Should the patent owner be you as an individual or your company?
Startups frequently ask whether their patent should be owned by the company or the individual inventors. Should the patent owner be the company or you as an individual?
Need to file a patent for your company? Call US patent attorney Vic Lin at (949) 223-9623 or email vlin@icaplaw.com to see how can help you file patents that protect your innovation.
At the outset, a few disclaimers are in order. I’m not a tax attorney. Nothing herein should be construed as tax or financial advice. The IRS has a section of their website dedicated to intangibles. That being said, I aim to provide some helpful guidance on the legal implications of owning a patent yourself as an individual versus holding the patent in a company.
Do individual inventors start off as the patent owner?
A US patent application must identify each individual inventor who contributed to the claimed invention whether or not they have ownership rights. That is why a patent application would never identify only a company without inventors.
By default, the sequence of patent ownership starts with the individual inventors. If no transfers of ownership are filed, then the inventors are presumed to be the owners of the patent.
Has a company been formed yet?
Since there is no requirement to identify a company at the start of the patent process, you can file patent applications even before incorporating. After your company is formed, the inventors can sign a patent assignment to transfer ownership of the patent to the company.
Why transfer the patent to your company?
A patent assignment is a formal document to transfer ownership of patent rights from the individual inventors to someone else, such as a company. Besides the obvious reason of being compelled to do so by an employer, why might individual founders of startups, for example, choose to assign the patent to their company?
Company Patent Owner: Avoiding disputes with cofounders
Assigning the patent to a company can avoid complications and future disputes with cofounders. Imagine the bloody mess that may result from a dispute between coinventors, where each individual claims to have invented the patent-pending technology.
When the company owns the patent, you avoid IP ownership disputes with cofounders.
Patent ownership considerations when investors are involved
Investors might not be interested in a startup company that does not own the patent. While you can explore alternative options such as an exclusive license agreement between the individual and the company, investors might get cold feet when they realize that your startup is merely a licensee and not the owner of the patent. Also, drafting written license agreements can be expensive.
Maximizing money damages when others infringe your patent
Consider the financial implications of patent infringement by others. Suppose you own the patent, but your company sells the patented product. What are the lost profit implications when your company – i.e., the one suffering lost profits – does not own the patent?
Do you have a written patent license agreement in place between you and your company? If not, expect to be grilled about the absence of a license agreement when litigating your patent.
Are you a corporate officer with a fiduciary duty to the company?
I’m not a corporate lawyer, so I simply want to flag this issue for founders. As both an inventor and a corporate officer, do you owe a fiduciary duty to your company that requires ownership of IP to be transferred to the company?
If you plan to own the patent as an individual even though you are a corporate officer, make sure you have solid justifications for doing so.
Do you want to be personally named in patent lawsuits?
If you, an individual, are the patent owner, expect patent lawsuits to name you personally. The other side can then seek all kinds of discovery against you as an individual. Do you want your personal finances to be subject to discovery?
Of course, you can still get dragged into depositions if your company is the patent owner, but the scope of discovery would differ. The other side would not have the right to go digging into your personal finances when the patent is owned by the company.
Patent owned as company asset or personal asset?
Like many founders, you might imagine having other shareholders owning a piece of your company. If the patent is owned by the company, the patent would be a company asset just like anything else owned by a company. That is not necessarily a bad thing. As discussed above, some inventors may demand that the company own the patents.
Keeping a patent in your individual name would prevent other shareholders from claiming a piece of your patent rights. At the same time, owning a patent as an individual may limit investments in your company and potential money damages from infringement.
Are you trying to get your company acquired?
IP can certainly boost the value of your company. Owning patents and other valuable intellectual property rights, such as trademarks, can raise the valuation of your company in a potential merger or acquisition.
Need help determining whether your patent should be owned by your company or you as an individual?
Contact US patent attorney Vic Lin by email at vlin@icaplaw.com or call (949) 223-9623 to see how we can help you figure out if you or your company should own patents.
