The Hidden Pitfalls of Jointly Owned IP

Joint IPNowadays, scrolling through most collaboration agreements to the Intellectual Property (IP) section you will often find a clause similar to the following:

The Parties agree that:

(i)            Project IP that is solely invented or created by a party shall be owned by that Party;

(ii)           Project IP that is jointly invented or created by two or more Parties shall be jointly owned by those Parties

Often drafted to appear fair and reflect the collaborative nature of the agreement, these clauses can be extremely problematic if there are no further sub-clauses on how the jointly owned IP is to be managed and exploited going forward.

This is because in the absence of an agreement to the contrary, jointly owned IP is treated differently in each country and is often subject to different rules depending on the type of IP developed.  As such, the issues surrounding IP can become extremely complex in the absence of an agreement and relying on the default positions in each country may prove problematic if you are not aware of the legal ramifications.

As an example, if a United States patent was jointly owned by a pharmaceutical company and a university, in the absence of an agreement to the contrary, both parties would have the right to exploit the patent without the consent of the other party and without a requirement to share in those profits. Additionally, both parties would also have the ability to assign or licence those rights to a third party without the other party’s consent. From a university’s perspective, this arrangement would commonly be disadvantageous, as the pharmaceutical company would likely be in a better position to exploit the technology and sell the product and would have no obligation to share any of those revenues with the university, despite the university contributing to the product’s development.

However as mentioned earlier, the same rules do not apply to all jurisdictions. Unlike the United States, in Australia and the UK for instance, consent is required from all joint owners of a patent in order to assign or licence those rights to a third party. China however, is different again and similar to the States allows for either party to non-exclusively licence the patent right’s without the consent of the other joint owners, but on the condition that any profits generated must be shared.

Furthermore, the general rules for patents do not necessarily hold true for other types of IP, even in the same jurisdictions. In the United States for example, despite not being required to share profits from the exploitation of a jointly owned patent, there is an obligation to share profits from copyright material!

As most collaborations anticipate that various types of IP will be created and exploited worldwide, being silent on how jointly owned IP is to be managed and exploited can create real problems.

So what is the solution?

Where possible, agree that one party will own the IP developed from the collaboration and grant a licence to the other collaborators, if required.  If sole ownership cannot be negotiated, it is important to clearly outline upfront how the jointly owned IP is to be protected, prosecuted, paid for, exploited, enforced and any potential commercialisation revenue split between the parties.

Conclusion

Whilst it may seem like the easier option to negotiate at the time, agreeing to jointly own all IP created from a collaboration without stipulating the obligations for each party can turn out to be a huge nightmare. So where possible, include in collaborative agreements how jointly owned IP will be dealt with upfront, rather than waiting until sales are being made, when often the negotiations become much harder.

Kate Martinac – Commercial Associate