Everything Old is New Again – The Cost of Failing to Get IP Ownership Assigned

by Lee Gesmer on June 19, 2007

When I began to practice in the area of technology law area in the early 1980s one of the issues we often brought up with clients was the need to get clear ownership assignment of their technology. We wrote articles about this, spoke on the topic, and generally beat the subject to death in publications and seminars.

It’s surprising (but not too surprising) that seemingly sophisticated businessmen still don’t focus on this.

Two cases we recently settled are illustrative of this issue.

In the first case, a start-up company hired a part-time/consultant level programmer. He ultimately became an “employee,” but the company allegedly failed to fulfill some of the obligations in his employment agreement, and failed to treat him as an employee in all respects, raising an issue as to whether he truly became an “employee” for legal purposes. In any event, even under the best of circumstances, some of the programming he did occurred before he became an “employee.”

After the programmer left the company under unpleasant circumstances, he claimed ownership of the software. Following substantial and expensive litigation our firm was brought into the case and we successfully settled it shortly thereafter (based on the ongoing costs of the litigation and our assessment of the risks to our client). The settlement included a full assignment by the programmer, but it cost the client a great deal of money (for a start-up) in fees, settlement monies, and time away from the client’s core business. The client had a very strong argument that, regardless of the plaintiff’s status as a consultant or an employee, his actions had created an implied, unrestricted perpetual license. However, even if the client had won on this theory (after summary judgment motions and possibly a trial), there still would have been uncertainty over the client’s ability to transfer ownership of the software product, either through a direct sale of the software or a sale of the company. The legal uncertainties associated with this issue were what led to the settlement. The price: $200,000 for settlement alone.

In the second case a well-established client (new to our firm), experienced almost exactly the same situation. Here, the programmer had been “leased” to our client by a small employment agency. After the programmer quit, the agency (not the programmer) claimed ownership or co-ownership of the software developed by their employee. Our client had failed to enter into an agreement with the agency assigning ownership of work performed by agency employees to our client. The price, reached in settlement before suit was filed: $300,000 in settlement monies.

Between these two clients, this was $500,000 in wasted money, not to mention legal fees, costs and time away from their businesses, which adds substantially to this cost.

Remember: If you own a company that develops intellectual property, get a written assignment of ownership from everyone who develops intellectual property for you. The assignment should include copyright, patent and trade secret rights. It’s that easy.

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