Improve the Bottom Line: Here’s How to Capture Value of Intellectual Property
In too many instances, either a company is not aware that certain assets are intellectual property, or is not aware that ownership of any intellectual property created by someone prior to their joining the company as an employer or founder belongs to that person. One of the primary documents that all businesses should insist that employees and independent contractors sign – and in the case of a new venture or start-up, all founders sign – is an Intellectual Property Assignment Agreement.
Many business managers make the incorrect assumption that intellectual property only applies to high-technology companies. Wrong (see below)! As long as your business deals with anything creative, or has knowledge or information important to its success, the business owner or manager wants to make sure that ownership of any inventions or works created for the company are assigned to the company. In the patent field, unless your business has signed the relevant assignment document with employees, it is possible that all independent contractors and employees (except for those falling in the narrow category of employees “hired to invent”) personally own all the patentable inventions they create.
Also, if the company does not have a written agreement regarding ownership of any original work of authorship, it is possible that the author of the original work will own the copyright. The main exception is works “made for hire” created by employees acting in within the scope of their employment, which automatically belongs to the employer.
So, what about the Website designer/developer your company hired to create the “Front end” and “back end” of your distinguishable Website? Under the law, if the designer/developer is an independent contractor, then the designer/developer owns the copyright and is entitled to sell the same page layouts or computer code to someone else. If the Website is designed by an employee in the ordinary course of his or her employment, then the employer owns the copyright.
Thus, it is in the owner and manager’s interest not to get embroiled in factual issues such as whether the works are created by an employee in the scope of their employment or who is an employee hired to invent, or whether the author of the work is an employee or an independent contractor. The business should negotiate for both employees and independent contractors to sign written assignments of copyrights.
In some instances, the independent contractor will refuse to transfer the copyright to work product, and in such instances the business may negotiate with the independent contractor not to sell or license the invention or work product to direct competitors. We have encountered situations where independent consultants will refuse to transfer copyright ownership to their work product, and the commissioning company will negotiate to limit the licensing or transfer of such copyright.
Many business managers skip over intellectual property issues, since they assume (incorrectly) that intellectual property issues are relevant only to technology companies having engineers and hacker employees. Yet, all businesses should realize that the following business assets have value and should be protected:
- Customer lists
- Customized software
- Name or logo
- Product literature
- confidential know-how on doing certain things
- secret formulas
In sum, the owner of a company or the business manager should take precautions to clarify the company’s ownership of the intellectual property. All employees, independent contractors, and in the case of start-ups and new ventures, all founders of a company should be required to sign assignments of inventions and nondisclosure agreements giving the employer the right to commercialize the idea, inventions, works, prepared, conceived of or reduced to practice by its workers during the period of employment. In the case of start-ups and new ventures, all founders and owners should similarly be required at the time of formation to assign ownership in creative works-all copyrights, trademarks, or patents-to the company.
In a start-up situation, to the extent the employee contributes to the Newco “property”, including patents, copyrights, secret formulas, confidential know-how, and other legally protectable intangible assets, under Internal Revenue Code Section 351, the entrepreneur can escape tax on his or her bargain purchase of Newco stock.
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