Protecting Your IP in Joint R&D Projects
Clarifying who owns and controls each IP right is vital to the success of a joint development agreement. James R Sobieraj explains how to prevent problems, and ensure that both parties know where they stand.
A joint development agreement is like a prenuptial agreement and planned divorce. Each party to the joint development agreement (JDA) has something of value and is interested in working as a partnership to create something new of value. In this case, the valuable items are the intellectual property rights, which can be in the form of patents, copyrights, trade secrets or know-how.
Before the parties begin their joint development project, they will want a written agreement that addresses important aspects of their IP rights before, during, and after the project. The parties know in advance that their joint development efforts will have a limited life. Their 'marriage' may end when the project is completed, or after a predetermined passage of time, or if there is a breach. Regardless of how the joint development project ends, some or all of the IP rights will continue to have life and value.
Three key IP issues arising from joint development projects are: 1) who owns the IP rights? 2) who can use the IP rights? and 3) who controls the IP rights? Before these questions can be answered it is critical to define carefully the IP rights.
Defining IP rights in joint development agreements
The joint development agreement should define three categories of IP rights:
- The IP owned by each party before the JDA.
- The IP jointly developed pursuant to the JDA.
- Any IP developed independently during the life of the JDA.
The definition of each party's pre-existing IP usually is not controversial. A typical definition is:
Existing intellectual property means any confidential or proprietary information, whether patentable, copyrightable or not, created or obtained by each party prior to the effective date of this agreement.
In some circumstances, specific items of existing IP that will be used during the joint development project are listed in an appendix to the agreement.
The definition of jointly developed IP should be analyzed with extreme care, as this definition is often determinative of each party's rights during and after the joint development project. A frequent issue is whether IP developed by one party independent of the other, but during the course of their joint development project, is considered joint technology or joint IP. The extent to which one party used or relied upon information from the other party is often a matter of degree and opinion. There is no right way to address this issue, as it depends on the particular circumstances of the parties and the project. However, it is important for the JDA to define what is and is not joint IP as clearly as possible. These definitions are the framework for the allocation of ownership, use and enforcement of rights that are discussed below.
Joint IP could be defined as any IP that is developed by either party during the term of the JDA, and is related to the subject matter of the project. It does not matter if the IP was developed independently by either party. This approach is designed to minimize disputes over what constitutes joint IP. The following definition is offered as an example:
'Jointly developed intellectual property' means any and all patents, inventions, copyrights, works of authorship, trade secrets, know-how, and all other confidential or proprietary information conceived or developed solely or jointly by an employee(s) or agent(s) of either party during the term of, and in connection with, a party's performance under this agreement.
JDAs usually have many of the same provisions found in typical licence agreements including definitions of the parties and terminology provisions addressing sublicenses, payment terms, protection of confidential information, indemnification, choice of law and alternative dispute resolution. There are other issues that may warrant special consideration in a JDA including:
'No hire' provision of partners' employees
The parties can agree not to raid each other's employees assigned to the joint development project. The provision should address the duration of hiring ban and which employees are subject to it.
Term of the agreement
The term of the JDA may be tied to completion of the project, achievement of specified sales targets, a predetermined time period, or some other agreed event.
Statement of work
Joint development projects usually include a statement of work that will be undertaken by each party. While the statement of work typically is not detailed in the JDA, it can be included as an attachment that is updated as the project progresses.
Freedom from lawsuits
The parties can agree not to assert any IP claim or to have one party assume the defence of any claims asserted against any activity related to the Statement of Work.
No implied licenses
The parties can agree that no implied licenses are granted under any IP that is not specified in the JDA.
However, the above definition often is not acceptable to the parties because one or both may want to maintain separate ownership over rights developed independently during the joint development project. It is not uncommon for a JDA to contain distinct definitions for joint IP and independently developed IP. The difficult issue is the extent to which IP developed by one party using the other party's technology or IP is to be defined as joint IP. Again, there is no right way to allocate the rights. It depends on the parties' needs, expectations, and ability to compromise. The following provisions, which differentiate between joint IP and independently created IP, are offered as examples.
'Jointly developed intellectual property' means any and all patents, inventions, copyrights, works of authorship, trade secrets, know-how, and all other confidential or proprietary information conceived or developed jointly by employee(s) or agent(s) of the parties in performance of the party's obligations under this agreement.
'Independently developed intellectual property' of a party means any and all patents, inventions, copyrights, works of authorship, trade secrets, know-how, and all other proprietary or confidential information conceived or developed by an employee(s) or agent(s) of one party independently of the other party, that are not based on or derived from the other party's existing IP or joint IP, and that are not conceived or developed in performance of the party's obligations under this agreement.
These provisions can be drafted with specific qualifications to further specify what constitutes joint IP and what constitutes independently developed IP. For example, the parties may identify specific employees whose work would qualify as joint IP, and other employees whose work would qualify as independently-developed IP.
Ownership of IP rights
The parties can agree to divide up the ownership rights in numerous ways. As a matter of practice, there are three general rules of ownership:
- What's mine is mine.
- What's yours is yours.
- What's ours is mine (and maybe yours, too).
Generally, there is no dispute that each party owns its existing IP and its independently developed IP. A party can assign its rights in its own IP to the other party. Typically, each party maintains ownership of its own IP and permits other parties to use it according to the terms of the JDA.
It is important clearly to define ownership of the jointly developed IP. If the parties fail to do so, they are subject to the laws governing ownership of joint inventions. Ignorance of these laws may create unwanted consequences after the JDA is signed. A party familiar with these laws has the opportunity to negotiate a different arrangement before the agreement is signed.
Consider some of the important aspects of the law in the United States regarding the ownership of patentable inventions. United States patents have the attributes of personal property (35 USC § 261; Filmtec Corp v Allied-Signal, Inc, 939 F 2d 1568, 1572 (Fed Cir 1991)). The ownership rights in a patented invention initially vest in the inventor or inventors upon conception (35 USC §§ 101, 116, 117 and 118; Ethicon, Inc v United States Surgical Corp, 135 F 3d 1456, 1460, 1465 (Fed Cir 1998)). In the context of joint inventions, each co-inventor presumptively owns an undivided interest in the entire patent, regardless of the extent of their respective contributions. A joint inventor as to even one part of one claim enjoys a presumption of ownership in the entire patent (Ethicon, 135 F 3d at 1465). The owner of a patent may assign either (1) the whole patent; or (2) an undivided part or share of the entire patent; or (3) all rights under the patent in a specified geographical region of the United States (Ethicon, 135 F 3d at 1467).
Regardless of the extent of the patent rights assigned, an assignment must be in writing to transfer legal title (35 USC § 261; Kahn v General Motors Corp, 33 USPQ2d 2011, 2013 (SDNY 1995)). Ownership rights can be transferred before or after the patent is issued and even before the invention is conceived. When the rights to an invention are assigned before the existence of the invention, the assignee receives an expectant interest, and holds, at most, equitable title. Once the invention is made and an application for a patent is filed, legal title to the rights under the patent application transfers to the assignee by operation of law; no further act is required (Filmtec, 939 F 2d at 1572-73). Similarly, between the creation of an invention and the issuance of a patent, rights in the invention may be assigned and legal title will pass to the assignee upon the grant of the patent (Filmtec, 939 F 2d at 1572-73).
The exact words used to transfer title are critical, particularly in a JDA where the agreement frequently is executed before the invention is conceived or a patent application is filed. The Court of Appeals for the Federal Circuit has drawn a sharp distinction between phrases such as 'does hereby grant' and 'will be assigned' to transfer the rights in an invention. In Filmtec, the Court held that 'does hereby grant' effectively transferred the rights in any future inventions to the assignee, who would possess legal title by operation of law once the invention came into existence (939 F 2d at 1573; see also Speedplay, Inc v Bebop, Inc, 211 F 3d 1245, 1253 (Fed Cir 2000) (same holding for the language 'hereby conveys, transfers and assigns')). However, in another case, the Federal Circuit held that the language 'will be assigned' may have transferred equitable title in future inventions once made, but did not by itself transfer legal title to the patents that may issue for the inventions (Arachnid, Inc v Merit Industries, Inc, 939 F 2d 1574, 1580-81 (Fed Cir 1991)).
Holding of legal title is important, as it is a necessary requirement for maintaining an action to recover money damages for infringement of a United States patent (Arachnid, 939 F 2d at 1579). Consequently, there is a significant difference between language that is construed as an agreement to assign existing or future rights (which does not transfer legal title), and a present assignment of an existing invention or an expectant interest in a future invention (which does transfer legal title).
Another potential trap for the unwary is that in order for the assignee to sue for damages for past infringement in the United States, it is necessary for the assignment to state expressly that the right to sue for and recover damages for past infringement is transferred to the assignee (Arachnid, 939 F 2d at 1579). An agreement that states that 'all right, title and interest is hereby assigned to the assignee' only conveys rights from the date of the assignment forward. The right to recover for past infringement remains with the assignor, unless the written assignment also states 'including the right to sue for and recover any damages for past infringement that have occurred prior to the date of this agreement'.
Using the IP rights
Ownership issues usually are intertwined with issues of use. Each party usually wants to use what the other owns, and the owner wants to place some restrictions on the extent of the use.
It is common for each party to license its existing IP to the other to the extent necessary to accomplish the objectives of the joint development project. However, one or both parties may insist that the licence is subject to field of use restrictions, time limits, royalty payments, sublicensing restrictions or other terms often found in licence agreements. The licence also may extend to activities beyond the joint development project. The precise conditions that will attach to such a licence are the subject of negotiation by the parties.
The parties should take care to define precisely the extent to which each party may or may not use any joint IP because US patent law allows each of the joint owners of a patent to make, use, sell or offer to sell the patented invention without the consent of or accounting to the others, unless they have 'an agreement to the contrary' (35 USC § 262).
Additionally, each co-owner may license others under the patent without the consent of the other co-owners (Schering Corp v Roussel-UCLAF SA, 104 F 3d 341, 344 (Fed Cir 1997)). Thus, unless the co-owner has given up these rights through an 'agreement to the contrary,' a co-owner can exploit its rights in the patent, including the right to grant licenses to third parties on whatever conditions the co-owner chooses. However, a co-owner, which has an undivided interest, cannot grant or otherwise convey any rights greater than what he has. For example, a co-owner with an undivided interest cannot grant an exclusive licence because, absent an agreement to the contrary, the other co-owner(s) may use the patented invention.
One court aptly noted that, absent any agreement between the parties, co-owners of patent rights are 'at the mercy of each other' (Willingham v Lawton, 555 F 2d 1340, 1344 (6th Cir 1977)). For that reason, the JDA should carefully define the restrictions that are placed on each party's use of the joint IP.
Many parties to joint development agreements seek to restrict the use of the jointly developed IP by each other to prevent use with their respective competitors. Sometimes, it is necessary to draft an allocation of rights table that defines non-competitive fields of use, time limits, and other restrictions. In agreements between large companies, these issues can be very complicated.
Enforcing the IP rights
Enforcement is another important issue to address in a JDA. With respect to each party's existing and independently developed IP, the parties will usually consider the types of IP enforcement provisions found in typical licence agreements. For example, the parties may negotiate and define who has responsibility for enforcing the IP rights against an infringer, who will pay for and control the enforcement process, and how any recovery of damages is allocated. If the JDA is silent about the enforcement of rights owned solely by one party, then the sole owner essentially has discretion to determine if, when and how to enforce its IP rights.
Again, there are traps for the unwary with respect to joint IP. A co-owner of a US patent may frustrate another co-owner's ability to sue for either injunctive relief or future damages by granting the infringer a licence. A co-owner, however, cannot release an infringer for past damages without the agreement of all other co-owners (see Schering Corp, 104 F 3d at 344-45). In addition, all co-owners of a patent must join in an infringement suit, and an uncooperative co-owner cannot be compelled to join the suit unless previously agreeing to do so (Ethicon, 135 F 3d at 1467-68; Vaupel Textilmaschinen KG v Meccanica Euro Italia SPA, 944 F 2d 870, 875 (Fed Cir 1991); Cilco, Inc v Copeland Intralenses, Inc 614 F Supp 431, 434 (SDNY 1985)(a co-owner cannot be made an involuntary plaintiff in infringement suit unless it has previously agreed to give the other co-owner unilateral right to sue)).
In light of these legal principles, the parties should address the issue of enforcement of the joint IP in their JDA. They can agree to assign all of the rights in the joint IP to one party, who has the right to enforce them solely in its own name. Alternatively, the parties can agree to join any lawsuit voluntarily to enforce the joint IP rights. Under either arrangement, the parties should define the conditions on which the joint IP will be enforced, any rights of refusal, and the allocation of the expenses, control, and recoveries of any enforcement action. There are numerous ways to address these issues. The important point is to address them in a way that prevents one co-owner from frustrating an enforcement action.
Careful drafting is essential
Like a marriage, the parties enter a joint development project with the best of intentions. Unlike a marriage, the parties also anticipate that their partnership will end in the foreseeable future. The JDA should be carefully drafted to address the parties' rights and responsibilities, both during and after the honeymoon. Special attention should be given to drafting the provisions addressing the ownership, use and enforcement of IP rights. Many disputes could be avoided down the road if these provisions are well defined and well written in the JDA.
© James R Sobieraj 2003. The author is a patent attorney and a shareholder in Brinks Gilson & Lione in Chicago. He also is the president of the Licensing Executives Society (USA & Canada), Inc.