Securing Ownership Rights in Patents in the Real World

By Jeremy A. Cubert
September 8, 2017

“It isn’t easy being a brilliant inventor, always alone. Always misunderstood. Easy to turn bitter, make horrible mistakes. People are more difficult to work with than machines. And when you break a person, he can’t be fixed.”

Hephaestus

~ Rick Riordan, The Battle of the Labyrinth

In the modern age, we cling to mythology – including the mythology of invention. In our minds eye, we see the inventor in the basement struggling by the sweat of the brow and candlelight until the eureka moment when the light bulb goes on over their head.

The basement inventor is increasingly rare, although I am old enough (and lucky enough) to know several. Invention in the “real world” is often a messy, team effort of multiple inventors, employers, contracts, research agreements, and funding agreements. As the complexity of invention multiplies, so do opportunities for unintentionally losing or jeopardizing intellectual property rights.

Whether you are creating or valuing IP, keep the following in mind as you look beyond the myth of invention to how the story unfolds in the real world.

Employment Agreements

In the U.S., inventors are the default owners of patent rights. If a company employs an inventor, they need to secure ownership of patent rights through an employment or consulting agreement. However, securing ownership is not enough. Cooperative inventors may be needed after a patent application is filed to provide technical input, and assist in reviewing and responding to office actions from the patent office. This is true even if the inventor leaves the company.

Thus, it is important to have a provision in the employment or consulting agreement requiring that the inventor continue to cooperate with patent prosecution after the inventor is no longer employed or under contract to the company.

Typically, the company will agree to cover reasonable expenses associated with providing this assistance. Although, there are mechanisms to proceed with patent prosecution when inventors are not cooperative, it is far easier to obtain an agreement up front maintain a cordial relationship with inventors during and after their employment than to proceed without their assistance. Maintaining cordial relationships with inventors is not only good business advice, it could be very important to obtaining a valuable patent family.

Material Transfer and R&D Agreements

In the world of academia, sharing materials and results with others is part of the culture. Open collaboration has many benefits including avoiding “recreating the wheel” or going down fruitless avenues of research. However, there are pitfalls to avoid if you want to preserve patent rights.

For example, it is critical that any transfer of materials be governed by a material transfer agreement or MTA. Important issues governed by an MTA include the scope of the agreement (i.e., what is the recipient permitted to do with the materials?) and whether one or both parties will own inventions that may arise under the agreement.

The scope of the “Research Plan” of the MTA is often overlooked, at the peril of the provider. Often, recipients of materials want to keep their options open, so they will suggest a research plan along the lines of “Conduct in vitro studies.” However, the provider may want restrict the ability of the recipient to modify the materials and avoid a situation where modified materials become the property of the recipient.

R&D Agreements raise similar issues. The parties need to decide how ownership will be allocated, how patent prosecution and enforcement will be managed, what happens in the event one of the parties declares bankruptcy, and how disputes will be managed. The Research Plan of an R&D Agreement is usually more extensive and should spell out what each party will do. The Research Plan is often used to determine whether a party is considered an inventor of patent rights that arise under the R&D Agreement. For example, if the first party is merely following the direction of the second party, according to the Research Plan, the second party could end up being the sole owner of the patent rights invented by their employees.

To avoid “mission creep,” research plans should be as specific as possible, and the agreement should provide a relatively simple way for the parties to suggest and approve amendments to the research plan.

Funding Agreements

Much of scientific work at Universities is supported by funding, often from the U.S. Government, in the form of grants. Grants are typically highly competitive, and serve as the lifeblood of biomedical research in the U.S.A. Funding may also be provided through foundations or companies to support research for particular diseases. Sponsored research by companies is another mechanism for private companies to leverage the expertise and intellectual property of Government and University scientists.

However, outside funding may come with strings attached. U.S. Government funding agreement, for example, require reporting inventions resulting from the research and a mandatory “grant back” of a paid-up, worldwide, perpetual, non-exclusive license for “Government purposes.”

For example, if a company develops software with Government funding and then they wish to sell the software back to the Government, they may be surprised to discover that the Government already has a license to the software.

Likewise, a University scientist who develops a diagnostic test under a U.S. Government grant may be surprised to find a competing laboratory using their test under a contract with the Federal Government.

Conclusion

There is often more than meets the eye when it comes to ownership of inventions. The benefits of collaboration far outweigh the disadvantages. However, you can take steps to ensure a smooth collaboration by keeping the following principles in mind:

(1) Use employment and consulting agreements that vest rights in the company/institution;

(2) Use material transfer and R&D agreements that secures ownership of rights before, not after they arise;

(3) Pay careful attention to the scope of agreements to avoid “mission creep” and unintentionally vesting ownership of derivatives and downstream rights to recipients and collaborators;

(4) Consider sources of funding and any associated rights owned by the Government or third parties when evaluating IP rights.

The Author

Jeremy A. Cubert

Jeremy A. Cubert is a Partner at VLP and is a member of the firm’s Intellectual Property Practice Group. With over 17 years of experience in patent law with an emphasis in life sciences, Jeremy assists companies in all aspects of obtaining and managing their intellectual property portfolios. He has extensive experience in patent prosecution, due diligence and analysis of intellectual property portfolios and regularly counsels clients regarding the acquisition and licensing of intellectual property assets. Jeremy regularly works directly with scientists and professionals at academic institutions, biotechnology companies, and Fortune 500 companies to develop intellectual property development and management plans.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 13 Comments comments. Join the discussion.

  1. Tesia Thomas September 8, 2017 1:03 pm

    I think that whoever claims that basement inventors are becoming ‘increasingly rare’ needs to show the data.

    Until the data is shown then its mythological that universities and government grant funded companies create just about everything.

    Basement inventors peek their heads out of the basement to try to sell their tech and it gets misappropriated.

  2. Tesia Thomas September 8, 2017 1:08 pm

    The scientific work funded by govt grants at unis may never result in anything but a worthless paper.

    Someone needs to show the data.
    Money given to unis ->tech applied in industry, jobs created, revenues
    Basement inventors ->tech applied to industry, jobs created, revenues

    With growing research grant fraud, a lot of this R&D money doesn’t get put to good use- that’s my opinion.

  3. Paul F. Morgan September 9, 2017 1:49 pm

    An additional pitfall for a company to be aware of in hiring a consultant-private inventor is not to be unknowingly steered into product features covered by prior patents or copyrights by the consultant-inventor without a license.

  4. John September 9, 2017 1:56 pm

    Yes I (the inventor) has had a dealing with 1 university. They have money and resources such as equipment and tech. people needed to bring the idea to marketing. Then they ask what are you going to give us when you get big? I say, “First you have to sell to make a profit to get big”. Wrong answer. I went it alone instead.
    Angel investors are more conservative where they want sales that already exist and IP as well. Thanks for letting me vent. It’s back to the idea.

  5. Paul F. Morgan September 9, 2017 1:59 pm

    TT the June 7, 2015 Patently-O blog charts PTO statistics showing the number of patents issued to the inventor(s) rather than to a U.S. assignee or a foreign assignee [about 50%] has dropped to only about 6%.

  6. Tesia Thomas September 9, 2017 2:09 pm

    Yeah but how many are startups?
    I was going to assign my IP to my business soon.

    I’m just saying it’s not totally clear. And especially if that’s a recent drop.
    But I am also biased in that I’m uncovering so many inventors who were screwed out of their IP but just don’t get media attention/remembered.

    And we also have to think about the filler patents…on both sides.

  7. Tesia Thomas September 9, 2017 2:21 pm

    And then you have to consider that huge mega companies like Dow, PPG, Velcro, Ford, Disney, Mattel, etc were created by sole inventors.

    So whose stats would they count for? Based on their past or present?

  8. Paul F. Morgan September 9, 2017 2:28 pm

    T.T. If you have, or are seeking, investments in money or time from others into your business, and they are not aware that you have not assigned or licensed to that business key patent rights needed for that business, you may have an issue you need to talk to your attorney about.

  9. Tesia Thomas September 9, 2017 2:30 pm

    I’m aware. But thank you.

  10. Ternary September 9, 2017 3:38 pm

    “The basement inventor is increasingly rare …” I respectfully disagree with that assertion. It seems to me that independent inventors are alive and well. They may not operate from their basement, and more from their computers, but inventors they are and invent they do. For some reason, another myth has been established: that “good inventions” can only be done within organizations, companies and institutions. And that the time for “independent inventors” is over.

    This myth supports a notion that some centrally guided and managed research and development and institutional settings are required to generate “good inventions.” This myth has been promoted ever since companies have done in-house R&D. And time and again new breakthrough inventions have been delivered by independent inventors.

    The independent inventor is often “the fly in the ointment” or the contrarian, who has a different idea, different from established interests that is, how a problem has to be solved or even what a problem is. We have always welcomed and cheered this type of inventors who were and are responsible for many new technologies. By their nature, they shake up the status-quo, a trait that is highly unwelcome to the establishment. But a narrative is now being accepted by the general public that independent inventors who want to benefit from their patented inventions should be considered a threat to innovation.

    What has changed is that independent inventors increasingly are unlikely to file patent applications. It is now widely recognized that the US patent system is stacked against the independent inventor. The US Patent system has become the means for unprecedented and irreversible transfer of intellectual property from inventors to infringers, wherein inventors are enticed to publicly share the “private property” of their invention under the promise of protection of those rights. As the IEEE-USA brief in Oil States explains, the disclosure of this private property cannot be undone if for some reason no patent is awarded or if patent claims are invalidated. The genie is out of the bottle and the invention cannot be made secret again. Private property is lost and basically has been transferred to (in the case of IPRs) infringers, with no compensation for the inventor.

    It is for this simple reason that many independent inventors have stopped filing patent applications. But they are still there, as brilliant (if not more so and better educated) as ever.

  11. Tesia Thomas September 9, 2017 6:43 pm

    @Ternary

    And a lot of people want to say, “Well those independent inventors couldn’t have done anything without the basic research of academics.”

    And I say that we all stand on the shoulders of giants. But we all know for a fact that the first inventor was independent, noncredentialed, and less evolved mentally than we are now.
    Those inventors have us fire, the wheel, spears, etc.
    No PhDs. No govt funding back then.

  12. Paul A Carmody September 13, 2017 12:33 pm

    “Cooperative inventors may be needed after a patent application is filed to provide technical input, and assist in reviewing and responding to office actions from the patent office. This is true even if the inventor leaves the company.”

    In my opinion, the best way to have a cooperative inventor is to have the company share a nontrivial portion of the value of the invention with the inventor. Many companies would never consider such an option but I believe it good business.

  13. Paul F. Morgan September 13, 2017 2:44 pm

    Re: “In my opinion, the best way to have a cooperative inventor is to have the company share a nontrivial portion of the value of the invention with the inventor.”
    In my experience [not just opinion] a fixed small sum cash award and other recognition is fine, and smart companies do that. But a “portion of the value of the invention” employee agreement leads to nasty inventorship disputes between employees as to who’s names should go on the patent, plus inherently very difficult and different calculations of what IS “the value of the invention,” and lawsuits over both. Foreign countries with employed inventor compensation laws usually require a government bureaucracy with complex guidelines for that determination, yet it can still generate lawsuits.
    Former employees who’s cooperation is still needed for their patent applications should be compensated for their required time on their regular hourly pay basis in order to get that cooperation. Smart companies do that.

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