Patent Ownership in the United States - Best Practices to Preserve Your Rights
The issue of who actually owns a patent or pending patent application is obviously very important. This blog post will briefly explain how patent ownership works under US patent law, so inventors, managers, and other non-experts can better understand this important topic when working with a patent attorney.
Patents are a form of intellectual property. All property (including patents) has an owner, which may be an individual (i.e., a person), or a group of people, or a corporate owner. A corporate entity can be a limited liability company (LLC), a corporation (S corp or C corp), a partnership, or any other corporate entity allowed by the law of any state.
Much of patent ownership is analogous to the ownership of real property or ownership of things like cars. Just like with any property, patents can be bought, sold, and licensed (analogous to renting a property). Of course, there are differences – mainly because patents are intangible. You can’t put a patent in your garage. So lets discuss how patent ownership works and best practices.
Default – Patents are Owned by the Inventors
By default, US patents are owned by the inventors if no other action regarding ownership is taken. All patents and patent applications require at least one inventor, so this requirement is always met from the time of filing.
Leaving patents in the name of the inventors is not necessarily a problem, but a best practice is to transfer the ownership to a corporate entity (see discussion of patent assignments below). Here are some issues with leaving patents in the name of the inventors:
- For a single inventor, if the inventor dies or becomes disabled, the ownership of the patent becomes questionable. The patent may become subject to a probate proceeding.
- For a group of inventors, each person owns an undivided equal share of the patent. That means that if there are, say, four inventors, each inventor owns 25% of the patent, and each inventor can do whatever they want with that share. For example, one inventor/owner could start producing a product covered by the patent that the other inventors don’t like. The others may think the price is too low or the quality is poor. With the default ownership, the other inventors have no basis to stop a rogue co-inventor from causing mischief.
- Another group inventor problem is that if the inventors have a falling out, one inventor can assign their interest, complicating the ownership of the patent.
- Potential licensees, business partners, or investors typically want to do business with another corporate entity, not an individual or group of individuals. In the case of a group of inventors, each inventor must agree to sell or license the patent. If one inventor/owner objects, a deal that other owner/inventors want could be ruined.
By transferring the ownership to a corporate entity such as an LLC, S-corporation, or C-corporation, many of these issues go away or become contractual issues between owners of the corporate entity, which are easier to deal with.
Alternative – Patents Owned by an Applicant
Alternatively, patents can now be filed by a corporate entity (called an “Applicant”). Note however, that naming an Applicant at the time of patent filing is not a substitute for a patent assignment. A patent application naming an applicant should also have an assignment from the inventors, even if a corporate owner is provided at the time of filing.
In patents, selling a patent (or a partial ownership in a patent) is called an assignment. Inventors of patents or any current owner can assign their interest in a patent or patent application to another party, such as a corporate owner or another person, at any time during the life of the patent. With an assignment, ownership and all rights that go with the patent are transferred from an assignor (i.e., the seller) to an assignee (i.e., a buyer).
Assigning a patent or patent application is analogous to selling an asset, such as a house or a car. With an assignment, the patent is effectively sold to someone else.
Partial interests can be sold, so for example, one inventor in a group of inventors can assign their individual interest, which could be a serious problem and tie up the ownership and value of the patent. This is a reason why an assignment to a single corporate entity for a group inventorship patent may be important.
Assignment of Patent Applications
Patent applications not yet granted can also be assigned, and there are good reasons for doing so.
- For a group of inventors, getting an assignment very early in the process can avoid the problem of a disagreement among inventors. By assigning to a corporate entity promptly after the patent application is filed, the ownership picture is secure from the patent application filing.
- For both individual and group inventors, an assignment to a corporate entity makes the patent more attractive to investors, potential buyers, or licensees. Investors, potential buyers or licensees typically would much rather deal with a corporate entity rather than an individual investor.
Obligations to assign
Many inventions are made by employees, such as scientists or engineers working for a company. This discussion also applies to consultants. A best practice is for employers to insist on an obligation to assign any invention made by an employee or consultant inventor to the employer. There is case law that an invention made by an employee or consultant using company time and resources, without an express obligation to assign, belongs to the employer. However, these rights are weak and can lead to costly litigation, delays, and loss of rights. By including an obligation of any employee-inventor to assign their patent to a corporate entity, this problem is avoided. This provision should be added to employment or consulting agreements if patentable subject matter is a likely to be developed. Even if an employee and employer have a disagreement or falling out, the employer can still assert ownership over a patent if there is an obligation to assign on file. Special language is required under the case law to perfect an obligation to assign future rights, so this should be discussed with a patent attorney.
Any compensation due to an employee-inventor is a separate question. That issue should be negotiated in advance of any work assignment.
Many inventors and companies are not interested in commercializing a patented invention and may desire instead to license the invention to another party that has the capability of manufacturing or marketing a patented product. A patent license is analogous to renting a house. The owner gives another party the right to use the property in exchange for payments (rent). So a license is a transfer of some, but not all, rights in a patent or patent application.
Patent licensing is a big discussion beyond the scope of this blog post. The main point for this discussion is that patent licenses can be classified as exclusive or non-exclusive. In an exclusive license, the licensor (the party that owns the patent) does not license the patent to any other licensees. In a non-exclusive license, the licensor makes licenses to multiple licensees.
An exclusive licensee has special rights in terms of enforcement. An exclusive licensee may bring a patent infringement suit without involving the patent assignee.
A key feature in patent law is that only a patent assignee or exclusive licensee has standing to bring a lawsuit for patent infringement. A non-exclusive licensee or some other third party, even if they have some kind of interest in the patent, cannot bring a suit for infringement on their own. Ultimately, this may be the most critical factor in this discussion. The ability to bring a suit for patent infringement to protect the patent right is what makes patents valuable assets. Consequently, it is important to understand which parties have this right.
Ensuring the correct party has rights to a patent or patent application is a critical aspect of managing a patent portfolio. Properly addressing ownership issues at an early stage is a best practice. Contact us for assistance with this important aspect of patent ownership.