Five potential issues with co-ownership of IPRs

Why co-ownership of intellectual property rights may not be the solution you were after

In this informative guide our intellectual property agreements specialist, Hannah Batten, looks at why co-ownership of intellectual property rights (IP rights) can be more complex to manage than you might expect.

If you're proposing to collaborate with another party on an innovative or creative project, it will be really important to consider whether any new IP rights will be created, and if so, who should own them. It must be hugely tempting to suggest that the collaboration partners will co-own the relevant IP – and we are often approached by clients for assistance with preparing the relevant agreement and told that this is what has been agreed.

At first glance, this seems perfectly reasonable – it is a collaboration after all, and (unless there's an obvious justification for one of the partners to own the IP) isn't co-ownership a fair solution and an excellent way to avoid tricky negotiations? The answer to this is, generally, a resounding 'no'. In reality, co-ownership of IP rights can create an unnecessarily complex relationship between the parties, and often proves difficult to manage in practical terms. This is why.

The potential issues

The default legal rights of co-owners vary

By type of IPR

  • For example a co-owner of a patent may make and sell products covered by the patent without consent, but a co-owner of a copyright work requires consent to reproduce or publish.

By country

  • For example a co-owner of a UK patent cannot license the patent without consent, but a co-owner of a US patent can grant non-exclusive licences without consent.

Agreement between co-owners

  • Co-owners will need to agree on many legal and practical matters relating to the co-owned IP.
  • E.g. For inventions co-owners would need to agree:
    • Whether or not to apply for a patent.
    • If so, where/in which countries to apply for patents.
    • Prosecution strategies – e.g. breadth of claims (wide for maximum protection, or narrow to reduce the risk of invalidity claims).

Defence and enforcement

Defending a challenge or claim

  • Co-owners may not agree on the best strategy for defending a challenge to the validity of the IP or a claim that its use infringes third party IP rights (or whether to defend at all).

Response to infringement

  • Co-owners may have different preferred approaches to dealing with an infringer e.g.
    • Negotiate a licence?
    • Seek injunction?

Cost sharing

How are the following costs to be shared between the co-owners?

  • Applying for and securing registration of the IP rights (e.g. patents, trade marks, registered designs).
  • Maintenance of registered IP rights.
  • Enforcement and defence.

In the absence of agreement, one co-owner may argue that costs should be shared equally. However, if one co-owner has filed more registrations than the other wanted, or wishes to enforce or defend IPR where the other co-owner does not, can/should they be forced to contribute?

Revenue sharing

  • In some jurisdictions, co-owners of certain types of IPR must share any revenue that arises from exploitation. For example under Chinese law, a co-owner of a Chinese patent may license it on a non-exclusive basis, but must share any income generated between all co-owners.
  • In the absence of default legal provisions (or agreement), there is no obligation to share revenue.

What's the alternative?

There is a natural appeal to being the 'owner' of IP rights, but it is perfectly possible to draft an IP licence that confers rights at least equivalent to those of a co-owner, and usually with greater clarity. This is the natural alternative to co-ownership.

Licensing arrangements can take many forms – at their most basic, one party would take ownership of all the new IP arising from the project (often referred to as 'foreground IP') and grant the other a licence allowing them to use and exploit it as needed. Alternatively, ownership of the IP could be categorised and split between the parties, with each partner taking ownership of certain aspects of the new IP (usually determined by that partner's specific area of expertise), with each granting the other a licence – this is an example of 'cross-licensing', and is a useful way to avoid the perception of one party having a greater degree of control over valuable project output than any other.

The terms of any licence to be granted (for example, duration, territorial coverage and the scope of any exclusivity arrangements) can be tailored to the circumstances, offering great flexibility.

Conclusion

Co-ownership is more complex to manage than many people realise. The default legal provisions governing co-ownership don’t cover everything, and unless bolstered by a written agreement on other issues, the rights and obligations of co-owners are likely to be complicated, unclear and potentially inconsistent, leaving many matters (particularly for registrable IP rights) to be agreed between co-owners on an ad-hoc basis. Differences in co-owners’ budgets and priorities can lead to disagreements, and if these cannot be resolved amicably then the only way forward is litigation (or alternative dispute resolution), which will likely be expensive and time consuming, and many issues are commercial rather than legal.

While it is certainly not unworkable in the right circumstances, we normally recommend steering clear of co-ownership unless both parties are fully informed about what it entails and are willing to negotiate and enter into a full co-ownership agreement (addressing each of the issues described above). More often than not, we find that it is more straightforward – from both a drafting/ negotiation and a practical perspective – to agree an ownership and licensing arrangement.

For advice on IP ownership, licensing or collaborations, please contact Hannah Batten.


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