January 17, 2012

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The Value of the Invisible

Ownership of Intellectual Property

Gretta Spendlove

January 17, 2012

Patrick Nagel was a freelance artist who produced some 285 paintings published in Playboy magazine. After Nagel’s death in 1984, copyrights to the paintings were sold by his estate and copies of the paintings were then marketed, generating $25 million. Playboy sued, claiming it was the sole owner of copyrights in the Nagel paintings because they were “works for hire.” The court ruled that some paintings were works for hire and others were not, depending on whether the wording on the checks paid to Nagel created a written work-for-hire contract, and whether the individuals who cashed the checks were authorized by Nagel to enter into that contract. Fights over ownership of intellectual property abound. The creator of Batboy sued the owner of Batman, and the alleged owners of Superboy and Superman fought for decades. Facebook creator Mark Zuckerberg has been sued repeatedly by people who claim they own his ideas and pieces of his company. Fights over ownership of intellectual property are also complicated, often turning, as did the Playboy/Nagel suit, on such esoteric points as what promises are contained in a check legend. Three areas of IP ownership that often generate controversy for businesspeople are work-for-hire agreements, ownership of patents, and licensed rights. Work for Hire Agreements The general rule, under U.S. intellectual property (IP) laws, is that the creator of IP owns it. Thus painters, sculptors, graphic designers, advertisers, software engineers and architects continue to own their paintings, logos, jingles, source codes and building plans, unless exceptions to the general rule exist. The biggest exception to the rule involves works for hire. The presumption is that employers own IP that is created by their employees within “the scope of their employment.” If an independent contractor produces IP, the ownership rights remain with the contractor, unless a written work-for-hire agreement is signed. Even then, there are some additional requirements, such as that the work must be “specially ordered or commissioned.” Thus, an ad agency can sell a similar logo to another client, or an architect can build the same “custom” house in another part of the city for someone else, unless they are prevented from doing so by a work-for-hire agreement. Startup businesses often hire freelance Web designers and graphic artists to design the company’s website and logo. But many forget to draft and file work-for-hire agreements. When the company is large and valuable, it can be expensive to buy back or change IP when the artist restricts its use or tries to sell it to competitors. Ownership of Patents The individual inventors of a device must be listed on U.S. patents, regardless of whether they are employees or independent contractors, or if they originally created the device for someone else. Generally, a company filing a patent will have the inventors assign their interest to the company and will then file the patent in the company name. Even with an assignment of interest, the inventors must still be identified on the patent application. Failure to correctly list inventors is one basis for invalidating a patent. So it is very important for any company basing its business success on patent rights to not only obtain transfers of patent rights into its own name, but to keep careful track of who created the device to begin with. Occasionally a non-joined inventor, who should have been named initially, later assigns his or her rights in the invention to someone else, giving rise to an unexpected joint owner of the patent. For example, in the Connecticut case of Ethicon v. U.S. Surgical Corporation, a medical doctor, Yoon, worked with Choi, an electronics technician who had no college degree, in inventing a surgical device. Choi was not paid for his work and faded into the background when Yoon acted uninterested in Choi’s contribution. Yoon assigned his patent rights to Ethicon, and Choi was not listed as an inventor on the patents. When Ethicon later sued U.S. Surgical Corporation for patent infringement, U.S. Surgical Corporation obtained a license of the patent rights from Choi as co-inventor. The court upheld the license and dismissed Ethicon’s infringement claim. Licensed Rights Companies often license IP, rather than creating it themselves. For instance, a retailer might license a stock photo to use on a T-shirt or mug, and an equipment manufacturer might incorporate licensed software into its products. Companies obtain the legal right to use IP through the licenses. However, licenses carry various restrictions. For instance, the license might limit the type of product in which the IP can be used or the manner of its sale. A different stock photo license might be required, depending on how many products the photo will be printed on. Documenting IP Rights Shrewd, capable lawyers can save businesses mega-dollars in avoiding IP disputes. Carefully written work-for-hire agreements, employee agreements that require workers to disclose and cooperate in the filing of patents and other IP, and meticulous review and negotiation of license agreements are well-invested business expenses.
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