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Joint Ventures and Strategic Alliances: Ownership of Developed Intellectual Property – Issues and Approaches

One issue that arises in structuring the terms of joint ventures and strategic alliances, and especially those involving technology companies, is how to allocate ownership of intellectual property developed or acquired in the course of the parties’ collaboration. 

In general, the alternatives include (1) sole ownership by one or the other of the venturers or (2) joint ownership by both of them.Business 

On the other hand, “ownership” of intellectual property may not be sufficient to enable the owning party to fully exploit it.  Ownership of patents and other intellectual property fundamentally grants the owner only the right to exclude others from engaging in certain activities reserved exclusively to the owner of the intellectual property.  Ownership of intellectual property does not provide assurance that it can be exploited without infringing other intellectual property rights.  In a strategic alliance or joint venture, this difference may be important, if, for example, the intellectual property to be developed is an extension or improvement of existing intellectual property owned by one or both of the venturers.  Without a license to this pre-existing “background” intellectual property, the party owning the developed intellectual property may not be able to use it.  Thus, the fact that a venturer “owns” a patent on an improvement of a device or method covered by the patent of the other venturer may not be enough to permit the former to utilize this improvement.  The party allocated ownership of the improvement also must obtain a license from the party having the dominant patent.

There may even be circumstances where it would be more advantageous to be a “mere” licensee, particularly with regard to patents.  For example, if a party has entered into broad patent cross-licenses with competitors, ownership of patents developed in the course of the alliance might result in them becoming available to its cross-licensees.[iii]   A venturer in that situation might prefer to have the other venturer own patents developed in the course of the alliance, or a subset of them, and to obtain only a license (without sublicensing rights) in order not to have rights to those patents pass through to its competitors under its cross-licenses.[iv] 

That said, ownership is generally preferable to being a licensee.  This is true for a variety of reasons, some legal, some tactical, including:

• Enforcement: Enforcement of the intellectual property against third parties is easier as the owner.A non-exclusive licensee of a patent does not have standing to bring an enforcement action.Even an exclusive licensee will generally need to join the owner as a party, unless the license grants the licensee “all substantial rights” under the patent, so as to be tantamount to an assignment.[v]
• Filing and prosecution of patents: Only the assignee of a patent applications (or the inventor if there is no assignee) has standing to file and prosecute a patent application before the U.S. Patent and Trademark Office.[vi]If a licensee, even an exclusive licensee, wishes to have control over the prosecution, it will need to have an agreement with the record owner (assignee) and do so indirectly through the owner.
• Prior art: Subject matter developed by another person (e.g. another employee of the company), which would otherwise be prior art for purposes of an obviousness objection under certain provisions of the Patent Act, will not be treated as prior art if it is under common ownership. 
• Limited vs. unlimited and reserved rights: Licenses usually grant only limited rights, with the owner retaining the remainder of the rights.In drafting a license, the licensee must consider and define all the rights it will want to have in the future (e.g., term, field of use, sublicensing rights, assignability, etc.[viii]).This not only puts the licensee at risk of not having obtained sufficient rights to satisfy future needs, but tactically introduces issues into the negotiation that would not arise if it were simply the “owner” of the applicable intellectual property.
• Trademarks and bankruptcy: Section 365(n) does not protect licensees oftrademarks, so a trademark licensee’s rights may be lost if the licensor files for bankruptcy (including Chapter 11 reorganization) and rejects the license.
• Record title:The owner of intellectual property that is recorded or registered (e.g., patents, registered trademarks, registered copyrights in the U.S.) will be shown as the record owner, which may be advantageous in impressing prospective investors or deterring potential adversaries.

II. JOINT RESEARCH AGREEMENTS UNDER CREATE ACT

Certain subject matter that would otherwise be invalidating prior art will not be treated as prior art if both the prior art and the invention are under common ownership.  Fortunately for strategic alliances and joint ventures, that rule has been extended for parties to “joint research agreements.”

The federal Cooperative Research and Technology Enhancement (CREATE) Act,[ix]was enacted in 2004 in response to the Federal Circuit’s decision in OddzOn Products, Inc. v. Just Toys, Inc.,[x] which had held that confidential information exchanged between members of a research team comprised of researchers from more than one organization would be treated as prior art that could render an invention “obvious” and therefore unpatentable.  Had all rights to the invention and the exchanged information been under common ownership, the exchanged information would not have been treated as prior art for obviousness purposes.  Under Section 103(c) of the Patent Act, non-public subject matter developed by another person is not treated as invalidating prior art for obviousness purposes, if both the prior art and the claimed invention are owned by the same person (or subject to obligation of assignment to the same person), at the time the claimed invention was made.  However, under the OddzOn decision, if the parties engaging in the collaborative development had not elected to have all rights assigned to a common ownership, their ability to patent their inventions was put in jeopardy. 

The CREATE Act ameliorates the effects of that decision by permitting researchers from multiple organizations collaborating under a “joint research agreement” to share confidential information, without fear that the shared information will be used as a basis for invalidating a patent on the results of their collaboration on grounds of obviousness. Under the Act, a claimed invention and the prior subject developed by another person will be deemed to be owned by the same person for purposes of Section 103(c), if three conditions are satisfied:

(A)  the claimed invention was made by or on behalf of parties to a joint research agreement that was in effect on or before the date the claimed invention was made;

(B)  the claimed invention was made as a result of activities undertaken within the scope of the joint research agreement; and

(C)  the application for the patent for the claimed invention discloses or is amended to disclose the names of the parties to the joint research agreement.[xi]

The critical term “joint research agreement” is defined broadly to mean a “written contract, grant or cooperative agreement entered into by two or more persons or entities for the performance of experimental, developmental, or research work in the field of the claimed invention.”[xii]   The CREATE Act does not specify any particular form of agreement, and the definition is broad enough to include strategic alliances, joint development agreements, consulting agreements, manufacturing agreements, license agreements, and even confidential disclosure agreements, so long as they contemplate the sharing of information for “experimental, developmental or research work.”  The critical elements are that the agreement be (i) in writing and (ii) in effect on or before the date the claimed invention is made.  Neither oral agreements nor written agreements entered into after the invention was made will suffice. 

The CREATE Act permits venturers to collaborate and share confidential information, without fear that confidential information received from the other venturer may become the basis of an obviousness rejection of a patent application for subsequently developed inventions.  In general, this will be a welcome safe-harbor for parties to strategic alliances and joint ventures.  Although not necessary, the parties might include an express provision that they intend the agreement to constitute a joint research agreement, such as:  “The Parties recognize and agree that this Agreement is a ‘joint research agreement’ under the CREATE Act (35 U.S.C. §103(c)).  The Parties further agree to cooperate to avail themselves and each other of the provisions of such Act.”[xiii] 

However, there may be circumstances where one or both venturers would prefer not to permit the Act to be invoked.  For example, if one of the parties is sharing confidential “background” information (e.g. pending patent applications or know-how), it may not wish to enable the other party to file a patent on an “obvious” improvement to that background, particularly if the party contributing the prior art will not own or have rights to use the improvement under the terms of the agreement.[xiv]   In such a case, the party with the background intellectual property may propose that the agreement between the parties provide that the parties will not invoke or rely upon the CREATE Act to overcome an obvious objection based on information exchanged under the Agreement.

III. APPROACHES TO ALLOCATING OWNERSHIP

One frequent challenge in structuring strategic alliances and joint ventures is agreeing how to allocate ownership of intellectual property developed or acquired in the course of the collaboration between the venturers (or among the ventures and the joint venture entity, if there is one).  It is challenging in part because the parties often do not know what intellectual property may be developed or acquired, or how valuable it will be.  In addition, the parties may have different, or even conflicting, agendas, both during the existence of the alliance/venture and in exit and termination scenarios.

The most common approaches or paradigms for allocating ownership of developed intellectual property are:

• Inventorship
• Derivation
• Subject matter
• Combinations of the foregoing

A. Inventorship

Under the “inventorship” paradigm, ownership of developed intellectual property is allocated to whichever party develops it.  More specifically, ownership of patentable subject matter is allocated to the party whose employees or contractors are the “inventors;” ownership of works of authorship or other copyrightable subject matter is allocated to the party employees or contractors created the work; and ownership of trade secrets or other non-patentable know-how is allocated to the party that develops it.[xv]

This approach is often the path of least resistance, and has a number of advantages.    It tracks the default rules under the patent and copyright laws, and avoids the need to assign intellectual property developed by one party to the non-developing party.  As with any allocation of ownership, the scales can be balanced by licenses to the non-owning party, tailored appropriately to the particular field of use and other interests of the parties. 

The inventorship approach will require that the parties determine – after the fact – which party “invented” “created” or “developed” the resulting intellectual property.  A determination of inventorship is a necessary part of the process for filing patent applications, so for patents it is a determination that will need to be made in any event.  Nevertheless, with ownership of potentially valuable intellectual property hanging in the balance, it may well become a subject of dispute.   It is also worth bearing in mind that the “inventorship” approach will result in the parties jointly owning intellectual property that is developed jointly by their respective employees.  Joint ownership, and the complexities it brings, will be discussed below.

In some cases, the “inventorship” approach may create disincentives to full, open collaboration.  A party may be concerned that allocating developed intellectual property based on inventorship will enable the other party to obtain patents in the first party’s field, which may cause the first party to hold back key knowledge or know-how.  This concern may actually be exacerbated by the CREATE Act.  Under the CREATE Act, allocation-by-inventorship could result in the other party being able to obtain patents on “obvious” improvements to the first party’s technology based on confidential background intellectual property of the first party shared in the course of the collaboration.

B. Derivation of Intellectual Property

Another approach, intended to mitigate this latter problem, is to allocate developed intellectual property based on the origin or derivation of the developed intellectual property.  Under this approach, intellectual property derived from or constituting an improvement of one party’s existing intellectual property would be owned by that party, regardless of which party invented, created or otherwise developed the improvement.  This approach may be used alone, or, it may be combined with inventorship or other approaches.  For example, the parties may agree that developed intellectual property will be owned by the party inventing/developing it, unless it is derived from or an improvement of the another party’s pre-existing intellectual property.

The allocation-by-derivation approach will require a later determination of whether specified developed intellectual property was derived from or an improvement of another party’s pre-existing intellectual property, which may be difficult to determine and a source of dispute.  To provide a standard for this determination,  “improvement” or “derivative” can be defined in the agreement, for example, to limit it to subject matter that would infringe the pre-existing intellectual property of the other party.

Of course, if a party wishes to be able to retain ownership of improvements it develops, even if they are derived from the other party’s background intellectual property, it should avoid this approach.

C. Subject Matter

Another common approach for allocating ownership is to base ownership on the subject matter of the intellectual property, regardless of inventorship or derivation.   This approach works particularly well when the venturers are engaged in different fields, so that ownership of developed intellectual property can be allocated according to the respective fields of interest of the venturers. 

The allocation-by-subject-matter approach avoids the need to determine inventorship or the origin or derivation of the developed intellectual property for purposes of allocating ownership.   It may facilitate more open collaboration, because it avoids the risk that a party will lose ownership of improvements in “its” field.  Where a separate joint venture entity is involved, moreover, the field of activity of the joint venture will generally have been defined by the parties, and this can provide a basis for assigning ownership of developed intellectual property in the joint venture’s field.

On the other hand, allocation by-subject-matter approach may not work when the venturers’ respective fields of interest overlap, and will break down for subject matter that potentially has applications in multiple fields.   It will also potentially require a party to assign intellectual property it develops to the other party, and may complicate the process of filing and prosecuting patent applications, since a party may be filing patents on inventions made by the other party’s employees.  If allocation-by-subject matter approach is adopted, the parties will need to consider these issues. 

D. Combinations

These three approaches can be, and in practice often are, combined.  For example, the venturers might agree that developed intellectual property covering certain subject matter will allocated to one of the venturers (or to the joint venture entity, if there is one), and that any ownership of any developed intellectual property not falling within these defined fields will follow inventorship.  Another variation, noted above, is for ownership to be based on inventorship, except that developed intellectual property derived from the other party’s pre-existing intellectual will be owned by that party regardless of inventorship (or jointly owned).

E. Other Approaches

The approaches described above are, in the writer’s experience, the most common paradigms, but they are not the only ones.  Some collaborations use an “auction” or “draft choice” or even a “coin flip” approach to allocate ownership between the parties, particularly for potentially patentable subject matter invented jointly by the parties.  The party who does not “win” ownership of the joint invention retains a paid-up, non-exclusive license to any resulting patents.  This provides a mechanism for “fairly” allocating sole ownership of joint inventions between the parties, while avoiding the pitfalls of joint ownership, which are the subject to the next section.

IV. ISSUES AND PROBLEMS WITH JOINT OWNERSHIP

It is frequently proposed that intellectual property that is “jointly developed” in the course of a strategic alliance, joint venture or other collaboration should be “jointly owned” by both parties.  In some cases, it may be proposed that all intellectual property developed in the course of the collaboration be jointly owned, regardless of whether it is jointly developed.

Joint ownership sounds like a fair and symmetrical solution.  The parties may believe that joint ownership is simpler, and less contentious, than trying to allocate ownership to one party or the other.  But joint ownership of intellectual property is anything but simple.  It is cumbersome, and has the potential for serious unintended consequences.  The rights and duties of joint owners are often poorly understood, vary between the different forms of intellectual property, and vary from country to country.  Because of this, many lawyers have a justifiable reluctance to provide for joint ownership.  It is often wise to avoid joint ownership if other structures can be used to achieve the parties’ objectives.  In some cases, a separate joint venture entity (jointly owned by the parties) may provide a vehicle to avoid the problems associated with being joint owners of the intellectual property owned or developed in the course of a joint venture or strategic alliance.[xvi]

The following discussion will help explain the basis for the conventional aversion to joint ownership, and provide ammunition for counseling the parties to avoid it where possible.  However, since joint ownership may be appropriate in some cases and unavoidable in others, we also suggest approaches for dealing with key issues and defining the rights and obligations of the joint owners, to reduce surprises and improve the chances for a successful relationship.

A. Joint Ownership of Patents and Copyright Arising By Operation of Law Without Express Agreement

One thing to bear in mind is that joint ownership of patents and copyrights can arise by operation of patent and copyright law, even without express agreement between the parties calling for such joint ownership.  The parties are free to provide for a different allocation of ownership, but under certain circumstances, absent an agreement to the contrary, they may end up becoming joint owners of patents or copyrights that are jointly developed in the course of the collaboration.

1. Patents: Co-Inventors

Under the patent law, if a patentable invention is made by two or more co-inventors, each co-inventor presumptively owns an undivided interest in the patent.[xvii]   As the Federal Circuit has observed, “where inventors choose to cooperate in the inventive process, their joint inventions may become joint property without some express agreement to the contrary.”[xviii]   Moreover, each co-inventor presumptively owns an undivided interest in the entire patent, even if a particular co-inventor contributed to the subject matter of only some of the claims in the patent.[xix] 

In most corporate settings, each employee engaged in research and development will have signed a proprietary rights agreement, assigning rights in his or her inventions to the employer, with the result that the employer is the owner of the inventions and resulting patents.  In collaborative development efforts between two companies, therefore, joint ownership of patentable inventions may arise by operation of law, if at least one employee of each company is a co-inventor.  In that case, each company will presumptively be a co-owner of the patent (by assignment from its respective inventor-employees), unless there is some express agreement between the parties to the contrary.[xx]

It is not necessary that joint inventors physically work together or at the same time.[xxi]   Nor is it necessary that they each make the same type or amount of contribution, or contribute to the invention of every claim in a patent.[xxii]   What is necessary is that each co-inventor contribute, in some significant manner, to the “conception” of the invention.[xxiii]   Conception occurs when there is a “definite and permanent idea of the complete ... invention” such that only ordinary skill would be necessary to reduce the invention to practice without extensive research or experimentation.[xxiv]   On the other hand, a collaborator does not become a co-inventor merely by assisting the original inventor in explaining the current state of the art or assisting in reduction of the invention to practice using ordinary skill in the art.[xxv]   As a result of these standards, the determination of whether a person is a joint inventor is “fact specific, and no bright-line standard will suffice in every case.”[xxvi]

Whether employees of two companies are co-inventors of a patent is a matter of patent law and cannot be changed by agreement between the parties.  Whether the two companies will be co-owners of the patents, on the other hand, is something that can be specified by agreement and is therefore within their control.  If the parties wish to avoid joint ownership, their agreement can negate co-ownership by allocating sole ownership to one of the parties of inventions and resulting patents.[xxvii]   If the parties are silent on the subject of joint ownership, however, they may find themselves as joint owners by operation of law – with all the consequences of joint ownership discussed below, which may or may not match the parties’ interests or expectations.[xxviii] 

2. Copyrights: Co-Authors

Under the Copyright Act, authors of a “joint work” are co-owners of the copyright in the work.[xxix]   A “joint work” is a “work prepared by two or more authors with the intention that their contributions be merged into inseparable or interdependent parts of a unitary whole.”[xxx]   Just as co-inventors of a patentable invention are presumptively co-owners of the patent, co-authors of a “joint work” are presumptively co-owners of the copyright in the joint work.  Moreover, as with co-inventors of a patented invention, a co-author of a joint work owns an undivided interest in the joint work as a whole, even though he or she may have contributed to only a portion of it.[xxxi]

As with co-inventors, it is not necessary that co-authors work together physically or make their contributions at the same time.  They may be complete strangers.[xxxii]   Nor is there any requirement that the contributions of each co-author be equal in quantity or quality. However, beyond these similarities, the tests for determining co-authorship are quite distinct from the tests for determining co-inventorship of an invention.

The first requirement for co-authorship, at least according to the majority rule, is that each co-author’s contribution must itself be copyrightable subject matter.[xxxiii]   The Ninth Circuit’s decision in Ashton-Tate Corp. v. Ross[xxxiv] illustrates the operation of this requirement.  Two software developers decided to collaborate on development of a spreadsheet program for the Apple Macintosh.  One worked on the “engine”, while the other worked on the user interface.  Later the two parted.  The user interface developer went to work for Ashton-Tate, a software publisher, where he combined the user interface he had developed with a different “engine” to create a spreadsheet program called “Full Impact”.  The other developer claimed that he had an ownership interest in the copyright in Full Impact on the grounds that he was a co-author of the co-developer’s user interface because he had contributed ideas and guidance to the development of the user interface and a handwritten sheet listing the commands the user interface should support.  However, the Ninth Circuit held that the engine developer was not a co-author of the user interface because his contributions to it were not themselves copyrightable subject matter.[xxxv]

The second requirement for co-authorship relates to the intent of the parties or their respective control over the creation of the work, or both.[xxxvi]   This requirement is articulated differently in different circuits.  The Second and Seventh Circuits[xxxvii] focus on the intent of the parties. To be co-authors, both (or all if more than two) authors must intend, at the time of creation of their contribution, not only that their contributions “be merged into inseparable or interdependent parts of a unitary whole,”[xxxviii] but also that they will be co-authors of the resulting merged work.  The Ninth Circuit, on the other hand, applies a multi-factor test to determine whether a contributor of copyright subject matter is a co-author of a joint work.  The Ninth Circuit considers not only (a) whether the co-authors “objectively manifested” a “shared intent to be authors”, but also (b) whether a putative co-author exercised “control” over the creation of the work, and (c) the “audience appeal” of the respective contributions.[xxxix]   Of these, according to the Ninth Circuit, “[c]ontrol in many cases will be most important” in the absence of any contract between the parties.

There is no requirement that the parties’ mutual intent (or respective rights of control) be contained in any “collaboration agreement” or other writing.  Indeed, there is no requirement that the parties have explicitly discussed the subject of co-authorship.[xl]   However, a written agreement between the parties is the best “objective manifestation” of whether the parties intended to be or not to be co-authors of a joint work,[xli] and will probably be dispositive in most cases.

It is important to distinguish a “joint work” from a “derivative work”  Each of the co-authors of a joint work is a co-owner of the copyright in the joint work.  However, the copyright in a derivative work belongs to the author of a derivative work, not the author of the work on which the derivative work is based.  Thus, where one of two co-authors subsequently makes a derivative work based on the joint work, the other co-author’s joint authorship in the prior joint work is insufficient to make him or her a joint author of the derivative work.[xlii]   Since it is possible for co-authors of a joint work to make their contributions at different times, what distinguishes a “joint work” in which both contributors are co-authors, from a “derivative work” in which they are not? The answer is the mutual intent of the co-authors to be, or not to be, co-authors,[xliii] and, in the Ninth Circuit, whether they both exercised creative control over the work.

Unlike co-inventors of a patentable invention, parties collaborating to produce copyrightable works have some control over whether or not their work product will be considered a “joint work.”   Each individual’s status as “co-inventor” of a patentable invention arises regardless of the terms of any agreement between them.  Whether two parties are or are not co-authors of a joint work, on the other hand, depends upon (among other things) their intent.  Thus, if parties do not want their collaborative efforts to be considered a joint work, they can effectively prevent that result by expressly providing in their agreement that they do not intend their respective contributions to be considered contributions to a joint work.  Such an objective manifestation of mutual intent not to be co-authors of a joint work should be dispositive in most cases. 

B. Joint Ownership Created by Express Agreement

Patents and copyrights are personal property, and it is clearly established that multiple owners may own joint undivided interests in them.  As described above, if multiple persons are co-inventors of a patentable invention or co-authors of a joint work of authorship, joint ownership will arise by operation of law unless there is an agreement to the contrary.  However, joint ownership can also be created by a sole owner conveying an undivided interest in the patent or copyright to one or more third parties.[xliv]    Thus, it is possible for the parties to a strategic alliance, joint venture, joint development project or other collaboration to provide they will be joint owners of patents or copyrights developed in the course of their collaboration, regardless of which party made the invention or created the work of authorship.

Under both patent and copyright law, assignments must be in writing.[xlv]   Both patent and copyright law also provide for recordation of assignments.  An unrecorded assignment is valid as between the two parties, but will be void against a subsequent transferee who takes an assignment in good faith for a valuable consideration without notice of the prior assignment.[xlvi]Thus, if the parties are relying on an assignment of copyrights or patents to achieve joint ownership, they should record the assignment. 

If the parties wish to be joint owners of intellectual property resulting from their collaboration, they should define the subject matter that is to be jointly owned.  A provision in a contract merely providing that intellectual property that is “jointly developed” during the course of a collaboration will be jointly owned may not be precise enough.  For example, do “jointly developed” patents include only those for which for the parties’ employees would qualify as co-inventors under the patents laws or is it to be judged by some other standard?  If so, what standard?  Do “jointly developed” works of authorship include only those to which both parties contribute copyrightable subject matter or are they to be judged by a different standard?  If so, what standard?

One approach to defining the subject matter of joint ownership is expressly to adopt the criteria of co-inventorship under the patent law and co-authorship under the copyright right.  Thus, the parties may agree that they will jointly own any patent on which at least one employee from each company is deemed to be a co-inventor as a matter of patent law.  In effect, the agreement does not change what would be jointly owned in the absence of the agreement, but serves to acknowledge that joint ownership may arise and provide ground rules for the treatment of that which would be jointly owned if the agreement were silent.  This approach has several advantages: (1) it leverages the established body of law on co-inventorship; (2) in the course of applying for the patent, the patent attorneys will in any event have to go through this exercise, since each co-inventor must be named in the patent as matter of patent law; and (3) it relates to subject matter that the parties in many cases may not be willing to allocate solely to the other party.  A similar approach is possible with respect to copyrights, but raises more issues.  In the case of copyright, the parties are in a position to specify whether or not they wish to be co-authors, and a clear contract provision on point will probably be dispositive on that point.  If the parties wish to be treated as co-owners of jointly developed copyright subject matter, they should consider and specify whether joint ownership will require each party to have contributed copyrightable subject, to avoid uncertainty on that issue.

However, there is no need to limit the subject matter of joint ownership to subject matter that is jointly invented or a joint work for copyright purposes.  The parties are free, if they so desire and are willing to accept the complexities discussed below, to agree that any defined category of inventions and copyrights will be jointly owned.  In that case, they will need to implement that intent through assignments of an undivided joint interest in the affected subject matter.

In contrast to patents and copyrights, there is limited law on the subject of joint ownership of trade secrets.  Joint ownership of trade secrets has been recognized in a few cases.[xlvii]   Although trade secrets are treated as personal property for many purposes,[xlviii] a trade secret’s “proprietary” nature derives not from the knowledge itself, but from its secrecy.  In view of this attribute, the Fourth Circuit concluded that  “the inherent nature of a trade secret limits the usefulness of an analogy to property in determining the elements of a trade-secret misappropriation claim”, observing that “[w]hile the information forming the basis of a trade secret can be transferred, as with personal property, its continuing secrecy provides the value.” [xlix]  The peculiar nature of trade secrets needs to be taken into account in deciding what it means for trade secrets to be jointly “owned” by the parties and in defining the relationship between the parties calling for joint ownership.

Joint ownership of trademarks is also possible, but only in limited circumstances.[l]   In most settings, the notion of two different parties owning a trademark runs counter to the fundamental purpose of a trademark, which is to serve as a designation of origin from a single, or at least singly controlled, source.[li]   As a result, joint ownership of  trademarks is viable only in circumstances where the co-owners have in place a structure to assure joint control over the nature and quality of goods or services to be sold under the mark.[lii] 

It is worth noting that the legal obstacles to joint ownership of a trademark present no obstacles to joint ownership of an entity owning a trademark.  If joint ownership of rights to a trademark is essential to a strategic alliance, a jointly-owned separate entity (joint venture, LLC, etc.) might be employed to own the mark and use or license it for the benefit of the owners.  Because of the limited circumstances where joint ownership of trademarks would be appropriate, we will focus the remainder of this paper on other forms of intellectual property, i.e., patents, copyright and trade secrets.

C. Prosecution and Registration of Jointly Owned Patents and Copyrights

Parties contemplating joint ownership of patents should consider and, in most cases include provisions in their agreement specifying, how the decision whether or not to file a patent application and prosecution and maintenance of those that are filed will be handled.

How the joint owners choose to define their claims, whether and how they amend them in the application process, how they characterize their invention to the patent examiner, and how other aspects of the application process are handled are all important in determining the scope of the patent protection that may be obtained and even the validity and enforceability of the patent.  Thus, a key element to consider in providing for joint ownership of a patent is which party or parties will control this application process and to recognize that they will need to cooperate in the process.[liii] 

In many cases, the most practical approach will be to designate one of the parties to control the prosecution process, while the other party is given reasonable opportunities to provide suggestions.  However, in some circumstances, neither party may be willing to cede control to the other party and may insist on approval rights over filings and key decisions, including selection of patent counsel.  All parties owning any portion of the patent or patent application must act together as a composite entity in proceedings in the patent application  Thus, it is important for the parties to consider how they will proceed if they disagree on whether to file a patent or how to prosecute it.  For example, the parties might end up having quite different perspectives on whether to how to amend the claims in the applications and whether to file continuations, divisionals and continuation-in-part applications, which may change the claim scope and even the inventive entity.  The parties also need to consider how they will allocate the costs of the application process, as well who will be responsible for paying, and how they will allocate the costs of, the periodic maintenance fees required to keep a patent in force.

To secure patent protection in other countries requires filing foreign counterpart applications.  Foreign filings are expensive, and the co-owners may have divergent views on the importance of foreign filings or in which jurisdictions to seek protection.  Thus, a further item for consideration in the agreement is how the parties will handle foreign filings.  One common approach is to provide that if one of the joint owners wishes to file in a foreign jurisdiction, and the other owner does not, the non-filing owner will assign its interest in the patent in that jurisdiction to filing party but retained a paid-up, royalty-free, non-exclusive license to the resulting patent in that jurisdiction.

Unlike a patent, which comes into existence only if applied for and issued by the U.S. Patent and Trademark Office (or foreign equivalent), copyrights exist automatically by operation of law at the moment a work of authorship is fixed in a tangible medium.  Registration of the copyright is required in the U.S. as a prerequisite to suit and for certain remedies,[liv] but the process is far simpler (and less expensive) than the patent application process.[lv]   As a result, it is much less significant who controls – or pays – for the copyright registration process than who control and pays for the patent application process.[lvi]

D. Exploiting And Licensing Jointly Owned Intellectual Property

One of the complexities of joint ownership of patents and copyrights is that the rules with regard to use and licensing of the jointly owned property that apply in the absence of explicit agreement between the co-owners (which will refer to as the “default” rules) differ between different types of intellectual property, and may or may not reflect the parties’ expectations.  Thus, in most cases, the parties should expressly provide for and define their respective rights and obligations by agreement, and not rely on these default rules.

1. Patents

In absence of agreement to the contrary, under U.S. patent law, each joint owner of a patent may make, use, offer to sell, sell and import the patented invention without the consent of the other joint owners and without accounting to the other joint owners for any share of the profits.[lvii]   Each co-owner’s rights also carry with them the right to license others under any of those rights, also without the consent of the other co-owner or any obligation to account.[lviii]   As a corollary of the fact that each co-owner has the right to use and license the patented invention, no co-owner, acting alone, has the power to grant a truly exclusive license.  The right to grant licenses has been described as putting each co-owner “at the mercy” of the other co-owner.[lix]   One decision summed this up as follows:

In its essence all that the Government confers by the patent is the right to exclude others from making, using or vending the invention [citation omitted], and as to this essential attribute of the property each joint owner is in a very real sense at the mercy of any other...  [Each joint owner’s] unlimited right to license others may, for all practical purposes, destroy the monopoly and so amount to an appropriation of the whole value of the patent.[lx]

Just how much each co-owner is “at the mercy” of the other co-owners is illustrated by the Federal Circuit’s decision in Ethicon v. U.S. Surgical Corp.[lxi]   Ethicon, as assignee of the only named inventor (Yoon), brought an infringement suit against an infringer.  After suit was filed, the defendant became aware that there was a second co-inventor (Choi), who had not been named in the patent.  The defendant contacted Choi and obtained a license under the patent from him, agreeing to pay him a contingent fee if it was successful in defending against the suit brought by Ethicon.  The defendant then successfully asserted the license from Choi as a defense against Ethicon’s suit.  Since the defendant had a license from one co-owner, Ethicon, as assignee of the other co-owner of the patent, had no claim of infringement, and the case was dismissed.[lxii]   Choi also purported to grant the defendant a retroactive license, but the court held that the license was not effective to extinguish past claims of infringement by Ethicon that arose before the license was granted.  However, as will discussed below, all co-owners must join in a suit for infringement, and since Choi refused to join in the suit, Ethicon had no remedy past infringement and therefore that part of its case was dismissed as well.  The net result was that Ethicon could recover nothing on the patent.

The foregoing are the default rules in U.S. when there is no contrary agreement between the co-owners.  The co-owners are free to vary their respective rights, subject to the constraints of the antitrust laws and public policy.  Thus, for example, the co-owners might agree that neither will grant licenses to third parties without the consent of the other co-owner.  Or one co-owner may grant the other co-owner the exclusive right to use the patented invention, negating the first owner’s right to use the invention.[lxiii]   Alternatively, the co-owners might agree that, while each of them will have the right to use the patented invention, only one of them will have the exclusive right to grant licenses to third parties.[lxiv] 

Even where the default rules may seem consistent with the parties’ intent, it is still strongly advisable to define the parties’ rights explicitly by agreement.   Explicit agreement will minimize surprises or unintended results.  Moreover, as will be discussed below, the default rules with respect to copyright are different than those governing patents.  Particularly where the parties’ collaboration may involve both patentable and copyrightable subject matter (e.g. computer software), the default rules may lead to conflicting results. 

Explicit agreement on ground rules (and choice of law) is also important where there may be jointly owned intellectual property rights in multiple countries.  The default rules differ from country to country and often quite different in foreign countries than they are in the United States.   In Canada, U.K., Germany and many other countries, in the absence of an agreement to the contrary, a joint owner of a patent, while having the right to itself exploit the patented invention, has no right to license a third party (or convey anything other than its entire ownership interest to a third party) without the consent of the other joint owner.[lxv]   In France, a joint owner cannot assign the jointly owned patent to a third party without first offering it to the other joint owner.[lxvi]

Agreements curtailing the default rights of each co-owner with respect to the jointly owned patent should be explicit and complete in defining the parties’ rights.[lxvii]   The default rule may intrude if the parties fail to make the ground rules clear.  The Federal Circuit’s decision in Schering v. Roussel illustrates the pitfalls of joint ownership even when the parties have an express agreement on the subject.  Co-owners of a pharmaceutical patent (Schering and Roussel), agreed that if one co-owner wished to bring an infringement action against a third party and the other co-owner did not wish to join in the suit, the non-joining co-owner “shall render all reasonable assistance to said other party in connection therewith.”[lxviii]   One of the co-owners (Roussel) entered license negotiations under the patent with a third party.  While these negotiations were proceeding, the other co-owner (Schering) requested Roussel’s assistance in bringing an infringement suit against that third party.  Roussel responded that it was engaged in licensing negotiations with the third party.  Schering then filed an infringement suit against the third party with whom Roussel was negotiating, and notified Roussel that it was invoking its rights to assistance under the terms of the co-ownership agreement!  Despite the suit, Roussel and the third party completed their license negotiations and Roussel granted the third party a license.  The third party then asserted its license from Roussel as a defense in Schering’s infringement suit.  The Federal Circuit upheld this defense.  The Court started from the principle that each co-owner was entitled to license others without the consent of the other owner, unless it had given up that right through an “agreement to the contrary.” Schering argued that an agreement giving each co-owner the right to bring infringement suit unilaterally and requiring the other co-owner to render “reasonable assistance” was such an agreement to the contrary.  The Federal Circuit disagreed, concluding that the “reasonable assistance” referred to litigation assistance and was also not intended to limit the non-suing co-owner’s right to license the defendant.[lxix]

Another potential pitfall to consider is that, while agreements limiting or allocating the rights of co-owners of a patent are binding on the co-owners, they may not be binding on third parties without notice of them.[lxx]   The parties could seek to overcome this limitation by recording their co-ownership agreement with the U.S. Patent and Trademark Office.  Recording an assignment of a joint interest gives the assignee record title to an undivided interest and constitutes constructive notice.[lxxi]   However, the recording of a co-ownership agreement allocating or restricting rights between the co-owners may not be sufficient to create constructive notice of those allocations or restrictions.[lxxii]

The parties should also consider the potential impact of bankruptcy of one of the contracting parties.  Under the Bankruptcy Code, a trustee in bankruptcy (or debtor in possession in the case of a Chapter 11 reorganization) is entitled to reject executory contracts.[lxxiii]   An agreement among co-owners of a patent, providing for example that only one of them is entitled to grant licenses to third parties, may be an executory contract, and therefore subject to rejection.  If the co-owner subject to the restriction files for bankruptcy, it (or its trustee) could reject the agreement.  In that event, the bankrupt party’s rights would presumably revert to the default rights it would enjoy without the agreement, unless the restrictions were deemed to be (or drafted so as to be) within a special exception for licenses of intellectual property.  The Bankruptcy Code includes provisions to protect “licensees” of intellectual property rights.  If the trustee (or debtor in possession) rejects an executory contract under which the debtor is a “licensor of a right to intellectual property”, the Code gives the “licensee” the option to treat the license as terminated or “to retain its rights (including a right to enforce any exclusivity provision of such contract, but excluding any other under right ...  to specific performance) under such contract.”[lxxiv]   Thus, if bankruptcy of one of the co-owners is a potential issue, it may be prudent to structure any restrictions as the grant of an exclusive “license,” to permit the beneficiary of the restrictions to bring itself within the scope of these protective provisions for licenses.

The choice of law provisions in the agreement may impact the parties’ respective rights and obligations with respect to jointly owned patents in different jurisdictions, and should be considered from that perspective.  Since the parties are free to agree on who owns patent rights, and on what terms, their agreement as to which law will govern their contractual terms will be respected in most cases.  In International Nutrition Co. v. Horphag Research Ltd,[lxxv] the Federal Circuit considered the ownership of a U.S. patent for an invention made in the course of work under a development agreement governed by French law.[lxxvi] The agreement provided for patents developed under the agreement to be jointly owned.  The plaintiff in the litigation before the Federal Circuit was not a party to the development agreement, but claimed ownership of the U.S. patent in issue through assignment from one of the joint owners.  Under French law, unlike U.S. law, a joint owner of a patent could not assign his interests in the patent without first offering it to the other joint owner; and the assigning joint owner had not complied with this requirement.  In an earlier proceeding, a French court had held that, even though a U.S. patent was involved, the assignment was void because the parties’ agreement was governed by French law and under French law the assignment was void.  The Federal Circuit accorded comity to the French court’s decision, and held that the plaintiff did not own, and therefore lacked standing to bring a suit alleging infringement of, the U.S. patent.  The Federal Circuit found “no conflict between United States patent law, and enforcing the intent of the parties to the development agreement that it should be interpreted under the laws of a foreign country.”[lxxvii]

2. Copyrights

In the absence of an agreement to the contrary, each co-owner of a copyright has an independent right, without obtaining the consent of the other co-owners, to exploit the copyright.[lxxviii]   Thus, each co-owner is free to copy, distribute, prepare derivative works based on the joint work and exercise the other exclusive rights of a copyright.[lxxix]   Further, each co-owner is entitled to grant non-exclusive licenses under any of these rights to third parties, and a license from one co-owner immunizes the licensee from liability for infringement to the other co-owner.[lxxx]   These principles apply whether or not the co-owners are co-authors or acquired their joint ownership interest in the copyright by other means.[lxxxi]

The rights of co-owners of a copyright under U.S. copyright law to exploit the copyright are generally similar to the rights of co-owners of patents, with a major difference.[lxxxii]   A co-owner of a copyright must account to the owner for a ratable share of any profits earned from using or licensing the copyright.[lxxxiii]   The duty to account is said not to derive from the copyright law itself, but from “equitable doctrines relating to unjust enrichment and general principles of law governing the rights of co-owners.”[lxxxiv] However, Congress expressly acknowledged this rule in adopting the Copyright Act.[lxxxv]   The right to an accounting is generally held to be governed solely by state law,[lxxxvi] although one  decision held that a co-owner’s right to share in the profits derived from a joint work arises under the Copyright Act and preempted any claim under state law for unjust enrichment.[lxxxvii]

The obligation to account for profits represents, of course, an entirely different regime from that applicable to co-ownership of patents, and a potential trap for the unwary.  Whereas joint owners of patents are (absent an agreement to contrary) essentially free to use and license the patent without regard to the other co-owner, co-owners of copyrighted subject matter remain economically joined at the hip.[lxxxviii]

Parties should also bear in mind that the rules governing the rights of co-owners are different in most foreign countries from those in the U.S.  In most foreign jurisdictions, all co-owners must join in licensing the copyright to a third party.[lxxxix]   Under English law, the joint owner of a copyright may not even exploit the copyright himself (e.g., distribute copies of the work) without the consent of the other co-owners.[xc]   Thus, absent an agreement among the co-owners, the co-owner of the copyright under English copyright law would have far fewer unilateral rights than under U.S. law.  As with patents, therefore, parties contemplating co-ownership of copyrights should provide expressly concerning their respective rights to exploit and license the copyrightable subject matter and pay close attention to choice of law provisions.

Like co-owners of a patent, co-owners of a copyright are free to agree to a different allocation of rights among themselves than the foregoing default rules.  They may agree, for example, that neither of them will have the right to license the work to third parties without the consent of the other co-owner.[xci]   They are free to override the duty to account, or to reapportion profit sharing among themselves, as they see fit.

A re-allocation of rights among co-owners may be considered a “transfer of copyright ownership” under Section 204(a) of the Copyright Act[xcii], and therefore valid only if it is in writing and signed by the owner of the rights conveyed.[xciii]   This requirement may apply to any agreement that varies any of the rights a co-owner of a copyright would enjoy in the absence of agreement.[xciv]   One court also noted that “[w]hile it is not required that the writing explicitly mention ‘copyright’ or ‘exclusive right’ … , the better practice is that it should.”[xcv]

Restrictive agreements among co-owners (for example, an agreement that neither will license third parties without the approval of the other co-owner) are probably binding on third parties with notice.[xcvi]   As with agreements between patent co-owners, however, it is doubtful that agreements restricting the rights of co-owners to grant licenses to third parties will be binding on third parties without notice.   The Copyright Act permits any “transfer of copyright ownership or other document pertaining to a copyright” to be recorded in the Copyright Office.[xcvii]   Recordation gives all persons constructive notice of the facts stated in the recorded document (if the document identifies the work and the work has been registered).  Thus, recordation of the restrictive agreement may provide constructive notice.[xcviii]

3. Trade Secrets

There is scant precedent on the rights of joint owners of a trade secret to exploit or license others to exploit the trade secret, or whether they have any duty to account to the other co-owner for any profits derived from exploitation of the trade secret.  The few reported cases support the conclusion that, in the absence of an agreement to the contrary, each co-owner is entitled to use a joint trade secret in its business.[xcix]   These cases do not suggest that the exploiting co-owners have any duty to account for profits to the other co-owners.  Nevertheless, it would seem at least arguable that the same “equitable doctrines” relating to the rights of co-owners that require co-owners of copyright to account to each other would also apply to co-owners of trade secrets.[c]

Of particular importance in the case of trade secrets are what obligations, if any, a co-owner may have, in the absence of express agreement, to prevent disclosure of the trade secrets, and, conversely, what rights each co-owner has to license or disclose the trade secret to third parties. The limited authority suggests that a co-owner owes a duty to the other co-owner to protect the trade secret against “unlawful and unreasonable disclosure.”[ci]   Thus, in one case, the court concluded that a co-owner of a trade secret could be enjoined by the other co-owner from “unreasonably” disclosing trade secrets in a patent application.[cii] In another case, decided under the Uniform Trade Secrets Act, the court held that the allegation that a co-owner of a trade secret had disclosed the information to its parent company stated a claim for trade secret misappropriation.[ciii]

Given the scarcity of precedent, it is essential that co-owners of a trade secret specify their respective rights by express agreement.  The co-ownership agreement should provide, among other things, to what extent each party has the right to use the trade secrets, and to license others to use it, whether or not the consent of the other co-owners is required, and whether there is or is not any duty to account to the other co-owners for profits from the use or licensing of the trade secret.  In addition, in the case of trade secrets, the parties should specify whether they do or do not have any duty to the other co-owner to protect the trade secret from disclosure, and whether they may or may not disclose it to third parties.  Of course, if one or the other party is free to disclose generally the jointly owned trade secrets, it effectively has the right to destroy the value of the trade secret.  If this is not consistent with the parties’ intent, they may provide that each co-owner may only license the trade secret to a third party under a license requiring the third party to protect its secrecy.

E. Enforcement Against Third Parties

Patents and other intellectual property rights essentially confer the legal rights to exclude others from using the intellectual property.  Their value derives in large part from the ability to enforce those rights against third parties.  Joint ownership, particularly joint ownership of patents, significantly complicates the ability to bring enforcement proceedings.  Potential enforcement issues may be the single most important reason to avoid joint ownership where possible.

1. Patents

As a matter of substantive patent law, all co-owners of a patent must join as plaintiffs in an infringement suit against a third party.[civ]   Thus, absent some agreement to the contrary, each co-owner of a patent effectively has a veto over the other co-owner(s) bringing infringement suits.[cv]   This is precisely what occurred in the Ethicon decision discussed above, where one co-owner (Ethicon) was left with no ability to maintain an infringement suit because the other co-owner (Choi) refused to join as a plaintiff.[cvi]

The requirement that all co-owners join as plaintiffs rests on three considerations:

• It is a corollary of the right of each co-owner to license third parties.
• It protects the interest of a co-owner in avoiding a judgment declaring the patent invalid in a suit in which he or she did not participate.
• It protects the interests of a defendant in avoiding multiple suits concerning infringement of the same patent.[cvii] 

The Federal Rules of Civil Procedure provide a procedure for solving considerations (2) and (3) in cases where a co-owner is subject to service of process but refuses to join.   Rule 19(a) provides that a person who is subject to service of process and whose joinder will not deprive the court of jurisdiction over the subject matter shall be joined as a party in the action if, among other things, the person claims an interest relating to the subject of the action and the disposition of the action may as a practical matter impair the person’s ability to protect that interest [i.e.  point (2)] or leave any of the existing parties subject to a substantial risk of multiple inconsistent obligations by reason of the claimed interest [i.e.  point (3)].  Moreover, Rule 19(a) expressly permits the court to make such a person an “involuntary plaintiff” if the person refuses to join in the action voluntarily. 

However, the fact that a procedure exists for involuntary joinder of a co-owner is not sufficient to override the substantive patent law giving each co-owner the right to license (and therefore not to sue) third parties.  Thus, as a matter of substantive patent law, in the absence of an agreement to the contrary, a co-owner cannot be brought into the suit under Rule 19(a).[cviii]   Since a patent in essence is the right to exclude third parties from practicing the patented invention, the value of the patent for each co-owner is substantially reduced if the other co-owner, for any reason or no reason, can veto an infringement suit.

The co-owners can overcome this veto right by agreement.  The co-owners are free to agree by contract that one co-owner (or each co-owner) will have the unilateral right to sue infringers in its sole discretion, and obligate the other co-owners to join in the suit.[cix]   In one case, for example, one co-owner (Willingham) had granted an undivided 1/3 interest in the patent at issue to Star Cutter.  Willingham brought an infringement suit in which Star Cutter refused to join.  The court held that Star Cutter could be joined as an involuntary plaintiff under Rule 19(a), because a written agreement between Willingham and Star Cutter provided that each co-owner had the unilateral right to bring suit against infringers.[cx]   The court interpreted the provision as giving either co-owner a unilateral right to file suit against an infringer as a waiver by each co-owner of any right to protest the adverse consequences that might result to its interests from a suit initiated by the other co-owner.  “A co-owner who grants another owner a right to bring litigation in his ‘sole discretion’ should not be allowed to argue later than such litigation should be precluded on the ground that it is detrimental to his interests in the patent.”[cxi]

As the Willingham case illustrates, however, merely eliminating the veto of the other co-owner over infringement suits does not end the enforcement problem.  If the co-owners grant each other the unilateral to sue, each co-owner effectively waives the right to prevent an infringement lawsuit and may be forced to appear as an involuntary plaintiff under Rule 19.[cxii]   In most cases, the non-suing co-owner will still be a necessary party to the infringement suit, and therefore must be joined as a party. 

This confronts joint owners with a dilemma:  If they preserve each owner’s veto to bring enforcement actions, they may substantially reduce the value of the patent for each owner.  On the other hand, if they waive this veto and give each joint owner the unilateral right to sue, each owner may find itself being dragged, involuntarily, into infringement suits brought by the other owner.

A potential way out of this dilemma is to grant one of the joint owners the exclusive right to bring enforcement actions.   Such an exclusive right avoids the risk that the defendant will be subject to multiple suits on the same patent or that there will be conflicting decisions about its validity, and thus overcomes the major reasons for requiring all owners to be parties.[cxiii]   This approach has been used successfully.  In Agilent Technologies, Inc. v. Micromuse, Inc.,[cxiv] for example, Agilent and Hewlett-Packard jointly owned a patent, but Agilent was permitted to maintain an infringement suit against Micromuse, without joining Hewlett-Packard, because Agilent Hewlett-Packard had agreed that Agilent would have the exclusive right to license the patent to Micromuse and the exclusive right to enforce the patent against Micromuse.  Agilent had been given by agreement full power and authority to control the suit against Micromuse and any settlement and to retain 100% of any damages recovered.  In light of this contractual provision, the court held that Hewlett-Packard was not a necessary party and refused to dismiss the suit brought by Agilent.[cxv]

The co-owners should also consider the interplay between their respective rights to sue and their respective rights to license third parties.  As the Schering case richly illustrates, the right of a co-owner to bring suit against infringers can effectively be defeated by the other co-owner choosing to license the defendant.  One solution to this interplay is for the parties to agree that neither co-owner will license a third party who is a defendant in a pending infringement suit brought by the other co-owner, so long as the suit is pending.  This at least avoids the embarrassment and futility of having the rug pulled out from under a pending suit.  But it does not completely address the issue and raises other issues that will need to be considered, including: Will the suing co-owner in effect gain exclusive licensing rights as to a defendant by bringing suit?  Should a co-owner  be required to give advance notice to the other co-owner prior to bringing suit, and if so how does such a notice affect the right of the other co-owner to license the target?  How should the proceeds from a judgment or settlement of the suit be allocated?

2. Copyrights

The enforcement issues may not be quite so severe with respect to copyrights, but still raise potential complications to consider.  Under Section 501 (b) of the Copyright Act, “[t]he legal or beneficial owner of an exclusive right under a copyright is entitled ...  to institute an action for any infringement of that particular right committed while he or she is the owner of it.”[cxvi]   Unlike co-owners of patents, one co-owner of a copyright cannot block the other co-owner from suing for infringement by simply refusing to join in the suit.  Rather, under Section 501(b), the court “may require the joinder, and shall permit the intervention, of any person having or claiming an interest in the copyright.”

The Second Circuit holds that a co-owner of a copyright had standing to bring a suit for infringement in its own name without the joinder (or consent) of the other co-owner.[cxvii]   The co-owners are not indispensable, because their rights “can be reserved in the judgment”.  If the absent co-owner cannot be served, the action can nevertheless be decided as to the plaintiff co-owner.  The plaintiff co-owner cannot, however, recover all the statutory damages or all of the defendant’s profits.  Rather its recovery is limited to recovering “plaintiff s own part; that is to say, to its own actual damages, to its proper share of any statutory damages, and to its proper share of the profits.”[cxviii]

However, there is authority to the contrary,[cxix] and overall very sparse case law on point.  Consequently, for avoidance of doubt, parties contemplating joint ownership of a copyright who wish to maintain the unilateral right to sue are well advised to provide for this expressly in their agreement, and if so, to provide that the other party will join, if necessary, as a party in the suit.  And clearly, if co-owners of copyright do not wish to permit each co-owner to be able to bring suits against infringers unilaterally, they should expressly so provide in their agreement.

3. Trade Secrets

Each co-owner of a trade secret probably has standing to sue for misappropriation without the consent, and without joining the other co-owners.   In DTM Research v. AT&T[cxx], the Fourth Circuit held that the plaintiff in an action for misappropriation of a trade secret did not need to establish “fee simple ownership” of the secret and could maintain a claim even if other parties also possessed the same trade secret.  The court reasoned that the nature of a trade secret made “ownership” a poor analogy.  While a trade secret plaintiff under the Uniform Trade Secret Act must prove that the information qualifies as a trade secret, the misappropriation rests on proving that the defendant acquired the trade secret by improper means. Although co-ownership was not involved, the same reasoning would appear to support the right of a co-owner to maintain an action misappropriation.[cxxi]

F. CONCLUSION

Joint ownership of intellectual property introduces both complexities and the potential for unintended consequences.  If joint ownership is proposed, the parties should examine critically what objectives joint ownership is intended to accomplish and consider whether those objectives cannot be accomplished by other structures, such as sole ownership by one party, accompanied by a license of applicable rights to the other party.  If the parties do structure their relationship to include joint ownership of intellectual property (or if their collaboration is such that joint ownership may arise by operation of law), they should take care to think through and explicitly agree upon the ground rules.