Determining IP Ownership and Assignment to Corporation
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Authored by Bryan Springmeyer Bryan Springmeyer is a California corporate attorney who represents startup companies. The information on this page should not be construed as legal advice. |
Prior to acquiring investor funds, or subject to it, the founders of a corporation may be required to assign their IP to the company. This protects investors from the founders being able to walk away from the venture with the property the investors are supporting. It also gives some value to the corporation for liquidation purposes.
Determining IP ownership is vital for an effective assignment. The most common 'surprise' is that IP sometimes belongs to a founder's employer or company they've contracted with. If an employee or contractor is hired to invent or create other works (like source code or user interface designs), it is not generally a surprise that the employer expects the title to the works or assignment of the patent rights. However, when the invention the employee or contractor comes up with becomes more distant from their understanding of what they were being paid to do, the more surprising it may become when the employer attempts to assert title to that IP or when your attorney tells you they want to get an acknowledgement and/or assignment prior to going into a VC deal (or worse, when the VC's counsel starts probing during due diligence).
Common law generally dictates that when you are paid to create specific IP by an employer or contractor, the employer has rights to the IP. With regard to patents, since only the true inventor can patent the invention, the employer may have shop-rights or the right to a full assignment. If, however, the employee is not using the employer's resources, creates the property outside of work and work hours, and the invention is not releated to the scope of their employment, the employer is not entitled to the property. Unfortunately for the employee, most IP disputes in connection with employers (and nearly all with tech employers) are governed by contracts. In the multitude of papers you sign when starting a new job is usually an invention assignment agreement or provision. Courts generally look to these agreements as freely contracting parties with the ability to offer their IP creations to employers as a condition of employment. There are limitations by courts on public policy grounds and by legislatures, as well. For instance, California Labor Code §2870 provides that an employer may not include provisions requiring employees to assign an invention created entirely on the employee's time without using the employer's resources, unless they relate to the employer's business or anticipated business or result from the work the employee performs for the employer. Short of these restrictions, however, employers and employees are able to contract with respect to IP rights, even when that amounts to signing one of several employment documents upon being hired.
Marital property rights can often be a surprise for inventors. There is a presumption under California law that marital property acquired during the marriage is community property, meaning that both spouses own the property equally. Spouses can enter into agreements to change the nature of the property. Additionally, one party can generally dispose of community property. This issue becomes more complicated when the spouses file for marital dissolution (divorce). If the IP is community property at that point, the non-creator spouse has a right to an equal share of the IP.
Answering any questions about IP ownership is better addressed early on. These questions will not likely arise until the due diligence phase of an angel investment or VC transaction. At that point, not having the answers and/or being able to quickly resolve ownership issues could make the deal fall through.