Intellectual property may belong to the business, the person who created it, or, in some situations, multiple parties. Ownership depends on the type of intellectual property involved, who created it, the creator’s relationship with the business, and any agreements assigning ownership rights.
That can make ownership less obvious than it seems. A business may pay someone to develop software, design a logo, invent a product, or create marketing materials without necessarily acquiring all the intellectual property rights associated with that work.
Does a Business Own Intellectual Property Created by an Employee?
Sometimes. For copyright purposes, work created by an employee within the scope of employment generally qualifies as a “work made for hire.” In that situation, federal copyright law treats the employer as the author and owner unless the parties have agreed otherwise in a signed written agreement.
Consider an employee hired to develop marketing materials and create graphics for the company in the normal course of their job. The copyright in those materials would generally belong to the employer rather than the individual employee.
The analysis becomes more complicated when an employee creates something outside their ordinary job responsibilities, on their own time, or without using company resources. It is important to review the circumstances and any employment or intellectual property agreements before determining who owns the work.
Does Paying an Independent Contractor Mean the Business Owns the Work?
Not necessarily.
This can come as a surprise to businesses that hire freelance designers, developers, photographers, writers, or other outside professionals. Simply paying someone to create copyrightable material does not automatically transfer the copyright to the business.
Federal copyright law treats independent contractors differently from employees. A commissioned work can qualify as a work made for hire only under specific circumstances. The work must fall within one of the categories identified by federal law, and the parties must expressly agree in a signed writing that it will be treated as a work made for hire.
If those requirements are not satisfied, the creator may initially own the copyright. A written assignment can instead be used to transfer ownership of the copyright to the business.
For that reason, businesses should address intellectual property ownership in contractor agreements before valuable work is created rather than relying on assumptions after the project is finished.
Who Owns an Invention Created by an Employee?
Patents follow different rules from copyrights, which is one reason businesses should be careful about using “intellectual property” as though it were a single category.
Under federal patent law, rights generally begin with the inventor. Patent rights can then be transferred to another person or company through an assignment.
Employment circumstances can affect that analysis. For example, an employee hired specifically to invent or solve a particular technical problem may be treated differently from an employee who independently develops an invention unrelated to their assigned work. Employment agreements frequently address these questions by requiring employees to assign certain inventions and patent rights to the employer.
A business therefore should not assume that the copyright work-made-for-hire rule automatically determines ownership of an employee’s invention.
What Happens When a Founder Creates IP Before Forming the Business?
Ownership questions can also arise before a company officially exists.
A founder may develop software, a product design, written materials, or other intellectual property while preparing to launch the business. Forming an LLC or corporation afterward does not necessarily transfer that property to the new entity.
The founder may need to formally assign relevant intellectual property rights to the company. This can be particularly important when there are multiple founders or the company later seeks investors, financing, or a buyer.
Clear documentation can establish what belongs to the company and what, if anything, remains individually owned by a founder.
What Happens to Intellectual Property When Someone Leaves the Business?
An employee, contractor, founder, or business partner leaving the company can expose ownership questions that went unnoticed while everyone was working together.
For example, the parties may disagree over whether a departing person may continue to use software, designs, inventions, written materials, or other intellectual property developed during the relationship. A dispute may also arise over who has the right to license or commercialize the work.
Employment agreements, contractor agreements, operating agreements, shareholder agreements, and IP assignments can all become relevant. The exact language matters. A broad assumption that “the company paid for it, so the company owns it” may not resolve the issue.
How Can Virginia Businesses Establish IP Ownership?
Intellectual property ownership is generally easier to address before the work becomes valuable.
Businesses can use written agreements to identify what intellectual property is covered, who will own newly created work, and whether rights must be assigned to the company. Agreements can also address preexisting intellectual property that an employee, contractor, or founder brings into the relationship.
The appropriate provisions will depend on the type of work being created and the relationship between the parties. A provision designed for an employee may not achieve the same result when applied to an independent contractor.
Establish Ownership Before a Dispute Begins
Intellectual property can become one of a company’s most valuable assets, but ownership should not be left to assumptions. Questions about who owns a design, invention, software program, or other creation can become much harder to resolve after someone leaves the business or the property gains significant value.
At Surovell Isaacs & Levy, we help Virginia businesses, owners, and individuals evaluate intellectual property ownership and the agreements governing those rights. Contact our attorneys to review an existing agreement, address an ownership question, or establish clearer terms before intellectual property is created.
Posted in: Business Law