Co-Ownership

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

35 U.s.c. § 262

• Default rules for co-owners
• § 256: correction of inventorship
• § 116: adding/removing inventors during prosecution.

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).

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

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

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.

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

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.

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.