August 3, 2018

Intellectual Property Ownership: How to Protect Your Assets

by John Weaver, Stansbury Weaver, Ltd.

Intellectual property (IP) is often the most valuable asset a company owns. Ambiguity in IP title is an existential threat. Litigation, or even the threat of litigation, can cost a fortune. Potential acquirers can use ambiguity to reduce valuations.

The best way to protect your business IP is to use written contracts; failure to protect IP opens the door to competitors and reduces competitive advantages.

The law of IP ownership is complex and depends on a multitude of factors. Ownership of software code is a perfect illustration of how complex IP ownership can be. Software can fall into several categories of IP (copyright, patent or trade secret). For this example, we'll only look at copyright.

Generally, copyright ownership vests with the creator. A contractor who writes software code holds the copyright, unless specified otherwise. However, if that coder is an employee, then a doctrine called "work for hire" might apply, which would grant the copyright to the employer. However, different jurisdictions have different interpretations of "work for hire." So it may come down to where the coding took place.

Things get murkier with startups, where the lines between employee, contractor and founder blur. Some courts have ruled that the informal nature of startups affects copyright ownership. Other courts have remained rigid about the necessity of written contracts. Founders may personally own rights that the company relies on.

Determining ownership of software code is frustratingly complex, even when only considering copyright. Patent and trade secret rights further confuse things. The only way to cut through the complexity is to have clear, written contracts with employees and contractors. Contracts establish clear IP ownership and help your company avoid landmines.