By Brent Johnson, Ph.D.
When it comes to the inventive process, collaboration brings its rewards and its headaches. Problems arising from co-ownership and co-inventorship are common. Potential adverse consequences can include having to pay an overly high royalty to the collaborator, entry into the market of a competitor licensed by a co-inventor, loss of a patent infringement suit due to contested ownership or inventorship, or even invalidation of the patent. This article will cover co-ownership issues that can arise when parties collaborate, and the inventorship problems (often arising as a result of collaboration) that can occur in patent litigation.
Co-ownership in Deals
For a co-owned patent, both owners have transferrable rights to use the patented invention. For example, if Acme Pharmaceuticals (Acme) and Busy Biotech (Busy) are co-owners of a patent, Acme can use the patented invention without permission from Busy. Additionally, Acme has the power to grant a non-exclusive license to others to use the patented invention without permission from Busy. Thus, if Busy wants exclusive rights to the invention, it needs to obtain an assignment or an exclusive license from Acme. Similarly, if a third party of the technology wants exclusive rights to the invention, it must obtain an assignment or an exclusive license from both Acme and Busy.
Based upon the above scenarios, it is easy to see how a disagreement between co-owners of a patent can greatly reduce the commercial value of the patent.
A patent or patent application is initially owned by the inventors. Inventors may assign their rights to another, such as their employers. When two parties collaborate, it is common for employees of two different entities to be inventors and assign the inventions to their respective employers. Thus, collaborations often lead to co-owned patents.
Many patent owners and inventors resort to legal advice only after a problem arises. One recurrent scenario involves one of the co-owners turning the patented invention into a highly successful commercial product, without first securing the necessary protections from the non-commercializing co-owner, who can extract a very high price for cooperating to ensure that the business can be successful.
An ounce of prevention is worth a pound of cure. One can avoid many problems by taking proactive steps before making significant investments in product development. I encourage my clients to engage in written discussions regarding IP ownership questions at the very early stages of any commercial endeavor. Normally, there is some kind of agreement between the two co-owners. Disputes about the meaning of the ownership provisions in a license agreement become more expensive later in the development process as the value of the product in development becomes higher and more certain. Thus, it is helpful for a party seeking to explore the commercialization of an invention covered by the patent to ask its co-owner how it views the agreement before investing any significant capital in the product.
In the example above, Acme could send an email to Busy that says “we are interested in X,” it is our understanding that Acme has exclusive rights to X (or the field of use that includes X), is that Busy’s understanding? If Busy agrees, Acme has written documentation that the parties agreed that Acme had exclusive rights to X. This makes it very difficult for Busy to later say that they did not agree that Acme had exclusive rights to X. If Busy does not agree, then Acme can either abandon X, or negotiate with Busy to obtain exclusive rights to X. The negotiations should be documented in writing so that Busy cannot later change its position. In any case, the price for securing the exclusive right to X that Acme pays when X is an inchoate idea is likely to be much lower if it is agreed to before X becomes a highly successful commercial product or even a working prototype that would peak the interest of early-stage investors.
Inventorship Problems in Patent Litigation
Inventorship in a patent is different than authorship of an academic paper. In research papers, it is common practice to include the boss, the researcher whose funds are used to carry out the research, and the person doing the actual work as authors on the paper, regardless of whose idea the work was. But the law requires an inventor to contribute to the conception of the invention. This means that the person must have come up with the idea for the complete invention with all of the features described in one or more of the claims of the patent. If the inventorship on a patent is incorrect, it can be corrected as long as there was no deceptive intent in the error in inventorship. However, if there was deceptive intent, then the patent is invalid for inequitable conduct.
In a patent litigation, if there is an error in inventorship, a defendant can potentially exploit this to avoid liability for patent infringement. In the case where the inventorship error was not a result of deception, the defendant could request that the court add an omitted inventor to the patent and then license or purchase that co-inventors interest in the patent. Since a co-owner cannot exclude another co-owner, the defendant would no longer be liable for patent infringement.
In summary, it is important to sort out inventorship and ownership very early in the process of product development, especially when two parties collaborate. Doing so can potentially avoid loss of market exclusivity, overlarge royalty payments, or loss of patent rights.
Brent Johnson, Ph.D. is a shareholder in the Firm’s Orange County office. He is focused on patent prosecution, particularly in the areas of pharmaceutical and other chemistry-related technologies
Reprinted with the permission of Orange County Business Journal