IP – the problem of joint ownership

For any new technology product, the associated intellectual property will often have been touched by many actors: founders; employees; contractors; educational institutions; government funding agencies; third party licensors of technology and IP rights; and customers, including those involved in beta testing and pre-launch activities. For each of these actors, there should be written agreements in place to cover moral rights, retention of rights to background technology, any restrictions on exploiting the IP, and the scope of the licenses that are granted. In addition, joint ownership creates special challenges.

What issues can arise when IP is jointly owned?

Most companies don’t develop all of their technology in-house. Technology and IP rights are usually acquired or licensed from third parties. Special care needs to be taken when a company engages another party specifically to develop technology. Who will own the rights in the resulting IP needs to be negotiated and documented.

In the majority of the cases, the company paying for the development will require that it owns the intellectual property rights to the development work. Alternatively, where the developer, in creating the new work, uses intellectual property that is key to its ongoing business (e.g., an integrated circuit design services company), the developer might insist that it retain ownership to the work (or at least the pre-existing IP used in the development of the work) and grant a license to use the work to the company paying for such development. In other cases, the parties might not be able to agree on who should own the product of such development work and decide that they shall jointly own the IP rights in the newly developed technology.

While agreeing to jointly own the newly developed technology might seem like a reasonable compromise, this arrangement is fraught with difficulties and undesirable outcomes. For example, a joint owner of a patent may assign its whole interest without the need to obtain the consent of the other joint owner. A joint owner, however, may not license the patent without the consent of all other joint owners. Depending on the particular situation, neither of these results may be desirable and the joint owners may be at the mercy of each other. Unless limited by agreement with the other joint owners, a joint owner may also license the patent without the consent of other joint owners and without accounting to the other joint owners. Depending on the particular situation, neither of these results may be desirable and the plans of joint owners to limit third parties from using the technology may be confounded by each of the other joint owners.

The issue of joint ownership becomes even more complicated when the same jointly owned asset is protected in multiple jurisdictions (i.e., a US patent and a Canadian patent have been issued for the same invention). Because different countries often have different default rules governing joint ownership, the joint owners may not be fully aware of the implications of joint ownership in a particular jurisdiction.

Joint ownership also raises complex issues when it comes to registering, applying for, maintaining, and enforcing jointly owned intellectual property rights. For example, what happens if one party wants to apply for a patent in a jurisdiction where the other joint owner does not see the value of obtaining patent protection? Or, what if a joint owner wants to sue a third party (who happens to be the other joint owner’s best customer) for infringement, but the rules of the jurisdiction where the action is to be brought require all joint owners to join as parties to the infringement claim?

If the joint owners are aware of all of the implications of joint ownership, they can negotiate an agreement that specifies the rights and obligations of each joint owner. This can be major undertaking, and for a startup it is often better to simply avoid joint ownership.

Questions? Email us at startups@dentons.com.