Co-Ownership

Patent co-ownership arises from several distinct legal pathways: CO-INVENTORSHIP: the most common source; when two or more individuals jointly conceive the claimed invention, each becomes a co-inventor; US patents must name all inventors who contributed to the conception of at least one claim; Pannu v. Iolab (Fed. Cir. 1998): each co-inventor must (1) contribute to the conception of at least one claim; (2) make a significant contribution to the claimed invention; (3) more than explain well-known concepts or prior art; since inventorship follows employers (through employment agreements), co-inventors from different organizations create co-ownership across organizations; ASSIGNMENT TO MULTIPLE PARTIES: a patent owner can assign a fractional undivided interest to another party; this creates co-ownership by contract rather than inventorship; example: Company A owns a patent; acquires Company B; in the acquisition, Company A assigns 50% interest to Company B's former owners as part of settlement; RESULT OF JOINT DEVELOPMENT WITHOUT IP AGREEMENT: the most problematic source; two companies collaborate on technology; no clear IP ownership provision in the collaboration agreement; employees of both companies contribute to conception; patents name inventors from both companies; neither company holds a full assignment; ASSIGNMENT FROM INDIVIDUAL TO MULTIPLE PARTIES: an individual inventor holds the patent; multiple parties each purchase a fractional interest; STATUTORY FRAMEWORK: 35 U.S.C. § 262: default rules for co-owners; § 256: correction of inventorship; § 116: adding/removing inventors during prosecution.

Patent co-ownership creates specific risks that depend on the relationship between the co-owners: COMPETITOR CO-OWNER SCENARIO (WORST CASE): Company A and competitor Company B co-own a patent; Company B licenses the patent to all of Company A's customers at zero royalty; Company B refuses to join as co-plaintiff in enforcement actions; Company A is effectively left with no ability to monetize or enforce the patent; THE JOINDER RULE: Ethicon v. Quigg (Fed. Cir. 1988) and Ethicon v. United States Surgical (Fed. Cir. 1998): ALL co-owners must voluntarily join as co-plaintiffs in an infringement suit; a co-owner who refuses cannot be compelled to join (unlike in many foreign systems); a compulsory joinder provision in a joint agreement CAN override this — but only by contract between the co-owners; INFRINGER'S EXPLOITATION OF CO-OWNERSHIP: an infringer can identify co-owners and approach the less powerful one for a cheap license; that license provides complete immunity against ALL co-owners; this is a known tactic in patent litigation; LICENSING INCOME DILUTION: each co-owner can license the patent independently; the licensor keeps all royalties from its licenses; the other co-owner has no right to share; if both co-owners actively license, they may compete with each other in licensing negotiations; NON-ECONOMIC RISKS: if a co-owner goes bankrupt, its interest can be licensed by the bankruptcy trustee to competitors; if a co-owner is acquired by a competitor, the acquirer inherits the co-owner rights; INTERNATIONAL OPERATIONS: a US co-owner's rights are limited to the US patent; foreign national phase patents may have different co-owners and be subject to local laws (requiring consent for licensing).

US § 262's permissive independent licensing rule is an exception — most countries require consent for licensing: EUROPEAN UNION: under EPC and national laws, each co-owner can work the patent for its own benefit; BUT: licensing requires CONSENT of all co-owners; this means a co-owner cannot grant a third-party license without permission of the other co-owners; enforcement: co-owners act jointly or with authorization; UNITED KINGDOM: UK Patents Act § 36: each co-owner can work the invention for its own benefit without consent; BUT: cannot grant licenses without consent of other co-owners; GERMANY: German Patent Act § 741 BGB applied: each co-owner can use the invention; licensing requires all co-owners to consent; enforcement: all co-owners must typically join; FRANCE: French Intellectual Property Code Article L613-29: each co-owner can exploit the patent independently; but sublicensing requires consent of all co-owners; CHINA: Patent Law Article 15: each co-owner can independently exploit the patent; BUT: cannot license to third parties without consent of all co-owners; royalties from licenses must be shared among all co-owners; JAPAN: Patent Act Article 73: each co-owner can independently practice the patent; licensing requires consent of all co-owners; PRACTICAL IMPLICATION FOR GLOBAL PORTFOLIOS: US co-ownership: independent licensing possible; foreign co-ownership: licensing requires consent everywhere but the US; STRATEGY: address international co-ownership rules when structuring global research collaborations; the consent requirement in most countries provides some protection against exploitation of co-ownership gaps.

The best approach to co-ownership is to address it expressly before collaboration begins: OPTION 1 — AVOID CO-OWNERSHIP: give each party sole ownership of the patents it invents; cross-license to the other party; advantages: clear ownership; avoids § 262 problems; enforcement not complicated; disadvantage: requires careful division of patent rights between inventors; OPTION 2 — DESIGNATED OWNER: one party is designated as the sole owner of all collaborative patents; the other party receives a license (exclusive or non-exclusive in its field of use); advantages: clear enforcement rights; disadvantage: one party gives up ownership; WHO GETS OWNERSHIP: the party contributing more inventive effort; the party closest to commercialization; the party taking most financial risk; OPTION 3 — CO-OWNERSHIP WITH MODIFIED DEFAULTS: co-ownership preserved but § 262 defaults modified by contract; modifications may include: require consent of both parties for any licensing; designate one party as managing owner for licensing and enforcement; require profit sharing from licenses; require consent for transfer of interest; require compulsory joinder for enforcement; JOINT PATENT MANAGEMENT COMMITTEE: for portfolios with many jointly owned patents: committee with representatives from each company; defined voting procedures; defined licensing authority (which licenses can one party grant alone?); defined enforcement procedures; cost sharing for prosecution and maintenance; ASSIGNMENT TRIGGERS: what happens when one party is acquired?; ROFR: right of first refusal to buy co-owner's interest; automatic assignment to the other co-owner on acquisition by a competitor; PUBLICATION AND DISCLOSURE CONTROL: both parties must agree before any publication disclosing jointly owned inventions; minimum review period before submission.

Mergers and acquisitions involving co-owned patents create complex issues that require specific diligence and structuring: DUE DILIGENCE: acquirer must identify all co-owned patents in the target's portfolio; for each co-owned patent: who is the co-owner?; what are the co-owner's rights under the agreement (if any)?; are there any consent requirements for transfer?; TRANSFERABILITY: a co-owner's interest is transferable unless the agreement restricts it; § 262 allows transfer of an undivided interest; the transferee steps into the transferor's shoes as a co-owner; CHANGE OF CONTROL PROVISIONS: well-drafted co-ownership agreements include change of control provisions: if a party is acquired by a competitor of the other co-owner, the acquirer may NOT receive co-owner rights; instead, the interest converts to a non-exclusive license; or the other co-owner has a right to purchase the interest; ROFR ON CHANGE OF CONTROL: if Company A (co-owner) is acquired by Company B (competitor of Company C, the other co-owner), Company C has the right to buy Company A's co-ownership interest before it passes to Company B; prevents competitor from becoming a co-owner; HOSTILE ACQUISITION SCENARIO: competitor acquires a company holding co-owner rights; now the competitor is a co-owner; can license to all other competitors; can refuse to join enforcement actions; the remaining co-owner loses all practical enforcement rights; RESTRUCTURING OPTIONS: after a problematic acquisition: negotiate for the acquirer to transfer/license co-owner rights back; offer to buy out co-owner rights; negotiate a cross-license that effectively terminates the co-ownership problem; VALUATION: co-owned patents are often valued lower than solely owned patents due to enforcement difficulties; buyers should discount accordingly.