Does your business depend on valuable intellectual property such as written documents, processes, drawings, images, designs, formulas, or software source code? Are you sure that your business is the actual owner of its intellectual property? It’s a question that I often bring up with clients and it is surprising how often clients don’t have a good answer.
In many cases for a business, its intellectual property is one of its most important assets. However, in many instances, a business may overlook the necessary steps in order to ensure ownership of its intellectual property. Failure of a business to take the proper steps in protecting its intellectual property can be a costly mistake because under basic intellectual property law, creators and inventors generally own the rights to copyrightable or patentable creations. Therefore, if a business is not careful, it may not actually own the rights to some of its most valuable intellectual property.
In this blog article, I will discuss the steps that a business can take in order to ensure that it owns the rights to the copyrightable and/or patentable intellectual property it develops. Please note that this blog article is not intended to provide an in-depth discussion regarding the types of intellectual property or the general legal steps required to protect that property and will focus solely on the relationship between the business and its workers (both employees and independent contractors) who develop intellectual property for the business.
Employee Developed Intellectual Property
Many businesses rely on their employees to create and generate copyrightable and/or patentable intellectual property used in the operation of that business. Whether this intellectual property automatically belongs to the business depends on whether it was created within the scope of the employee’s duties.
If an employee develops a copyrightable work such as a written document, drawing, or software source code for a business, the work may automatically belong to the employer. Under copyright law, “Work for Hire” provisions often protect the employer’s rights in copyrightable works developed by an employee. The work for hire provisions of the copyright law provide that when a copyrightable work is created by an employee within the scope of employment, the employer is deemed to be the author. This means that the business has the unrestricted right to use, modify, sell, or lease the developments and inventions of the employee.
The key issue regarding whether a development is considered a work for hire revolves around whether the work was created within the scope of the employee’s duties. For example, take an attorney who writes a book at the direction of his law firm entitled “How to Fire an Employee” while being paid a salary. Under copyright law, the copyright to the book most likely belongs to the law firm. However, if this attorney writes, on his own time, a bestselling book about his experiences assisting the law firm’s clients fire employees, it is less likely that the law firm would have any rights to this book.
Patentable inventions, such as a formula, design, or a device are governed by similar rules to copyrights. However, there are no statutory work for hire provisions under patent law. Under patent law, the inventor or creator of a patentable invention is deemed to be the owner of the patent rights unless those rights are assigned to the employer. However, courts often conclude that there is an implied consent to assignment of an employee’s patent rights to the employer when the invention was created in the course of employment.
For example, a company specializing in aerospace engineering directs one of its engineers to develop a new propulsion engine that will allow faster space travel. The employee designs this new propulsion engine on company time while using company facilities and funding. The engineer will most likely be deemed to have assigned her patent rights in the propulsion engine to the aerospace engineering company.
However, say that the engineer develops, on her own time, a new warp drive propulsion engine that allows space travel at speeds faster than the speed of light. The engineer in developing the warp drive uses ideas she discovered while working for the aerospace engineering company but does not use company resources while creating the new warp drive. It is less clear whether her patent rights in the warp drive propulsion engine will be deemed to have been assigned to the aerospace engineering company.
Based on the scenarios above, it is in the best interest of the business to avoid any confusion regarding ownership of its employee’s inventions. Therefore, it is important that all employees of a business sign agreements assigning to the business the employee’s rights to the works, developments, and inventions they create while working for the business. Often these assignment provisions are best included in employment agreements. These agreements should:
- Broadly set forth the duties of the employee;
- Clearly state that the employee’s employment with the business is considered a work for hire relationship;
- Provide that all rights in any inventions, developments, and works developed by the employee, whether made during or outside working hours or upon the premises of the business or elsewhere, are assigned to the business;
- Require the employee to assist the business in protecting the business’ intellectual property rights in any inventions, developments, or works developed by the employee; and
- Grant the business a continuous, assignable, royalty free license to use any inventions, developments, or works developed by the employee during the employee’s employment in the event that for some reason the rights to such inventions, developments, or works are not assignable to the business.
By having employees execute agreements with the provisions set forth above, a business can help ensure that it owns and has the continuing right to use its employee’s developments works, developments, and inventions which they create while working for the business.
In the case of third-party independent contractors, ownership is more complicated because contractors are not treated the same as employees, and independent contractors are considered the owners of developments and inventions unless otherwise covered in the contract between the business and the contractor.
Under copyright law, it is specifically required that the contract between the business and the independent contractor state that the work is considered a work for hire. Without an agreement, the copyright in any work created by an independent contractor will be owned by that independent contractor.
For example, if a business hires a web developer to design a new website for that business without a work for hire provision in the contract, the web developer will own the copyright in the website. As the copyright holder, the web developer would have the legal right to prevent the business or a third party from making changes to the website without the web developer’s permission.
Similar issues exist under patent law with regard to independent contractors. If the inventor is an independent contractor, unless otherwise agreed, the inventor will retain the patent rights in any invention it develops for a business and the business will be prohibited from filing a patent for the invention.
In order to ensure that the business owns the developments and inventions it has paid its third-party independent contractors to develop, the agreement between the parties specifically should:
- Clearly state that the engagement of the independent contractor is considered a work for hire relationship;
- Provide that all rights in any inventions, developments, and works developed by the independent contractor within the scope of the services to the business are assigned to the business;
- Require the independent contractor to assist the business in protecting the business’ intellectual property rights in any inventions, developments, or works developed by the independent contractor for the business; and
- Grant the business a continuous, assignable, royalty free license to use any inventions, developments, or works developed by the developed by the independent contractor within the scope of the services in the event that for some reason the rights to such inventions, developments, or works are not assignable to the business.
An attorney experienced with intellectual property matters will be able to help a business create agreements for both its employees and contractors and will be able to evaluate third-party independent contractor agreements in order to ensure that the business protects its intellectual property.
Attorney at Lodestone Legal Group