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  • Writer's pictureDennis Donahue

Common Intellectual Property Mistakes Companies Make

Insufficient Agreements

Failing to have proper agreements in place with employees, independent contractors, and other entities can result in the loss of exclusive rights in intellectual property assets. Therefore, any attorney who evaluates or drafts agreements on behalf of a client should bear in mind whether there are any intellectual property rights that should be considered.

One frequently seen difficulty occurs when a business hires an independent contractor to perform work that the business wants to use or perhaps sell. The business probably does not want the independent contractor to be able to take the work, revise it slightly and resell it to a competitor. In such a case, merely paying an independent contractor to create a work of authorship is not satisfactory. Under the “work for hire doctrine”, the business does NOT obtain ownership in the work’s copyright. A “work made for hire” only covers employees working in the course of their employment, and it MUST be agreed upon in writing as a “work for hire” BEFORE the work is created. Therefore, some independent contractor agreements which recite that the work is a “work for hire” may not actually give ownership rights to the company.

Some companies get into trouble by not having an employment agreement that gives the company rights to an employee’s inventions for the business. In such a case, an employee may actually obtain ownership rights in an invention, possibly leaving the business with only “shop rights.” Shop rights only allow the employer limited, non-exclusive license rights in the invention, without any ownership. Therefore, the employer could not stop the employee from selling or licensing the invention to a competitor.

In addition to Federal statutes, state law must also be considered when drafting these agreements. For example, although the Copyright Act defines “work made for hire” under federal law, the status of a person as an employee is determined under their state’s laws of agency. Additionally, with regard to the ownership of inventions and the balancing of rights between employers and employee inventors, some states have requirements and limitations in employment agreements that relate to inventions. One such code is found in the Illinois’ Employee Patent Act.

Inadequate Protection and/or Improper Use

Failing to protect or enforce intellectual property assets in a timely manner could result in a company losing exclusive rights in the assets. At the same time, a company should avoid the intellectual property of other entities. Using another party’s intellectual property without authorization can be an expensive mistake. Company leaders need to be kept current and aware of the assets that should most be protected. It is critical to have intellectual property counsel conduct an annual IP portfolio review with company business and technical leaders. Also, any time that a company is entering into a new venture, research, or introduction of a new product/service (or even just improvements), the client should consider the intellectual property protection that may be available. A good attorney will also inform the company of the risks of moving forward without evaluating the intellectual property of others in the industry and/or particular competitors.

A good example of the need for timely evaluation and protection of IP assets is the fact that, if a patent application is not filed on an invention within the first year of its public disclosure, sale or commercial use (even if it is a secret commercial use), the business cannot protect the invention with a patent. Also, this one year grace period is generally NOT available abroad. Therefore, if a business wants to protects it’s technology abroad, it is important to file an application before there is any public disclosure, sale or non-experimental use. In the case of trademarks, failing to police and enforce a mark can result in a partial or complete loss of exclusive rights in the mark. Some former marks that have become generic this way include CELLOPHANE, DRY ICE and TRAMPOLINE.

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