Intellectual Property in Contracts: Avoiding Costly Mistakes

Intellectual property ownership is one of the most overlooked yet critical issues in business contracts. Whether you’re a startup in Boulder or a creative agency in Kansas City, failing to address IP rights properly can lead to costly disputes. To help, we’ve set up a hypothetical deal below to highlight the key points.

Who Owns the Intellectual Property?

Imagine BigCorp, Inc. hires DesignCo, LLC to invent a new AI-powered, self-aware robotic toaster that gives motivational speeches while making toast, create a product name (ToastGPT), and distribute a promotional video featuring the toaster giving a moving speech. Without a clear contract, the following intellectual property ownership issues arise:

• The Patent: Unless assigned in writing, DesignCo will likely own the patent for the new toaster. Patent rights belong to the inventor unless the inventor is an employee hired specifically to invent. If BigCorp wants to own the patent, a written assignment agreement is required.
• The Trademark: Even if DesignCo creates the product name, BigCorp will likely own the trademark once it begins using it in commerce. Trademark rights are based on commercial use, not creation.
• The Copyrights: Without a written agreement, DesignCo will likely own the copyright to the promotional video. Copyright ownership typically belongs to the creator unless the work qualifies as a “work made for hire” or is explicitly assigned. If BigCorp wants to own the copyright, the contract should (a) designate the video as a “work made for hire” and (b) include a copyright assignment.

Negotiation Tips

For BigCorp (The Hiring Party)

• If BigCorp has leverage, it can require DesignCo to sign an assignment of rights before starting work.
• If ownership transfer isn’t possible, BigCorp should negotiate for a perpetual, worldwide, royalty-free license to use the intellectual property.

For DesignCo (The Creator)

• If BigCorp will own the intellectual property, DesignCo should require payment before the assignment becomes effective.
• If DesignCo wants to retain some intellectual property rights, it can negotiate an agreement that (a) assigns IP specifically created for BigCorp, while (b) retaining rights to any tools, templates, or proprietary methods used in multiple projects.
• If BigCorp owns the intellectual property, DesignCo might negotiate rights to use the work in its portfolio or promotional materials.

Intellectual Property Law is Not Intuitive

Intellectual property laws in Colorado, Kansas, and Missouri can be complex, even for experienced business owners. Working with an IP attorney ensures contracts are structured correctly and that both parties’ rights are protected from the outset.

*This article is general in nature and is not legal advice.