Collaborative innovation is an attractive method for reaching new discoveries. However, writes patent expert Donal O’Connell, the pitfalls of joint rights ownership can undo even the best intentions


Joint innovation stems from an honourable part of the human intellect – but for those who take part in it, it can be complicated by factors beyond their control. Territorial laws may impose their own terms on contracts covering the work. And the participants may not always agree on how that work – and its rewards – should be divided.

With that in mind, this article takes a critical look at joint intellectual property (IP) ownership. While many innovators consider it a necessary outcome of joint innovation, it can in fact be an unnecessary burden.


1) THE APPEAL OF COLLABORATIVE INNOVATION

‘Not all the smart people work for you’
Traditionally, most innovating companies kept their discoveries top secret and made no attempt to assimilate information from outside their own research and development (R&D) labs. This was driven by the belief that ‘the smart people in our field work for us’. Recently, though, the world has seen major advances in technology and society that have facilitated the diffusion of information. Also, companies have come to realise that ‘not all the smart people work for us, and that we need to work with smart people inside and outside our company’.

Collaboration as a flexible formula
Joint innovation can take many forms, such as working with universities; cooperating closely with key suppliers and vendors; working with software developers, content providers and design houses. It can also entail working with various groups such as ‘open-source’ communities, innovation networks, inter-operability standardisation bodies and new start-ups. Even customers and end-users can be partners. Collaborative innovation can also vary in terms of the number of parties involved; the type of R&D work in question and its technology classification; the funding model applied; timescales involved and the overall scope of the project.

Collaboration as an industry melting pot
Teaming up with external innovators may be thought of as an equal partnership between two or more similar parties who are pursuing mutually beneficial R&D. Today, though, many collaboration projects involve parties from very different organisations, with varying finances and industry statures. Innovation partners may find themselves working together on sponsored projects. They may make equal contributions to the project, or one may be leading it while the other provides expertise on a narrower aspect. Interdisciplinary projects occur when innovators from diverse backgrounds examine one problem from a host of perspectives, or when a project involves complex, cross-disciplinary problems.


2) QUESTIONS OF OWNERSHIP IN COLLABORATIVE INNOVATION

Striking up an agreement
It is important that IP ownership is agreed in a cooperation agreement before any work takes place. At the very least, it should be discussed and agreed before any money has been spent on patenting processes. When a company pays for external innovative work to be conducted, it would typically expect to own any resulting IP. It may also expect to manage the filing of any patent applications and to maintain any granted patents at its own expense. A company would typically seek to own all inventions relevant to its business, but must accept that other parties – especially universities it has worked with – can own the IP. In these cases, the company would usually seek exclusive access rights for a negotiable period. Any territorial differences in legislation must also be accounted for.

The ‘fair solution’ fallacy
As more and more organisations enter into joint ventures, strategic alliances or other forms of collaborative arrangement, joint ownership of IP Rights has become commonplace. This is because it is seen as a ‘fair’ solution in situations involving multiple parties. Jointly owned IP is also seen as an ‘easy’ option, requiring no in-depth discussion about how the rights should be divided. Plus, it does not seem to give any advantage to one party over another. Unfortunately, though, it is fraught with danger.


3) WHY JOINT OWNERSHIP IS BEST AVOIDED

Jointly owned logistical problems
While jointly developed IP may be defined as rights developed together by two or more parties – where the list of inventors includes employees from all partners and where those partners share the cost and risk of the R&D and its results – it may alternatively be defined as two or more parties sharing ownership and control of the very same IP Rights or patents. This could mean that joint decisions are required by all parties for each and every disposal of the rights. It may mean that rights to exploit the IP must be handled contractually – eg, written consent is needed from one party for the other party to enforce its powers, with limitations specified for the sub-licensing and/or licensing of rights, and with terms set for sharing the resulting revenues.

Challenges at each and every stage
Differing business needs create different patent-coverage needs. The drafting, filing and prosecution of patents therefore become complicated and more expensive, and the result may not be optimal for some, or all, of the parties involved. The licensing of jointly owned patents dilutes the value for all owners if the license is available from all owners. The divestment of joint IP Rights also creates hurdles. Since it is only possible to transfer one owner’s share, rather than everyone’s, the value is diluted. Plus, warranties typically require full ownership. If a project has been so successful that it leads to a watershed moment where essential patents must be declared for an interoperability standard, all owners must declare and commit to the same rules to make that declaration effective.

If the parties become involved in patent litigation with each other, the jointly held IP is made effectively worthless. And as far as business accounting is concerned, it may be a challenge to put the correct valuation of jointly owned IP on to any participant’s balance sheet.


4) ALTERNATIVE APPROACHES

i) One party may own all of the IP generated by the collaborative innovation and license it to the other party.

ii) The portfolio of IP created may be divided out between the parties, based on the vested interests of each party.

iii) If multiple parties are involved in the collaborative innovation, and a large portfolio of IP has been created, then a ‘patent pool’ arrangement could be considered, and an administrator appointed.

iv) Or, the IP portfolio may be divided up between parties in order to distribute costs, with cross-licences providing necessary coverage.


TERRITORIAL SPLIT
Comparing relevant legislation from the US, UK and China

US

• A patent can be owned jointly if devised jointly by more than one person

• The default rule is that each joint owner can utilise or exploit the patent without the permission of the other joint owners

• The exploiting joint owner has no responsibility to share royalty revenues with any other joint owner

• However, to enforce the patent, all joint owners must team up in the lawsuit. If one joint owner wishes to sue rather than license a third party, any other joint owner can terminate the law-suit by simply refusing to join in, or by granting a license

• Complications arise if multiple forms of IP are involved, each with their own default rules – eg, in contrast to US patent rules, joint owners of a US copyright must share royalties

• Complications deepen when a software product covered by both patent and copyright is licensed by a joint owner. Joint owners must determine which percentage of the software product is exempt from royalty-sharing under US patent law and which percentage is subject to royalty sharing under US copyright law

UK

• Section 36 of the 1977 Patents Act states that, subject to an agreement to the contrary, each co-owner of a patent has a right to exploit it – but must obtain the other owners’ consent to: (a) amend or revoke the patent; (b) grant a licence under the patent, or (c) assign or mortgage its share of the patent

China

• China’s Third Amendment to its patent laws (2008) provides that – unless otherwise agreed upon – a joint owner is entitled to exploit the jointly owned patent alone or grant a non-exclusive licence to a third party to exploit said patent. Any fees generated from the licence must then be shared among all participants


Donal O’Connell is former vice president of research and development at Nokia. He is currently managing director of Chawton Innovation Services