The earliest-acquired and most valuable assets of a typical startup company are the elements of that company’s intellectual property, which may include copyrights, trademarks, patents, and trade secrets. Failure to memorialize promptly the transfer of one or more of these assets to the startup can unnecessarily complicate future deals and may end them entirely. By taking a few simple steps when intellectual property is created, a company can substantially reduce assignment-related headaches later on. This is not meant to be an exhaustive recitation of the considerations surrounding transfer of intellectual property, but may serve as a starting point for internal discussion and for a discussion with intellectual property counsel.
I. Start with the Employees
Every employee of the startup, whether or not that person was hired to create intellectual property for the company, should sign an intellectual property transfer agreement at the outset of employment. A good transfer agreement will include language of present transfer for existing and future-developed intellectual property. Although there are variations, a typical clause might state, “the undersigned hereby does assign to Company all Intellectual Property developed during the course of employment, and does agree to execute all documents and to provide any other assistance necessary to memorialize that assignment….”
If the employee later refuses to sign an assignment, then the startup will be able to assert that any inventions or copyrightable works are already the property of the company, and that all that remains is a signature to memorialize the transfer. That is a substantially better position than if there had been no intellectual property transfer agreement, or if the agreement had included a promise to transfer rights in the future (i.e. “the undersigned hereby agrees to assign to Company all Intellectual Property developed during the course of employment.”)
II. Follow up with the Proper Form of Assignment, then Record the Assignment
Even if a startup’s intellectual property has been assigned through an intellectual property transfer agreement or an asset purchase agreement. the startup should still obtain signed written assignments memorializing the transfer. For the assignment to be effective, it must be in the proper form, and it should be procured and recorded as soon as possible.
In the United States most intellectual property assignments are straightforward. Trademark assignments must include a transfer of goodwill, patent assignments must identify the transferred property by certain criteria related to application number and filing date and are typically accompanied by a transfer of priority rights, and copyrights must list with specificity the works that are transferred. Typically only the party assigning the intellectual property must sign the assignment, and while notarization is strongly preferred it is not strictly required.
Once as assignment has been executed, it should be recorded. The United States Patent and Trademark Office (“USPTO”) permits electronic recordation of trademark assignments for a minimal administrative fee and permits electronic recordation of patent assignments without any fee. Copyright assignments may be electronically recorded with the United States Copyright Office.
Although the most commonly recorded transfer of rights is an assignment, both the Copyright Office and the USPTO permit recordation of other documents that might affect title. For example, both offices will record security interests, releases of security interests, and changes of corporate name. Although licenses are not required to be recorded, they may be. In general, a company should consider recording all documents necessary to show an uninterrupted chain of title between the original creator of the intellectual property and the company. (Although consulting competent counsel is always important, it is particularly important any time security interests are being recorded or released.)
Failure to record an intellectual property transfer, or failure to make a timely recordation, can impact a startup’s rights in a patent or patent application. For the first three months after a patent assignment has been signed, the assignment is effective against all other parties who obtain a later assignment of the same patent, whether or not they are aware of the startup. After three months have passed, however, the patent assignment is only good against another purchaser if (a) that purchaser knew about the earlier assignment; or (b) if the startup’s assignment is recorded with the USPTO after the three month period but still prior to the sale to the later purchaser. Failure to properly record security interests may have similar adverse effects.
Transfer of rights in foreign intellectual property can be far more time-consuming and complicated than transfer of rights in U.S. intellectual property. For example, foreign assignment documents may require the signature of multiple witnesses, or they may require that the assignment document be signed by both the party assigning the intellectual property and the party receiving it. They may require certification by apostille or legalization. Legalization is a time-consuming and expensive process that begins with notarization and then requires successive verification of the notarial seal by the issuing state, the United States State Department, and a foreign embassy.
Recordation of foreign rights can also be complicated. Many foreign jurisdictions require power of attorney documents with certifications similar to those made when procuring an assignment. The fees to record the power of attorney and the assignment can also be substantial. If at all possible, an attorney in the jurisdiction where the intellectual property is registered should be consulted well in advance of any transfer.
Sometimes a failure to record a transfer can go unnoticed for some period of time. It will not go unnoticed, however, when the intellectual property and/or the startup is sold. At that time, any transfer that has not been memorialized and/or recorded will need to be attended to. There is no guarantee that all of the parties necessary to sign the required documents will be willing or available to sign, and the time pressure to procure the documents will be much more significant than it would have been had the assignment been memorialized and recorded at the time that the intellectual property was created.