Intellectual property contracts can be daunting, and, as a business owner or creative, it can be difficult to know where to start. Whether you are a business owner, a contractor, or a creative, understanding how to properly address an IP agreement is crucial and can help minimize the risk of future disputes. Further, using the right form of IP contracting can enhance the utility of your intellectual property in the market, allowing you to carve out uses for others while gathering new profits from royalties. When it comes to contracting IP rights, there are several types of agreements that achieve different goals: licenses, assignments, and work-for-hire agreements. Whether you have a trademark, copyright, or patent, protecting your IP is essential. Below is a birds-eye view of these categories, but, if the need for an IP contract arises, the most important step is contacting an intellectual property lawyer before you sign anything.
Licenses
In the IP context, a license agreement is a contract in which the owner of a patent, copyright, trademark, name/image/likeness right, or trade secret (licensor) grants permission to another party (licensee) to use, make, or sell the IP in exchange for a fee or other consideration. Importantly, the licensor retains all rights to the attendant intellectual property, meaning that ultimate control over the IP remains with licensor. In the trademark context, licensor must contractually agree to monitor and control the use of their IP in the license agreement to avoid a “naked license,” where the licensee has free reign to use the IP in any manner, for any duration, to the exclusion of others. If the licensor creates a naked license, he can risk losing his trademark. To avoid the naked license issue, trademark licenses typically limit the licensee only to using the mark for a specific purpose, for a royalty fee, and, sometimes, for a limited duration. When done right, IP licenses are valuable tools which allow the owners of intellectual property to permit third-party commercial uses while still maintaining exclusive ownership and control.
Assignment/Transfer
Conversely, if you wish to sell your ownership rights to IP, an assignment, also called a transfer, is an option. IP assignments occur when the owner executes a complete transfer of all attendant IP rights to another party. In this agreement, the owner relinquishes their rights, and the recipient becomes the new owner. This should not be confused with the doctrines of first sale in copyright and patent exhaustion. In these cases, the authorized sale of a product containing a patented invention or copyrighted expression eliminates the IP owner’s right to control the further use or sale of that specific article. An IP assignment/transfer actively terminates the owner’s right to the underlying intellectual property itself by transferring it to another.
Work-for-Hire
Work-for-hire agreements are unique to copyright and are distinct from assignments and licenses. Copyright protection over a work (like books, films, computer programs, and music), by default, vests in the “author,” the person who actually creates the thing. Work-for-hire agreements allow copyright authorship to vest not in the creator but a third-party of whom the creator is an agent. See 17 U.S.C. 101. In this case, the party that hires or commissions the work is considered the author and copyright owner. There are two situations in where a work for hire occurs. First, when an employee creates a work within the scope of their employment, then the employer is the author and owner of the copyright (i.e. a software developer working full time for Microsoft who creates a new program for Windows). Second, when a work is specially ordered or commissioned via independent contracting, a written agreement stipulating the project is a work made for hire is necessary for the commissioning party to be deemed the author and owner (i.e. a ghostwriter pens the autobiography of a famous celebrity). In a copyright transfer, the author assigns ownership of the copyright to another, but retains his status as the “author” of the work. For works-made-for hire, copyright ownership and authorship vest the commissioning party, not the actual creator.
Examples of IP Contracting
Having broadly reviewed the three common categories of IP contracts, let’s look at an example. Imagine you run a business that sells unique decal wraps for sport cars under the hypothetical trademark “Perigon Wraps” and a trademark for the correlating “Perigon Logo.” One day, while attending major car show, someone representing Equine Motors, a major manufacturer of muscle cars, approaches you with a proposition: a limited run of Equine Motors’ newest model, the Stallion V8, that feature a custom wrap from your company. The marketing campaign will be titled “Equine Motors x Perigon” and the Perigon Wraps logo will be featured on each model. Further, Equine Motors wants to own the final decal design you create for this collaboration.
This example implicates several IP rights and attendant contracts. First, Equine Motors use of the Perigon Wraps trademark and the Perigon Logo will require licenses that allow Equine to use your trademarks for the limited purpose of this collaboration. Second, the collaboration requires the determination of ownership over the copyright associated with the decal design. In this case, you can execute a work-for-hire agreement where the attendant copyright and authorship status vest in Equine Motors. To retain your association with the design however, you can instead initiate a copyright transfer, where you relinquish all exclusive rights in the decal to Equine Motors while retaining your status as the work’s author.
This is but a distilled demonstration of what IP contracting can look like. In the digital age, however, IP touches almost every business, and understanding these three agreements and their distinctions is essential to protecting your rights. Whether you’re licensing your IP, assigning your rights, or entering into work-for-hire agreements, clear and comprehensive contracts are crucial to defining ownership and usage rights. By grasping the differences between licenses, assignments, and work-for-hire agreements, IP owners can navigate intellectual property contracts with confidence and clarity.
This post was co-authored by Christopher Akins, a law clerk at Darkhorse Attorneys and 2L law student at the Liberty University School of Law.
If you need advice regarding intellectual property contracts, or if you have questions about protecting/building your brand, reach out to Darkhorse Attorneys today to schedule a consultation.
The contents of this post do not constitute legal advice, and no client-attorney relationship is formed. The contents of this post are offered for educational purposes only. Every situation is unique. If you require legal assistance, submit an inquiry through our website or call our firm at 540-553-8149.
