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October 23, 2018
Guest blog by Nate Quirk, Shareholder, McNair Law Firm
 
Imagine sitting in an office and overhearing this conversation:
 
“How are we going to solve this technical problem to take our product to the next level, when we don’t have the in-house expertise to solve the problem?”
 
“I suppose we could hire a contractor that specializes in this technical area. But, that could be costly, maybe even more than we can allocate to this effort. And, what if the contractor can’t solve the problem in a meaningful way after we invested all that money? No, let’s not do that. It seems too risky.”
 
“What about that contact I made at that conference? Her company has expertise in this area. I think I’ll call her and ask her about our idea. Maybe she can provide some guidance. Maybe her company will want to help us since they could benefit as well? And it might not cost us anything!” 
 
Businesses, particularly mid-sized and small businesses, often find themselves wrangling with these types of issues, and sometimes try to leverage their contact network to move efforts forward that can’t seem to be handled independently. Unfortunately, this type of resourcefulness can lead to issues down the road that must be considered before giving rise to this type of engagement. It’s very likely that confidential information will be shared and friendly, collaborative brainstorming on a solution will ensue, bringing rise to the joint development of intellectual property with no parameters in place to address important issues such as ownership.  
 
This is just one example of a scenario where unintentional joint development arises. Similar situations occur frequently at sales meetings with your customers (particularly when someone invites an engineer – generally a bad idea) or during discussions with your manufacturing company to modify your product for manufacturing purposes. In these and other settings, it is simply human-nature to openly share an idea on how to solve the problem at hand. 
 
But should you share that idea? And if you feel that you should, is now the right time to do so? Do you have agreements/contracts in place that will protect your interests?
 
A policy of “look before you leap” is typically a good one for these situations. If no agreement is in place between the parties, unfavorable state or federal laws may step in and dictate the outcome of important issues, such as intellectual property ownership. For example, with respect to patents, if no agreement is in place and inventors from two different companies contributed to the invention, each company owns an undivided interest in the entire patent. As such, each company, individually, has the right to make, use, offer for sale, sell, and import products incorporating the patented invention without the consent of the other owner and without any accounting to the other owner for any income associated with sales involving the invention. Additionally, each owner can freely license the invention to a third party without the consent of the other owner. Also, all owners must be a party to a patent infringement action, and if one withholds, then the action cannot be brought.   



These are just some examples of the results of a joint development effort in the absence of an agreement. Accordingly, if you find yourself in such a situation, you should slow or even stop communications, until the parties clarify and memorialize the goals and parameters of the effort in a joint development agreement.
 
A multitude of issues should be addressed in such an agreement, with at least some of those being:
  • Role and contribution for each party (e.g., technical expertise, project management, sales services and contacts, etc.) 
  • Scope of the development activities
  • Allocation of incurred costs to support the effort
  • Ownership of developed intellectual property and licenses to background intellectual property already owned by the parties
  • Confidentiality
  • Termination
  • Dispute resolution
     
Typically, the intellectual property ownership and related provisions can be some of the most contentious and are therefore often the most important to discuss as early in the process as possible. Keep in mind that jointly developed intellectual property is not limited to patents, but could also include copyrights, trademarks, trade secrets, know-how, etc. With respect to intellectual property that must be filed and prosecuted with a government entity, for example patents, such an agreement should indicate which party will take the responsibly for preparing the filings and responding to any ongoing communications with the government entity. Additionally, the agreement should stipulate which party will take on the responsibilities associated with enforcing the jointly developed intellectual property against third parties.
 
Different types of intellectual property ownership structures may also be defined within a joint development agreement. For example, the parties may agree to a form of joint ownership, where at least some rights are held by both parties. However, the parties may alternatively negotiate that one of the parties owns the intellectual property in its entirety and the other party is a non-owner and possibly a licensee. Ownership structures may also be defined based on inventorship, subject matter of the invention, and combinations thereof.  
 
In many circumstances, the jointly developed intellectual property may build on existing intellectual property held by one or more of the parties. In these instances, it may be necessary to include intellectual property licenses, cross-licenses, or covenants not to sue in the agreement relating to this background intellectual property. These provisions can operate to provide both parties with the rights to use the other’s background intellectual property to develop the new, jointly developed intellectual property and to practice the new, jointly developed intellectual property in the future. Such provisions may be limited in a variety of ways. The scope of these provisions is often limited by, for example, expressly enumerating the subject patents, indicating a field of use limitation for each party, or indicating which specific products enjoy the rights provided by the provisions. Other limitations that may also be considered are exclusivity (possibly within a stated field of use), the right to sublicense, and the duration or term.
 
With this in mind, it becomes clear that many intellectual property issues in joint development scenarios can quickly become complex and difficult to define. However, if the success of your business is tied to the success of the joint development effort, it is best to tackle these issues early in the collaboration to ensure that there is certainty with respect to your rights and that those rights are protected. While there are circumstances where these issues can be effectively handled independently, it is often best to obtain the counsel of an intellectual property attorney to ensure that any foreseeable issues are properly addressed. 
 
Joint-development efforts can be extremely valuable tools to growing businesses, particularly when natural synergies exist. That said, this is an area where foresight and proactive consideration is necessary to avoid undesirable outcomes, particularly in the area of intellectual property ownership, so that when new intellectual property is developed, the lines of ownership are clearly defined.

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Nate is a shareholder in McNair's Charlotte office, where he focuses his practice in the areas of intellectual property procurement, enforcement, and transactional matters. Read more about him here.
 
TOPICS: Business, "Global Competitiveness", "News You Can Use"

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