How to Protect Intellectual Property Rights When Hiring
Filed under: Copyright, Intellectual Property, Internet Law, Patents, Startups
Imagine that your company hires an independent consultant to develop your website or to do design work for marketing or branding purposes. Would you be surprised to learn that without a written contract that includes specific provisions, the consultant would retain ownership of the intellectual property created despite the fact that your company paid for the work? It’s true, and because it’s far from intuitive, this rule can create problems for businesses that do not take proper precautions. The contractor would likely have the right to reuse the work created and your rights to publicly use that work may, in fact, be quite limited. This post examines the relevant copyright and patent laws and provides practical advice for businesses when hiring independent contractors or employees who may create original works on behalf of the company.
Copyright. With respect to employee/employer relationships, the “work made for hire” doctrine provides an exception to the principle that copyright ownership remains with the person who created the work. In this situation, the employer, not the employee who created the work, will own exclusive rights to work created within the scope of the employee’s employment. Disputes can sometimes arise as to the scope of the employment, and unfortunately, it’s not always cut and dry that the relationship is one of employment and not one of partnership or an independent contract–it depends heavily on the facts surrounding the working relationship, and many ownership disputes have come down to this issue. (For more information on categorizing workers as employees or independent contractors, see our previous blog post, “Categorizing Workers: Employees or Independent Contractors.”)
If the creator of the work is not an employee but rather an independent contractor, then three requirements must be satisfied in order for the hiring party to own the original work under the work-for-hire doctrine. These requirements are as follows:
- prior to the commencement of the work, the parties must agree in writing that the work shall be considered a “work for hire”;
- the work must have been “specially ordered” or “commissioned” by the hiring party; and
- the work must fall within at least one of nine statutorily mandated categories of commissioned works listed in the Copyright Act.
These requirements necessitate that the parties have a written agreement in place with specific work-for-hire provisions. And since, particularly with websites and software, it’s not always clear that the work product falls into one of the nine specific categories authorized by the statute, a well-drafted independent contractor agreement will also include back-up language assigning all intellectual property rights associated with the work product to the company contracting for the work.
Patent. With respect to patent rights, companies can acquire invention from employees by one of three ways. To the extent that the employer specifically hires or directs an employee to exercise inventive faculties, the employed-to-invent doctrine holds that the invention is owned by the employee. Even if the employer does not have full rights to the employee’s invention, if the employee utilized company assets to develop the invention, the employer may still have limited so-called “shop rights” to use the invention. Because the application of these doctrines are not always clear, the safest way is to have in place a formal Invention Assignment Agreement in which the employee assigns inventions of the employee to the company. And if patent rights are involved, an Invention Assignment should always be in place when working with independent contractors.
In this era of fast-moving technology, startup companies are not always careful in this area. Intellectual property rights associated with works created by employees and independent contractors can be the source of expensive disputes if the company becomes successful and will be an important subject of review during any due diligence conducted for the purposes of financing and exit transactions. As a matter of general practice, and especially when the intellectual property being created is essential to the long-term growth potential of the business, well-drafted employment and/or independent contractor agreements should be in place and the working relationships should be reviewed by an attorney.
Provisional Patents: Benefits and Considerations
Many companies, especially companies trying to save money, file provisional patent applications to protect inventions. Provisional patent applications differ from regular patents applications because they do not mature into an actual patent unless a patent application is filed within one year.
Benefits:
First, the U.S. Patent and Trademark Office (PTO) filing fee of a provisional application is relatively low: only $110 for a small entity (i.e. a company with less than 500 employees) or $220 for a large entity. The filing fees for a regular patent is between $400 and $2,000 (depending on the size of your company and claims made in your application).
Second, the requirements for a provisional application are much easier to meet than a regular patent application. In order to obtain a filing date, all that is needed in a provisional application is a coversheet, the PTO filing fee and specifications. Accordingly, preparation and filing of a provisional application is a simple and quick process for patent attorneys, which greatly reduces attorney’s fees.
Third, the filing of a provisional application affords patent protection effectively extending the 20 year patent term to 21 years.
Fourth, the filing of a provisional application can be used to satisfy the U.S. requirement that a patent application must be filed within one year of publication, first public use or offer for sale of an invention.
Fifth, the filing of a provisional application enables the applicant to claim patent pending status on its products.
Sixth, the timely filing of a provisional application preserves U.S. and foreign patent filing rights.
Considerations:
In order to retain the priority benefit of a provisional patent, a regular patent application (and any foreign applications) must be filed within one year of the provisional patent and must claim priority based on the provisional patent application. It is also important to keep in mind that a provisional patent is confidential and un-published by the PTO, which many companies like because of sensitive materials related to inventions, but if the applicant decides to file foreign patent applications, the provisional patent will be published 18 months from the filing date of the provisional application. Likewise, once an applicant secures a regular patent, the patent will be published.
In addition, filing a provisional application delays when examination will commence, effectively delaying when the patent will eventually issue. Some companies view this as a negative if their technology is quickly-changing, such as software, cell phones, etc. Quickly-issued patents are key to protect technology that is changing rapidly in the marketplace. Some companies actually prefer to have a patent pending as long as possible so that potential infringers will not immediately know how broad the issued patent will eventually be and so the potential infringers cannot actively design around a patent application because the patent claims have yet to issue.
Another filing consideration is litigation of provisional applications, as provisional applications are discoverable during a lawsuit. This makes provisional applications a potential litigation exposure because it is possible to attack an issued patent based on the differences in language between the provisional application and the full utility application. Many conclude that a regular application should have the exact same language as the provisional application and at that point it may be better to file the regular application rather than the provisional application.
In conclusion, the decision regarding filing a provisional application will be based on costs, timing and confidentiality of the invention. Additionally, a company should taken into account non-patent business factors that are normally associated with putting a new product on the market.
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