The value of a trademark, copyright, patent, trade secret, or other piece of intellectual property (IP) to your business is dependent on whether or not you own it. Workers may claim that the IP they research and develop belongs to them without airtight agreements.

Many companies only learn that they don’t own IP assets when they hire a business valuation professional or when employees leave and attempt to take IP with them. It’s important to take action now to prevent unexpected ownership issues and costly disputes.

What The Law Says

Federal copyright law and the laws of most states mandate that employees and independent contractors who invent products, write materials, and develop software may be the owners of the IP rights. In fact, in some states, employers may only have a limited license to inventions created by employees, even if they were invented “on the clock” or using company resources.

Fortunately, you can help prevent ownership disputes, including litigation. All states permit businesses to require workers to sign copyright, IP, and invention assignment agreements, subject to applicable legal limitations.

Work with an attorney who specializes in IP to draft a standard agreement based on your state’s laws. It should require the employee or contractor to turn over or legally “assign” IP rights to your business. In addition, it should mandate that the employee or contractor assist your company’s legal counsel in securing and enforcing these rights. It’s also important to apply these agreements consistently and enforce them in practice, because inconsistent use can weaken your position in disputes and merger and acquisition due diligence.

Go A Step Further

When you hire workers (or when you require them to sign an agreement), make sure you ask them to identify all pre-existing inventions that are to be excluded from the agreement. For example, they may have patented inventions on their own or created trademarks for previous employers. Then request that they give up claims to any new inventions that are related to your business activities, even if the inventions are developed during their nonworking hours.

For example, let’s say your company develops 3D printing software. Your agreement should prohibit your code writers from creating related design tools at home and then selling them to your competitors. If, however, an employee working on her own time and with her own resources develops software that’s unrelated to your business, that IP likely belongs to her. Some states, such as California, prevent employers from claiming such IP or asking employees to sign away their rights to it.

Legal & Financial Advice

Ultimately, safeguarding IP isn’t a passive exercise but a deliberate business discipline that requires foresight, structure, and legal precision. Although an attorney’s guidance is critical for this purpose, financial advisors also play an important role. We can help you address IP ownership issues before you sell your business or before workers leave your employment. We can also help identify financial and tax considerations of IP. Contact us for more information.