October 9, 2019
Joint ownership of an IPR should be avoided as much as possible because it comes with many challenges. However, if your company owns an invention together with someone else, and, for some reason or another, there are no plans to transfer the ownership to one party, it‘s best to draft an agreement on the joint ownership of the invention. Even financiers will value a clear agreement on the ownership of the IPR, writes our lawyer Sanna Häikiö.
Co-owned inventions are often created through various collaboration initiatives, which means the ownership of the invention can be split between several companies, universities or even a research institute.
It’s important to make the joint ownership agreement in good time, so that the co-owned invention can be utilised as well as possible. At its best, the agreement will guarantee clear ground rules for using the IPR.
When a joint invention is created, one or all parties normally will at some point want to utilise the invention in, for example, their companies. One party may want to utilise it just in their own operations, while the other wants to patent and licence the invention or even prevent its commercial use—or this might be what everyone wants.
All this should be written down in an agreement already when the collaboration starts, especially if inventions are expected from the initiative. These questions have monetary value, which is why they are crucial. Many arguments begin with money. By making an agreement, parties can avoid later disputes.
“One party can make it difficult to utilise the invention”
I am currently dealing with a dispute that was created during a joint initiative between two institutes of higher education. Each institute has one researcher in the initiative, and both have a 50 per cent share of the invention. The institutes of higher education do not want to utilise the invention themselves, but the researchers would like to set up their own startup company around the invention.
The other institute of higher education has transferred the rights to the invention to the researcher with unambiguous terms, but the other foreign institute is refusing to confirm the transfer of rights sufficiently clearly in writing. It considers that its internal IP regulations are enough to define the situation and demands a 20 per cent royalty of everything that the researcher will make with the invention.
For the inventors, it’s a difficult situation as they are just starting out as entrepreneurs. Its difficult to utilise the invention commercially and acquire possible financing in a situation where the transfer of rights from the institutes of higher education to the researchers or the company about to be founded cannot be proved indisputably. This means that the financier will naturally see a risk in the fact that the ownership can cause problems later on. It will also be difficult to sell the invention in the future if the ownership is not unambiguous.
“Include at least these details in your agreement”
I am often asked what should be included in a joint ownership agreement.
First of all, make sure that none of the co-owners will endanger the protection of the invention. The invention becoming public prematurely in, for example, publications must be prevented with appropriate confidentiality regulations. You should define in the agreement each party’s share of ownership of the invention as well as the terms and limits of the right of use and exploit the invention. Note down compensations and costs, i.e. how possible profits from utilising the invention as well as costs related to protecting and maintaining the patent will be divided among the co-owners.
In addition, it’s a good idea to agree on the invention’s protection strategy thoroughly: in which countries will it be patented and which details will be emphasised in the patent application? Who will defend the patent in possible opposition and contention situations and who is responsible for the costs? And do you have to participate in the maintenance costs of the patent even if the invention does not yield anything to you? Is it possible to be entitled to the profits from the invention based solely on ownership if a party is not actively participating in its protection and commercialisation?
And if one of the co-owners decides to develop the jointly developed invention even further and makes new versions and improvements—who owns them and who is allowed to use them? And what should be agreed on them? It’s also important to write down how to act when one of the co-owners wants to break away from the joint ownership and, for example, sell their share. A condition on pre-emption is often added for these situations. This means that if one co-owner wants to sell their share, the other parties have a pre-emptive purchase right before anyone else.
“Different countries may have very different legislations”
When making the agreement, you have to go through many details depending on the case. The person who is the most familiar with these details is an expert in intellectual property rights. The IP expert will also acknowledge the biggest pitfalls that cause disputes and can prepare for them in advance already when drafting the agreement.
It’s hard to resolve these questions alone. In addition, especially in international collaborations, it’s important to consider that the legislation on joint ownership may be very different in different countries. The Finnish legislation on joint inventions is rather defective. Our patent law does not include any provisions on the matter, so we often need to look at the principles that are generally applied to joint ownership. If nothing has been agreed, the starting point in Finland is that the co-inventors—or those to whom the rights to the invention have been transferred—can regulate actions concerning the invention as a whole only together. It’s possible to sell your share, but everyone’s permission is needed to transfer or licence the entire invention.
It’s also not possible for one co-owner to apply for a patent, and the application must be made unanimously. For example, in the United States, many principles related to joint ownership are the exact opposite to the Finnish ones in situations when nothing else has been agreed. Differences can come up in whether a co-owner can alone take legal action related to the patent or, for example, licence the patent without permission from the other co-owners.
In many European Union research financing initiatives, such as Horizon 2020 initiatives, the practice is quite clear as participants are required to sign a joint ownership agreement in advance.
“Do not rely on a verbal agreement”
Joint inventions are created in many industries and often in industries with many joint projects and research initiatives. There may be two or several parties. Their share of the invention may vary a lot: one party may have a 50 per cent share and another one only a 5 per cent share. Defining the shares may affect many things when drafting the agreement, starting from who will benefit from the invention commercially and how much. What makes the situation more confusing is that one party may have been developing the materials behind the invention for many years. In this case, we have to evaluate what the significance of this so-called background material is on the creation of the innovation and how it will affect the ownership shares.
A good and functioning alternative is to agree that one of the co-inventors will be responsible for protecting and commercialising the invention and make related decisions independently or within limits that were agreed together. In return, the commercialisation owner will compensate the other co-owners moderately.
In any case, the essential thing is to define, at least in broad outline, the terms of a possible joint ownership already before the joint initiatives begin, even if no one is demanding an agreement. However, many financiers of product development initiatives will require drafting a joint ownership agreement in their financing terms.
A written agreement has significant added value even if the collaboration seems to flow naturally and things are agreed upon verbally. One should never rely on verbal agreements as their significance in, for example, contentions may be weak. The ones who started the initiative may not even realise that the initiative may lead to inventions. When the main division of labour and ground rules are clear from the beginning, this will not lead to problems.
Agreements should not be seen as a bugbear, but as advocates of collaboration.
Do you want to make a joint ownership agreement on invention or revise your current agreement?