances, the person with the original broad idea, without more, will not be an inventor.
Because the claims in a patent application may not be the same as when the patent eventually issues, inventorship may remain in flux until the patent is granted. It is the final granted claims that will determine the ownership of the issued patent. In some cases, amendment or cancelation of claims from a pending patent application may require removal of originally listed team members and/or addition of new individuals. Inventorship is typically determined by the attorney drafting and prosecuting the patent application. The US Patent and Trademark Office (USPTO) does not make a determination of inventorship during the application examination process.
Ownership and Assignments
Starting from the default state, where the patent or application is jointly owned by the inventors. These individuals can then assign the invention (and corresponding patents and patent applications) to the company and in this way, the company has ownership of the intellectual property. The assignment does not change the inventorship. The individuals will be listed as inventors on the patent application and the issued patent. The company will be listed as the assignee (the owner). Patent assignments must be written and they should be recorded with the USPTO and other patent offices when patent applications are filed outside the US. The company may then transfer ownership by subsequent assignment, such as when the company merges with another company or sells its intellectual property to another entity.
It is often the case in the US that pre-existing employment agreements may determine ownership. For example, many employment agreements include terms requiring the employees to assign their inventions to the company, with terminology that the employee shall assign and hereby does assign inventions made during employment. As a starting company, it is good practice to have such agreements from the start of the company. If not, as individuals turn over and go elsewhere, they may retain ownership rights in the IP, complicating the company’s position and frustrating potential investors. Even with employment agreements in place, it is good practice to have written documentation of assignments for individual patent applications that can be filed and are suitable for public disclosure (the USPTO makes the assignment documents publicly available on its website).
Prior and concurrent employment
Keep in mind that if you, your co-founders or other team members are employed by another company or university while also working on your start-up, the employment agreement with the other employer could interfere with your company’s ownership of the R&D endeavors. The relevance of this employment may depend on existing employment agreements, as well as negotiations between your current endeavor and employer. Even if the prior employment has terminated, be aware that certain information acquired from the employer may be confidential and trade secret. As such, absent an agreement to use the information before it becomes publicly known, incorporation of this work into new endeavors of the company can create issues of trade secret misappropriation and questions of ownership.
Even if trade secrets are not at issue, in some cases off-shoots of R&D done in a prior setting (like a university) may still fall under ownership, in whole or in part, of the prior institution. Some patent assignment documents include terms that additional patent filings will be subject to the original assignment. For example, it may state that all divisional, continuation and continuation-in-part applications filed subsequently from this application are assigned to the holder of the original patent. Depending on the scope of the original filing, these additional assignments can leave ownership residing with (or shared with) the earlier employer, even if additional work is done at a later time.
Licensing terms affecting ownership
In some circumstances, a company may license technology from another party, for example, a university. Then the company expands on the R&D and files a patent application. Who owns the application? This may depend on an inventorship determination according to what is claimed in the application. But the ownership, apart from inventorship, also may be driven by the terms of the license.
For example, a license may state that the technology and all improvements to the licensed technology are owned in whole or in part by the university. The university may retain full ownership and then grant an exclusive license to the company for use of the technology. In some cases, the license may dictate which party can file patent applications and who controls the patent prosecution (and thus drives the direction and scope of what will eventually issue as a patent).
Other types of licenses and agreements can also impinge on ownership. For instance, a company may choose to outsource aspects of its R&D or manufacturing with a contract research organization (CRO) or a contract manufacturing organization (CMO). What if a CRO or CMO makes improvements on the company’s technology, such as an improvement to a discovery screening target or an improved purification method for manufacturing the product, and then files a patent application? If an agreement is in place as to who owns the IP and improvements thereon, the agreement will control, rather than inventorship. It is good practice to consider IP ownership (as well as the scope of IP use generally) when initially setting up agreements with a CRO or CMO. Proactive consideration of IP issues will help avoid conflicts going forward.
In sum, here are some tips* for going forward:
- For each patent application, identify the potential inventors
- Have written assignments in place between the inventors and the company for each patent application/patent
- Review existing agreements with CROs and CMOs for IP development and ownership terms
- Review 3rd party licenses for requirements that may obligate the company to share or assign ownership to another entity
* These tips are not legal advice and should not be construed to be legal advice. Issues of inventorship and ownership are circumstance and fact-specific. You should consult an attorney in your jurisdiction for guidance on your particular situation.
Stay tuned for Part 2: The Good, the Bad and the Sometimes Confusing Ramifications of Joint Ownership