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Who Owns A Company’s Intellectual Property?

When acquiring a business, establishing ownership of the target’s assets is obviously an important matter. Property rights in moveable and non-moveable fixtures, equipment, and other objects can be affected by finance agreements and other contracts that establish security interests in the business’s property. A due diligence analysis of the assets and their status is a core investigatory component that helps the acquiring company to value the deal. For some companies, a key part of this asset valuation is vetting the ownership status of the intellectual property (“IP”) rights of the target company with respect to any IP that is economically important to the business.

The default rule is that ownership of intellectual property (IP) rights vests in the inventor. Transfer of those original rights away from the inventor is possible, but effective transfer requires a clear written assignment between the parties that satisfies established legal standards. Among other things, the determination of whether the inventor or creator of a work was an employee or independent contractor can affect the determination of who holds IP rights to the work. Consequently, it is important to review all employee agreements, consulting agreements, or independent contractor agreements when a target company has IP assets that were created wholly or in part by its workers or an outside consultant.

The goal of the due diligence in this regard is to establish the scope and basis of the employment relationship or the contractual relationship between the outside party and the target company, along with whether the applicable agreements address creation, ownership, and transfer of IP rights to any works created by the worker. To predict the actual ownership status of any such works, attorneys will identify the strength of the target’s ownership claim over any IP assets produced for it by a worker or third party compared with any ownership claim the third party or worker might make. Thus the value of those assets to the acquiring company can be reasonably calculated.

In the case of intellectual property produced by third party contractors, several facts must be investigated. The first is whether the target company had a written agreement with the contractor that addressed the work to be performed generally, and the nature of the relationship between the parties. If such an agreement existed, the validity and enforceability of the agreement must be analyzed. If the agreement is found valid and enforceable, the next point of examination is whether the agreement utilized separate statements of work (SOW), or similar attached documents addressing the details of the work on a project level.

Such SOWs will support a claim that creation and ownership of a particular work was specifically contemplated by the parties, and therefore included within the reach of the broader contractual relationship. If the main agreement has an assignment of IP rights, including patent, copyright, or other rights as applicable, and an SOW or similar document was used for the project that created the IP, then the assignment may be found effective. If there has been an effective assignment, an attorney would next identify any exceptions or carve-outs, including for example, for foundational technology.

The work basis of any IP is also salient, along with whether the agreement includes licensing of ancillary rights necessary to commercially exploit the work produced by the third party. Ideally, the agreement and schedules or statements of work should indicate that all work is original and no prior owner or employer's property is included in any work delivered pursuant to the agreement. Finally, the inquiry with perhaps the most profound consequences is whether the contractor is affiliated with an academic institution and if the institution has any rights over the contractor’s inventions. If this question is answered affirmatively, an extensive set of separate research tasks must be completed in order to determine ownership of the works at issue.

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