15 July 2018

Collaborating with others – potential pitfalls, and how to avoid them

Collaboration with external partners is becoming increasingly common in the modern workplace, driven at least in part by advances in technology that have removed many of the traditional barriers to collaboration. Technologies such as email, videoconferencing and online file-sharing services, to name but a few, now make it possible for employees to communicate just as efficiently with external collaborators as they would with their own co-workers.

The benefits of collaboration are selfevident, in that it can allow companies to have access to skills and knowledge that they do not possess in-house. However, caution should be exercised when engaging in collaborative projects that may result in new intellectual property being created. In this article we explore some of the potential issues that can arise when multiple parties collaborate to create new IP, and discuss steps that can be taken to reduce the risks involved in collaboration.

Joint creation vs. joint ownership

When dealing with IP created during the course of collaboration, it is important to distinguish between joint creation and joint ownership. Inventions, designs, and copyrighted works may be jointly created, meaning that there is more than one inventor/designer/author. Jointly- created IP may be a likely outcome when multiple parties collaborate to develop a new idea or product. This is particularly true for inventions, as compared to other types of IP such as designs, trade marks and copyrighted works, since it is often the case that numerous individuals with diverse technical skills and expertise may be involved in the development of new technology.

However, just because IP is created jointly, it does not automatically follow that the IP will be jointly owned. Whether jointly-created IP is wholly owned by a single party or jointly owned by multiple parties will depend on who the creators were, and on any agreements between the parties governing IP ownership.

In UK patent law, if an invention is made by an employee during the course of their normal duties or duties specifically assigned to them, the default position is that the invention will be owned by the employer. In cases where there are multiple inventors, all of whom are employed by the same company, that employer will be the sole owner of the invention. As a general rule, sole ownership is preferable to joint ownership due to restrictions imposed on joint owners, as will be discussed later.

However, if an invention is made jointly by inventors employed by different companies, then in the absence of an agreement to the contrary by default the invention will be jointly owned by the respective employers of the inventors. The issue of inventorship is not always clear-cut, and can be open to debate. It is not unheard of for there to be disagreement among companies collaborating on a project as to whom should be named as an inventor on a resulting patent application. Such disputes may be more likely in cases where the collaborators have not agreed in advance that new inventions will be wholly owned by a single party, since there is more at stake. Specifically, one party may potentially be able to acquire a share in ownership of a patent application for an invention created during the course of the collaboration, by having one of their employees named as an inventor. If sole ownership has already been agreed in advance before an invention is created, there may be less pressure on the companies involved to push for their employees to be named as inventors when this may not in fact be the case.

On paper, joint ownership may appear to be a fair and sensible solution which ensures that each party can enjoy the benefit of IP that they have jointly created together. However, in practice joint ownership can pose significant challenges at the best of times due to additional restrictions that are placed on joint owners, as discussed below.

Restrictions on joint owners

Under the UK Patents Act 1977 (as amended), a co-owner of a patent may not amend or licence the patent, or assign or mortgage their share in the patent, without the consent of all other co-owners. However, when a UK patent is jointly owned, each co-owner is free to work the invention without infringing the patent regardless of consent from other owners.

At the very least, the need to obtain consent from the other owners to amend, license, assign or mortgage a jointly-owned patent can impose a significant administrative burden, and may make it more difficult for the co-owners to monetize the patent through licensing or assignment. At worst, should a dispute arise between the co-owners at a later stage, this can render it impossible for any  of the owners to take meaningful action in relation to the patent. A further consideration when dealing with jointly-owned patents is that upon the death of one owner, their share in the patent will automatically pass to their personal representative rather  than to the other co-owners. Therefore even if the original owners remained on good terms, there is no guarantee that the representative of the deceased owner will share their views and objectives in terms of exploiting the patented invention.

In addition to the restrictions mentioned above, co-ownership may reduce the potential sale value of a patent. A jointly-owned patent is likely to be less attractive to a prospective purchaser unless all of the co-owners are willing to assign their respective shares, allowing the purchaser to become the sole owner of the patent. Yet a further problem arises when accounting for jointly-owned IP on a company’s balance sheet, since the exact value to each owner may be difficult to determine.

Joint ownership can arise for copyrighted works, but only if the contribution of each author is not distinct from that of the other author(s). Under UK law, if a copyrighted work is jointly owned, then each owner can only copy or use the copyrighted work with the agreement of all other owners. Therefore in the event of a dispute between the copyright owners, a situation can arise in which none of the owners are able to copy or use the copyrighted work. For this reason it is advisable to avoid joint ownership of copyright if at all possible.

Joint ownership is less common in trade marks, since the purpose of a trade mark is to distinguish the goods or services of one company from those of another company. As such, it is unlikely that a company would want to share ownership with another party.

Other issues

While joint ownership may be one of the most significant pitfalls to be aware of when considering collaborating with external parties, this is by no means the only issue to consider. Another example is that of information security, since it is likely that during collaboration the parties will need to share sensitive commercial information with one another. It is to be expected that a suitable confidentiality agreement will be put in place before such information is disclosed. Nevertheless, even if information is disclosed under confidence, the disclosing party should consider that once the information has been disclosed, they will no longer have full control over how the confidential information will be handled by the other parties.

For example, if one party was to publicly disclose details of an invention made by one of the other collaborators before a patent application had been filed, in many countries the disclosure would count as prior art against a later- filed application even though the information originated from the inventor. If the disclosure is made in breach of confidence, most countries have provisions that will allow the disclosure to be excluded ” from consideration as prior art, but only if a patent application is filed within a certain time period of the disclosure (e.g. 6 months in Europe).
However, such provisions may not be of use if the disclosure only came to light after this time period had elapsed, since if an application had not already been filed it would then be too late to do so. Furthermore, even assuming that all parties adhere to the confidentiality agreement, the risk of an accidental disclosure may nevertheless increase as more people are given access to the information.

Another issue to consider is how the parties will decide on an IP filing strategy, and who will bear the associated costs of filing and prosecuting applications in various countries. Different parties may have different expectations regarding IP strategies, and may not want to contribute to the costs of securing IP protection in territories that are of no relevance to their own business.

Solutions to consider

The difficulties surrounding joint ownership in particular are magnified when a dispute arises between co-owners. Whilst it is usually true that parties who are embarking on a collaborative project together will have a good working relationship, this may not remain the case forever. It is a fact of life that disputes can and do arise, particularly after valuable IP has been created, since at that point the stakes may appear to be significantly higher than was the case at the outset of the project.

The ideal solution would be to agree in advance that any new IP created during the course of the collaboration (inventions; designs; copyright; trade marks etc.) will be wholly owned by one of the parties. In cases where the collaboration project is being solely funded by one company, this company could quite reasonably expect to be the sole owner of any resulting IP that is created. Such an arrangement would normally be dealt with via suitable IP ownership clauses in a collaboration agreement signed by all the parties.

The parties are also free to include other terms in the collaboration agreement as they see fit. For example, the parties may agree that the IP owner will grant each of the other parties an automatic non- exclusive licence to use the IP. The automatic licence may be subject to certain restrictions. For example, the automatic licence may be restricted to use of the IP solely for the purposes of research. As a further example, the parties may agree to include terms in the collaboration agreement that govern how any revenue derived from resulting IP will be divided amongst the parties, for example royalty payments or revenue from sale of a patent.

As a further precaution, for any registerable IP (e.g. patents, designs or trade marks) created independently of the collaboration, it  is advisable to file applications before details are disclosed to the other collaborators. This can help to remove any doubt as to who created and owns the IP. Finally, when entering into any collaboration it is also good practice to ensure that staff involved in the project are instructed to keep records of what is disclosed and agreed between the parties at all stages, as a precaution in case of a dispute arising.

In summary then, while the potential rewards of collaboration can be significant, the risks from an IP perspective can also be significant and should be carefully considered before embarking on a collaborative project with an external party. However, many of these risks can be reduced or even eliminated entirely by a well-drafted collaboration agreement, and by adopting the ‘best practice’ strategies discussed above.