Does your business depend on valuable intellectual property such as written documents, processes, drawings, designs, formulas, and software source code? Are you sure that your business is the actual owner of its intellectual property?
The reason for a business to be concerned about the ownership of its intellectual property is that 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 the intellectual property that it uses.
This blog article is not intended to provide an in-depth discussion regarding the types of intellectual property or the general steps required to protect that property. However, this article will discuss steps that a business can take to ensure that it owns the rights to the copyrightable and/or patentable intellectual property it develops.
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 business. 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 employee’s development.
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, an attorney 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 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 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. 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.
In order to protect the business, it is important that employees sign agreements assigning to the business their rights to the works and inventions they develop 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 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’s intellectual property rights in any inventions, developments, or works developed by the employee
- 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 provisions as set forth above, a business can help ensure that it has the continuing right to use copyrightable and patentable employee developments of its employees.
Third party independent contractors create a much more complicated scenario because contractors are not treated the same as employees. 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 or 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.
When a business contracts with a third party for the development of innovations, the agreement between the parties should specifically assign all intellectual property rights in the innovations to the business. In the event that the third party contractor refuses to agree to such an assignment, it is important that the business at least obtain a continuous, assignable, royalty free license to use the development. How much a business is willing to pay a third party for a development should directly be affected by the rights granted in that development.
An experienced attorney will be able to help a business create agreements with employees and contractors and to evaluate third party contractor agreements in order to ensure that the business protects its intellectual property.