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Tech & Sourcing @ Morgan Lewis

TECHNOLOGY, OUTSOURCING, AND COMMERCIAL TRANSACTIONS
NEWS FOR LAWYERS AND SOURCING PROFESSIONALS

Protecting intellectual property rights is a critical component to the success of a technology company. In order for a tech company to determine how to protect its intellectual property, the company should understand how the key intellectual property rights work. In this Part 1 of a three-part series, we discuss how patent, copyright, and trade secret ownership works in the United States if there is no agreement in place to allocate these rights.

Patents

Patents are a right to exclude others from using a technology for a limited period of time. In exchange for these rights, the patent holder must disclose the invention in the patent. Without an agreement in place to state the ownership of an invention that is patented, the following applies:

  • Sole Ownership. In general, the inventor owns the right to patent the invention, regardless of the type of technology. This is the case even when the inventor is an employee who created an invention within the scope of employment
  • Joint Ownership. Occurs when there is more than one inventor (employee from Company A and employee from Company B, for example) or rights have been assigned to more than one person or entity. Even a small percentage ownership or minor contribution results in joint ownership right in the patent. Any owner may exploit a patent either by licensing to a third party or practicing the patent without permission of or accounting of profits to any other owner
  • Enforcement. All owners must participate in an enforcement claim. Therefore, if a company jointly owns a patent and wants to file an infringement claim against a third party, all other owners must also agree to file the claim

Copyrights

Copyrights are a way to protect original works of authorship fixed in a tangible medium, including software code. A copyright is created the moment the work is fixed in a tangible medium. It does not need to be published or registered. (See here for copyright FAQs.) Without an agreement in place, copyright ownership is allocated as follows:

  • Sole Ownership. The creator of software or other works is presumed to own the copyright rights to those works. However, unlike with patents, an employer automatically owns copyrights created by an employee in the course of employment. On the other hand, contractors will generally retain ownership of the copyright in works they create and not the party that retained (and/or paid for) the work
  • Joint Ownership. Occurs when (a) more than one creator contributes and there is an intent to combine the individual contributions into inseparable or interdependent parts, or (b) rights have been assigned to more than one person or entity. Any owner may exploit a copyright either by licensing to a third party or using the rights granted under copyright laws without permission of any other owner. However, unlike patents, copyright owners must account for profits and give other owners their share.
  • Enforcement. Only one owner is required to participate in a claim (but a license from another owner would moot the claim)

Trade Secrets

Trade secrets are typically considered to be information that are, or may be, economically valuable because they are not generally known or easy to figure out, and that are the subject of reasonable efforts to keep the information confidential. Trade secrets are typically governed by state common law (rather than the federal statutes that govern patent and copyright law) and therefore, the rights can vary from state to state. In general, if any trade secret is disclosed in a manner that does not protect its confidentiality, the party that owned the trade secret will lose all intellectual property protection for that trade secret.

  • Sole Ownership. Generally, the creator(s) of a trade secret (or their employers) own a trade secret. This can (and frequently is) clarified by confidentiality agreements
  • Joint Ownership. Similar to ownership of other intellectual property, joint ownership occurs when there is more than one creator or rights have been assigned to more than one person or entity. Joint ownership may increase the likelihood that a trade secret will not be properly protected. It is likely that all owners need to account to the other owners for profits
  • Enforcement. It is unclear whether all owners need to participate in a misappropriation claim. In addition, whether or not to enforce a misappropriation claim is not as straightforward as enforcing a patent or copyright infringement claim because of the possibility that litigation could make the trade secret information generally known

In Part 2 of this three-part series, we will discuss some of the ways companies can use contracts to allocate patent, copyright, and trade secret ownership in a manner that is different from the default laws.