Patent Co-Ownership

Patent co-ownership arises when a patent has multiple owners who hold undivided interests in the entire patent: HOW CO-OWNERSHIP ARISES: (a) JOINT INVENTORS FROM DIFFERENT ORGANIZATIONS: when two employees from two different companies jointly invent something, each company may end up owning the patent through their respective employee's assignment; if Inventor A (from Company 1) and Inventor B (from Company 2) are joint inventors, and each assigns to their employer, the patent may be co-owned by Company 1 and Company 2; (b) PARTIAL ASSIGNMENT: the original patent owner assigns an undivided interest to a third party (e.g., a 50% interest) for value; (c) COLLABORATIVE RESEARCH: universities and industry partners who jointly develop technology often end up with co-owned patents — this is common in university-industry research agreements; (d) M&A WITHOUT CLEAN TITLE: if an acquirer purchases 50% of a patent portfolio but the seller retains the other 50%, co-ownership results; (e) JOINT PATENT PURCHASE: two companies jointly purchase a patent portfolio from an NPE; JOINT INVENTORS: the key factual question is who is a joint inventor; an inventor must have made a contribution to the conception of at least one claim; someone who merely reduced the invention to practice, built the prototype, or followed instructions is NOT a joint inventor; Acromed Corp. v. Sofamor Danek Group (Fed. Cir. 2000): joint inventorship requires collaboration and contribution to conception; INVENTORSHIP DISPUTES IN CO-OWNERSHIP CONTEXT: if inventorship is corrected (an inventor is added or removed), the chain of title to the patent changes — potentially changing the co-ownership structure; Stanford v. Roche (S.Ct. 2011): the Supreme Court confirmed that § 262 applies even when one co-owner claims the other should not have gotten an ownership interest.

Section 262 creates a default rule governing co-owner rights — a default that is often commercially harmful if not contracted around: THE STATUTE: 35 U.S.C. § 262: 'In the absence of any agreement to the contrary, each of the joint owners of a patent may make, use, offer to sell, or sell the patented invention within the United States, or import the patented invention into the United States, without the consent of and without accounting to the other owners'; WHAT EACH CO-OWNER CAN DO WITHOUT CONSENT: (a) PRACTICE THE INVENTION: each co-owner can independently manufacture, use, sell, or offer to sell products covered by the patent; (b) LICENSE THE PATENT: each co-owner can grant a license to any third party (including competitors of the other co-owners) without the other co-owners' consent; (c) KEEP ALL ROYALTIES: the licensing co-owner keeps all royalties from its own licenses; it does not have to share royalties with other co-owners; THIS IS THE MOST COMMERCIALLY HARMFUL PROVISION: if you co-own a patent and the other co-owner licenses it to your competitor for $1/unit, you have no recourse — and you don't receive any of the $1/unit royalty; WHAT EACH CO-OWNER CANNOT DO: (a) ASSIGN their interest without the other co-owner's consent (unless there is an agreement permitting it); (b) SUE FOR INFRINGEMENT without all other co-owners as parties; Ethicon Inc. v. United States Surgical (Fed. Cir. 1998): a co-owner can defeat a patent infringement lawsuit simply by declining to participate; the other co-owner cannot force a co-owner to join the suit; PRACTICAL EFFECT: the Ethicon veto right means that an accused infringer who can identify and contact a co-owner of the patent may be able to get a license from that co-owner — eliminating the infringement action by another co-owner who would otherwise enforce the patent.

Since § 262's default rules are often harmful, parties should negotiate co-ownership agreements that override these defaults: KEY PROVISIONS IN A CO-OWNERSHIP AGREEMENT: (a) LICENSING CONTROL: designate one party as the exclusive authority to grant licenses on behalf of both co-owners; the other co-owner agrees not to grant independent licenses; this eliminates the risk that one co-owner licenses competitors; (b) ROYALTY SHARING: define how licensing royalties are split between co-owners (typically based on ownership interest, relative contribution, or negotiated allocation); (c) ENFORCEMENT DECISIONS: designate one party as the 'lead enforcer' — the party that has the right to initiate patent infringement lawsuits; the other co-owner agrees to join as a necessary party and cooperate fully in litigation; the lead enforcer pays litigation costs; (d) PROSECUTION CONTROL: designate one party to control prosecution of the patent application (communicating with the patent examiner, responding to office actions, deciding on claim amendments); the other co-owner has input rights but not veto power; (e) RIGHT OF FIRST REFUSAL: if one co-owner wishes to sell its interest, the other co-owner has a right of first offer or right of first refusal before the interest is sold to a third party; (f) ASSIGNMENT RESTRICTIONS: specify whether and under what conditions a co-owner can assign its interest; typically requires the other co-owner's consent or a ROFR; (g) SUBLICENSING: specify whether either co-owner can sublicense (and the terms under which it can); SCOPE: the agreement can provide that 'notwithstanding § 262, neither party shall grant any license to the Patent without the prior written consent of the other party'; WHAT CANNOT BE DONE BY AGREEMENT: the § 262 veto right in enforcement (refusing to join a lawsuit) cannot be completely eliminated — but it can be mitigated by a covenant-to-sue agreement requiring the passive co-owner to join at the active co-owner's request and expense.

University-industry collaboration and inter-company research partnerships are frequent sources of co-owned patents — and frequent sources of IP disputes: SPONSORED RESEARCH AGREEMENTS (SRAs): a company funds research at a university; the research agreement defines who owns the resulting IP; common structures: (a) University owns all IP; company gets an option or license; (b) Company owns all IP; university gets a license-back for research use; (c) Co-ownership (most problematic): inventions are co-owned based on inventive contribution; JOINT DEVELOPMENT AGREEMENTS (JDAs): two companies collaborate on technology development; the JDA must define ownership of resulting IP; poorly drafted JDAs that default to 'joint ownership based on inventive contribution' create § 262 problems; BEST PRACTICES FOR COLLABORATIVE IP: negotiate IP ownership provisions carefully BEFORE starting collaborative research; (a) ASSIGN UPFRONT WHERE POSSIBLE: instead of co-ownership, consider assigning invention rights to one party (with licensing back to the other) based on: whose technology it builds on; who bears more development cost; who is more likely to commercialize it; (b) DEFINE 'BACKGROUND IP' vs. 'FOREGROUND IP': background IP = each party's pre-existing technology; foreground IP = new IP created during the collaboration; typically each party retains its own background IP and grants licenses to the partner for project purposes; foreground IP ownership is negotiated upfront; (c) TECHNOLOGY FIELD SPLITS: if the collaboration spans multiple technology fields, assign ownership by field (Company A owns the medical device applications, University B owns the research instrument applications); (d) IP STEERING COMMITTEE: establish a joint committee to make prosecution, licensing, and enforcement decisions; provides a structured decision-making process.

Patent co-ownership creates significant complications in patent licensing negotiations and standard-essential patent (SEP) FRAND contexts: LICENSING COMPLICATIONS: a potential licensee negotiating with one co-owner must check whether any other co-owner might independently license competitors on more favorable terms; a licensee who pays a premium to one co-owner for an exclusive license may find the other co-owner licenses competitors anyway; MOST FAVORED LICENSEE PROTECTION: a licensee should negotiate MFL (most favored licensee) protection in co-ownership situations — if any co-owner later licenses the patent on more favorable terms, the first licensee automatically receives those terms; FRAND AND CO-OWNERSHIP: in standards-essential patent (SEP) contexts, a company that contributed a technology to a standard may have a joint development partner as co-owner; if the SEP is FRAND-committed, both co-owners are typically bound by the FRAND commitment; complications: (a) one co-owner may want to license on non-FRAND terms; (b) the co-ownership agreement may not clearly define who has authority to grant FRAND licenses; JOINT LICENSING PROGRAMS: in some patent pools, co-owned patents are contributed by both owners jointly; both owners agree to the pool's licensing terms; the pool administrator collects royalties and distributes them according to the allocation specified in the contribution agreement; ACQUISITION OF CO-OWNED PATENTS: a would-be acquirer of a co-owned patent cannot complete the acquisition without all co-owners' consent; one co-owner can block a sale of the patent to a third party; an acquirer can purchase one co-owner's interest and become a co-owner, but cannot gain sole ownership without the other co-owner's agreement to sell.