Co-owning Intellectual Property Creates Unexpected Pitfalls 


February 2009 - (Business in Vancouver)

Business in Vancouver
The term "intellectual property" (IP) is an imprecise phrase used to encompass the many legal entitlements that authors, inventors, artists and others enjoy in creative works. Holders of IP rights typically see enforcement as an external issue: that is, preventing competitors or the general public from infringing on the rights they alone hope to enjoy and exploit. However, when more than one person becomes involved in creating IP, complicated ownership issues can arise. In most instances, ownership concerns among co-creators are ignored until their interests diverge – usually once their creation achieves commercial success and there is money on the table. 

Co-ownership rights for IP can arise under statute. For example, the Copyright Act (Canada) generally grants to the creator of an original work (for example, a novel, song or computer program) the exclusive rights to copy, reproduce or adapt that work. The act also recognizes that works may be "of joint authorship" when produced through a collaborative effort. Typically, joint authors of such works automatically become co-owners in the copyright. However, Canadian courts have developed a number of important guidelines to determine who will be considered a co-author. 

For example, a contribution must, itself, be capable of copyright to give rise to a work of joint authorship. Mere ideas or providing the underlying inspiration will not typically qualify. Despite these guidelines, there remains significant potential for ambiguity; each contributor may be a joint author and co-owner, each may have distinct copyright in the contribution, or one author may have sole copyright in the entire work. As even minor input might be sufficient to give rise to co-ownership, authors must be wary of permitting others to collaborate in their creative efforts. 

IP co-ownership can also arise in other ways, such as by action or agreement among the creators. Consider the example of two companies partnering to develop a new product. Each may retain ownership in its own original IP, i.e., copyrights, trademarks, patents it "brings to the table," but what of the new IP rights developed through their endeavours? Even with a product development agreement, which typically contains specific IP ownership provisions (frequently providing that the party paying for the development takes ownership), express agreement to "jointly own" newly developed IP does not resolve all the important issues. In some cases, that simple provision sets the stage for further serious disputes regarding the rights of joint owners. 

Unless the parties agree or statute states otherwise, co-owners' rights in IP will be assessed using traditional tests to determine whether property is held in "joint tenancy," where each owner holds an undivided interest in the whole IP, or as "tenants in common," where each owner holds a proportional interest. Again using the specific example of copyright, neither the Copyright Act nor the case law clearly prescribes the rights each co-owner enjoys vis-a-vis the others. Accordingly, using the common-law tests for joint tenancy or tenancy in common, a Canadian court would determine copyright co-ownership rights on a case-by-case basis. The situation is much clearer in other countries. In the U.K., co-ownership of copyright is generally presumed to be a "joint tenancy," such that one co-owner may not exploit the copyright without the consent of others. Conversely, in the U.S., the usual presumption is that co-ownership is as "tenants in common," with each co-owner entitled to exploit copyright provided there is accounting to the others for profits. 

Most prudent people would not consider co-owning valuable physical property without taking care to clearly delineate their respective rights – for example, unrelated persons planning to co-own a house would almost certainly want to have a clear understanding regarding important issues such as occupancy rights, payments for repairs, insurance, taxes, etc. Yet, people often fail to apply similar forethought to the co-ownership of IP. At the outset of any creative collaborative endeavours, potential co-owners of IP should carefully examine and agree upon the respective rights and obligations that each will have relative to the others as well as in relation to third parties. Examples of questions to consider include:

  • What is the process for exploitation decisions, particularly licences or sales?
  • If a co-owner exploits the IP, must there be an accounting for profits to the others?
  • What obligation does each co-owner have to maintain the IP, such as confidentiality obligations or the payment of registration or other fees?
  • Who will be responsible for the prosecution of or defence against infringement actions?
  • Can co-owners independently develop derivative works or improvements to the IP?
  • Can co-owners develop competing IP?
  • May a co-owner sell his or her interest in the IP?
  • What happens to a co-owner's interest when he or she dies or gets divorced?
Failure to agree upon these issues is a recipe for calamity, particularly if the parties try to reach agreement only after serious money is at stake.

This article appeared in the February 3 - 9, 2009 issue of Business in Vancouver.