The Perils of Patent Co-ownership

There is increasing demand, both implicit and explicit, by Federal and State government funding bodies for collaboration between public research entities such as universities and corporate Australia.  At the same time there is no abatement in the need for public research entities and their staff to be recognised for their research effort.  Patent ownership is publicly recorded and is recognised as one metric of innovative success.  At first blush, patent ownership is not a difficult issue to understand, but in collaborative research and development, the merits and drawbacks of the various ownership options are rarely fully appreciated.  This is particularly true of co-ownership.

What is the law on co-ownership?

According the Australian Patents Act a patent for an invention may only be granted to a person who is the inventor or who has title to the invention because it has been transferred to them by some legal means.  Two or more persons may make a joint patent application, and a ‘person’ includes a body of persons, such as a company or institution.  Corporate and academic collaborators on a research program are therefore legitimately able to seek protection for their invention as ‘joint applicants’.

The rights of co-owners of a patent are also set out in the Patents Act.  Specifically, unless there is an agreement in place otherwise, each owner

  • is entitled to an equal undivided share in the patent,
  • can exercise the exclusive rights given by the patent for his or her own benefit without consulting or reporting to the other owners,
  • cannot grant a licence under the patent, or transfer it to someone else, without the consent of the others, and
  • is treated as having sold a patented product or the product of a patented process even though it may have been sold only by their co- or joint owner.

In the case of a dispute between co-owners, an application can be made to the Commissioner of Patents for its resolution of the dispute. The Commissioner can give the co-owners instructions about how they must deal with the patent or their interest, the grant of a licence in the patent; and the exercise of any right they have as a co-owner.  The Commissioner must allow all parties concerned to put their position in a dispute between them, but is in a very powerful position.  The Commissioner could decide for example that one owner must assign their rights in the patent property to another owner, or that activities be allowed that may not be entirely in the interests of the other co-owners.

What are the risks of patent co-ownership?

Where the co-owners of a patent are of a like commercial nature, for example both are manufacturers or research organisations, the power between the parties as to how the patent may be exploited is likely to be evenly balanced.  At the very least, each owner can themselves utilise the methods patented, or make and sell the products patented without recourse to the other owner.  However, in the situation in which the commercial nature of the co-owners is different, for example, where one owner is a company and the other is a university, there may be a considerable imbalance in the ability of the university to get an income stream from their work.  The company can commercialise the technology without seeking permission from the university, but the university is required to seek the permission of the company to license the technology out. If the university wants to commercialise the technology, it is at the mercy of the company and its goodwill.

In the rosy glow of a new collaboration deal, few potential co-owners are cynical enough to expect that the relationship between the parties will break down.  But considering the maximum term of a patent is 20 years and that it is rare that key personnel stay in the same position for such a long period of time, it is wise to ensure that patent ownership arrangements are structured to enable flexibility, and resolution through routes other than the Commissioner of Patents, should the relationship ever fail.  The last situation that feuding co-owners should have to confront is one in which one owner is refusing to allow another owner to license, or transfer the patent to a third party who may well be, for example, a financial saviour.

What are the alternatives to co-ownership?

There are at least two commercially viable alternatives to patent co-ownership.

  • The first model is for the interested parties to create a separate entity, the ownership of which reflects the contribution of the parties to the project.  This contrasts with the statutorily defined requirement in a co-ownership situation that the shares must be equal.  This separate entity can be the sole owner of any intellectual property created as a result of the collaboration and the proportion of ownership, or the identity of owners in the entity can be altered along the journey in the case of a dispute between the parties without the need to deal specifically with any patents involved.
  • A second viable alternative is for one owner to own solely any patents arising, but for there to be a licence agreement in place on most preferred licensee terms, between the patent owner and any other collaborating party.  The licence might involve no, or only, peppercorn royalties, sublicensing rights, dispute resolution provisions and further provisions which by mutual agreement will protect the interests of all parties, again, without the need to engage the assistance of the Commissioner of Patents.
Take Home Message

Patent Attorneys are taught few ‘golden rules’.  Like any area of law, most issues involve ‘shades of grey’.  However, one of the few ‘golden rules’ relates to patent co-ownership.  Although co-ownership may be convenient, may avoid early conflict, and may meet the status requirements of an academic institution in the short term, it is very rarely a long term solution to the benefit of all parties concerned and should ideally be avoided.

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