I am going to talk about"plumbing" in this blog post. I don't meet the system of pipes, valves and fixtures that always seem to leak up at exactly the wrong time. Rather, I am referring to the nuts and bolts of IP due diligence that can seem so prosaic. In particular, I want to address the issue of assignments of IP rights by a contractor or employee, especially when the target is a start-up.Let's set the scene, which is no doubt familiar to many of you. The start-up is a few years old. While the founder(s), and perhaps several other key personnel, have been with the company from the outset, other R&D types have moved in and out of the company; and/or have worked seriatim as employee and then contractor, or vice versa; and/or have provided services to the start-up through their own separate company. Inventions have been made, patent or other applications of IP rights have been filed, software may have been created, but the company cannot produce all of the relevant assignment documents.
The R&D activities of the company take place both at the parent and a dedicated R&D facility located in lower-cost jurisdictions. As well, registation of IP rights has been sought in a number of countries. It's now crunch time, and the client asks for your assessment of the ownership postition. In trying to make sense of the question of IP ownership, the following points come to mind.
Operation of law-- Do the rights in the employee's invention or creation belong to the employer by operation of law? If so, is the matter determined by the general employment laws of the jurisdiction, or does the law of the specific IP right govern the issue? How do we fold the invention or creation of a contractor into this analysis; indeed, how do we distinguish between an employee and a contractor?
Writing--Here, the question is whether the an assignment must be in writing to be effective, or is a written assignment merely evidentiary, meaning that the assignment can be proved by other means (such as by the conduct of the parties). By way of example, the U.S. seems to adopt the former position, while the Supreme Court of Israel has held the latter position.
Operation of law-- Do the rights in the employee's invention or creation belong to the employer by operation of law? If so, is the matter determined by the general employment laws of the jurisdiction, or does the law of the specific IP right govern the issue? How do we fold the invention or creation of a contractor into this analysis; indeed, how do we distinguish between an employee and a contractor?
Writing--Here, the question is whether the an assignment must be in writing to be effective, or is a written assignment merely evidentiary, meaning that the assignment can be proved by other means (such as by the conduct of the parties). By way of example, the U.S. seems to adopt the former position, while the Supreme Court of Israel has held the latter position.
Recordal--Similarly, the question is whether the recordal of the assignment is mandatory to give effect to the assignment, or whether it is merely a form of public notice. What has always tantalized me in this regard is the connection between the issues of writing and recordal. Assuming that the jurisdiction does not require the assignment be in writing to be valid, can the parties to an unwritten assignment still take steps to record the assignment?
Equitable Assignment/Implied Licence-- There is the recurring nightmare of a work created by a contractor, say protected by copyright, where the commissioning party pays a hefty sum for the creation, but neglects to arrange for an assignment. Will the jurisdiction allow a claim that under the circumstances, either an equitable assignment has taken place, or that an implied licence (maybe exclusive, maybe non-exlcusive) has been granted? These are wonderful questions for your litigation partner, but can they be effectively addressed within the context of a due diligence exercise?
What Does All of this Mean?--The puzzle for me has been that while the documentation of IP assignments is often inadequate, and the considerations mentioned above allow for a complex matrix of possible outcomes in the absence of satisfactory documentation, there does not appear to be the quantity of litigation that one might expect. Well, maybe it is not such a puzzle.
First, the potential purchaser may be decide not to continue with the transaction, so the issue of a possible problem with the assignment of IP rights is not pursued. Second, if problems are identified, they are rectified during the course of the transaction. Third, the IP rights in question may be of secondary importance, so the risk of any challenge, even if successful, is outweighed by the perceived overall value of the transaction. Fourth, the costs of litigation may serve to dissuade a potential claimant from seeking to enforce its rights in court.
Be that as it may, neverthless, there is a tension in the process that never seems to quite go away in this context. The purchaser almost invariably instructs the lawyers to focus "on high-level issues". But what exactly is a "high level" issue when potential problems are encountered regarding the adequacy of the assignments and the ownership of the IP rights? How do one reconcile the inclination of the lawyer to approach the problem in a manner which tries to provide as much legal certainty as possible with the inclination of the purchaser to pursue a cost-benefit analysis throughout the transaction? This tension, never far from the surface in the best of economic times, takes on particular significance in an era where the traditional arrangements for the pricing of legal services is being called into question.
