Employees or Independent Contractor Generated IP (Part 1)

Intellectual property protection

This post will provide an overview of key IP issues encountered when dealing with employees and independent contractors. We will cover the default ownership rules and rights for different types of IP and some tips on how to maximize an employer’s rights vis-à-vis its employees.

Intellectual property (IP) created by employees and independent contractors or consultants, particularly in a technical or creative role, can have significant value for a company. However, if not careful, a company may also be obligated to transfer ownership or permit the use of certain IP to customers, collaborators, or other third parties. Thus, it is important to understand how to protect an employer’s interests in it. 

Default Rules for IP Ownership

While these rules vary from country to country (and sometimes, as in the US, from region to region), generally whether a company automatically owns IP created by an employee or contractor depends on the form of the relevant IP protection available for the subject work product. Generally speaking, IP protection for work product is possible under one or more of the following: patents, copyrights, trademarks, or trade secrets.

Patents

In the US, absent a written assignment from the inventor or the inventor’s assignee, patents are owned by the individual inventor or inventors — this applies even when an inventor conceives an invention or reduces it to practice in the course of employment. 

The European Union published a brief overview of these issues in Europe.

However, even without a written assignment, depending on the relationship between an employer and an employee/contractor, an employer may be able to claim: equitable ownership in the invention where the employee (and some courts have held, independent contractor) was specifically hired to create the invention and it was mutually assumed or implied that the employee would assign it to the employer; OR a shop right, which is an implied non-exclusive license to the invention where the employee or contractor uses the company’s resources to invent.

All an employer’s equitable ownership of invention right does is protect it from a claim of patent infringement. To assert, license, or sell the patent, the company must still acquire legal ownership via a written assignment.

Some factors considered by courts that will increase or decrease the likelihood of whether an employer has equitable ownership include:

  • Increase: A written patent policy providing for the company’s ownership of inventions.
  • Increase: An employee handbook describing the company’s policy requiring assignment of inventions.
  • Increase: Other written acknowledgment of the company’s ownership of employee inventions.
  • Decrease: The employee refused to execute a written invention assignment agreement.
  • Decrease: The company did not raise the issue of invention ownership with the employee.
  • Decrease: The company otherwise acquiesced in the employee’s ownership of the invention.

A shop right is an equitable right that allows — under certain circumstances — employers to use an employee’s or an independent contractor’s patented invention (for the life of the patent, even if the employee quits) without liability for infringement. Thus a shop right may exist if the employee: (1) conceived and developed the invention while working on the job; (2) used the employer’s materials, tools, or facilities to develop the invention; and/or (3) allowed the employer to use the patented invention without cost or specific restrictions. The shop right can also include “have made” rights. That said, there are limitations. The employee can still freely sell, license, or exploit the invention and the shop right is not transferable without the sale or merger of the employer’s business. 

Copyrights

In the US, copyright belongs to the individual creator or creators of the work unless the work meets the definition of a work made for hire, in which case the entity or person who hired the creator owns the work (unless otherwise agreed in writing). For a third party to acquire ownership of a copyrightable work that is not a work for hire, the third party must receive a written assignment. 

Whether a copyright is a work for hire has implications beyond ownership. For example: (a) a work for hire expires a fixed number of years after creation while other copyrights expire a fixed number of years after the creator’s death; (b) a transfer of ownership of a copyrightable work that is not a work made for hire may be subject to termination and reversion to the individual author; (c) in the US, creators cannot get moral rights for visual works for hire.

A copyrightable work created by an employee can only be a work made for hire in the US if it is either: created by an employee within the scope of employment, or specially commissioned by a company and meets certain statutory criteria. To determine whether work created by an employee within the scope of their employment qualifies as a work for hire courts look at whether the work was of the kind of work the employee was hired to create and whether it was created on the job and within the control of the employer, as well as whether the employee was motivated to create the work, at least in part, to serve the employer.

Under US law a company automatically owns a copyrightable work that it specially orders or commissions from an independent contractor if the work is: (1) a contribution to a collective work; (2) a part of a motion picture or other audiovisual work; (3) a translation; (4) a supplementary work, that is, a work prepared for publication as a secondary adjunct to a work by another author for the purpose of introducing, concluding, illustrating, explaining, revising, commenting on, or assisting in the use of the other work, such as forewords, afterwords, pictorial illustrations, maps, charts, tables, editorial notes, musical arrangements, bibliographies, appendices, and indices; (5) a compilation; (6) an instructional text, that is, a literary, pictorial, or graphic work prepared for publication and use in instructional activities; (7) a test; (8) answer material for a test; or (9) an atlas. Additionally, the parties must have agreed in a signed document that the work is a work made for hire. For works created before 1978 slightly different rules apply. 

Just as with patents, an employer may have an implied license for copyrightable work if: (a) the employer specifically requested the creation of a work or the employee or contractor created the work in response to a specific request; (b) the employee or contractor delivers the work to the employer; and (c) the employee’s or contractor’s acts show an intent either: for the employer to use the work for the requested purpose; or not to restrict the employer’s use of the work.

In Part 2, I will discuss trade secrets, trademarks, and other IP rights. 

David L. Cohen

David L. Cohen, Esq.

David L. Cohen, P.C. – Kidon IP
123 West 93rd Street
New York, NY 10025
dlc@davidlcohenpc.com 
(914) 357-5196

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