D. Exploiting And Licensing Jointly Owned Intellectual Property

One of the complexities of joint ownership of patents and copyrights is that the rules with regard to use and licensing of the jointly owned property that apply in the absence of explicit agreement between the co-owners (which will refer to as the “default” rules) differ between different types of intellectual property, and may or may not reflect the parties’ expectations. Thus, in most cases, the parties should expressly provide for and define their respective rights and obligations by agreement, and not rely on these default rules.

1. Patents

In absence of agreement to the contrary, under U.S. patent law, each joint owner of a patent may make, use, offer to sell, sell and import the patented invention without the consent of the other joint owners and without accounting to the other joint owners for any share of the profits.[lvii] Each co-owner’s rights also carry with them the right to license others under any of those rights, also without the consent of the other co-owner or any obligation to account.[lviii] As a corollary of the fact that each co-owner has the right to use and license the patented invention, no co-owner, acting alone, has the power to grant a truly exclusive license. The right to grant licenses has been described as putting each co-owner “at the mercy” of the other co-owner.[lix] One decision summed this up as follows:

In its essence all that the Government confers by the patent is the right to exclude others from making, using or vending the invention [citation omitted], and as to this essential attribute of the property each joint owner is in a very real sense at the mercy of any other... [Each joint owner’s] unlimited right to license others may, for all practical purposes, destroy the monopoly and so amount to an appropriation of the whole value of the patent.[lx]

Just how much each co-owner is “at the mercy” of the other co-owners is illustrated by the Federal Circuit’s decision in Ethicon v. U.S. Surgical Corp.[lxi] Ethicon, as assignee of the only named inventor (Yoon), brought an infringement suit against an infringer. After suit was filed, the defendant became aware that there was a second co-inventor (Choi), who had not been named in the patent. The defendant contacted Choi and obtained a license under the patent from him, agreeing to pay him a contingent fee if it was successful in defending against the suit brought by Ethicon. The defendant then successfully asserted the license from Choi as a defense against Ethicon’s suit. Since the defendant had a license from one co-owner, Ethicon, as assignee of the other co-owner of the patent, had no claim of infringement, and the case was dismissed.[lxii] Choi also purported to grant the defendant a retroactive license, but the court held that the license was not effective to extinguish past claims of infringement by Ethicon that arose before the license was granted. However, as will discussed below, all co-owners must join in a suit for infringement, and since Choi refused to join in the suit, Ethicon had no remedy past infringement and therefore that part of its case was dismissed as well. The net result was that Ethicon could recover nothing on the patent.

The foregoing are the default rules in U.S. when there is no contrary agreement between the co-owners. The co-owners are free to vary their respective rights, subject to the constraints of the antitrust laws and public policy. Thus, for example, the co-owners might agree that neither will grant licenses to third parties without the consent of the other co-owner. Or one co-owner may grant the other co-owner the exclusive right to use the patented invention, negating the first owner’s right to use the invention.[lxiii] Alternatively, the co-owners might agree that, while each of them will have the right to use the patented invention, only one of them will have the exclusive right to grant licenses to third parties.[lxiv]

Even where the default rules may seem consistent with the parties’ intent, it is still strongly advisable to define the parties’ rights explicitly by agreement. Explicit agreement will minimize surprises or unintended results. Moreover, as will be discussed below, the default rules with respect to copyright are different than those governing patents. Particularly where the parties’ collaboration may involve both patentable and copyrightable subject matter (e.g. computer software), the default rules may lead to conflicting results.

Explicit agreement on ground rules (and choice of law) is also important where there may be jointly owned intellectual property rights in multiple countries. The default rules differ from country to country and often quite different in foreign countries than they are in the United States. In Canada, U.K., Germany and many other countries, in the absence of an agreement to the contrary, a joint owner of a patent, while having the right to itself exploit the patented invention, has no right to license a third party (or convey anything other than its entire ownership interest to a third party) without the consent of the other joint owner.[lxv] In France, a joint owner cannot assign the jointly owned patent to a third party without first offering it to the other joint owner.[lxvi]

Agreements curtailing the default rights of each co-owner with respect to the jointly owned patent should be explicit and complete in defining the parties’ rights.[lxvii] The default rule may intrude if the parties fail to make the ground rules clear. The Federal Circuit’s decision in Schering v. Roussel illustrates the pitfalls of joint ownership even when the parties have an express agreement on the subject. Co-owners of a pharmaceutical patent (Schering and Roussel), agreed that if one co-owner wished to bring an infringement action against a third party and the other co-owner did not wish to join in the suit, the non-joining co-owner “shall render all reasonable assistance to said other party in connection therewith.”[lxviii] One of the co-owners (Roussel) entered license negotiations under the patent with a third party. While these negotiations were proceeding, the other co-owner (Schering) requested Roussel’s assistance in bringing an infringement suit against that third party. Roussel responded that it was engaged in licensing negotiations with the third party. Schering then filed an infringement suit against the third party with whom Roussel was negotiating, and notified Roussel that it was invoking its rights to assistance under the terms of the co-ownership agreement! Despite the suit, Roussel and the third party completed their license negotiations and Roussel granted the third party a license. The third party then asserted its license from Roussel as a defense in Schering’s infringement suit. The Federal Circuit upheld this defense. The Court started from the principle that each co-owner was entitled to license others without the consent of the other owner, unless it had given up that right through an “agreement to the contrary.” Schering argued that an agreement giving each co-owner the right to bring infringement suit unilaterally and requiring the other co-owner to render “reasonable assistance” was such an agreement to the contrary. The Federal Circuit disagreed, concluding that the “reasonable assistance” referred to litigation assistance and was also not intended to limit the non-suing co-owner’s right to license the defendant.[lxix]

Another potential pitfall to consider is that, while agreements limiting or allocating the rights of co-owners of a patent are binding on the co-owners, they may not be binding on third parties without notice of them.[lxx] The parties could seek to overcome this limitation by recording their co-ownership agreement with the U.S. Patent and Trademark Office. Recording an assignment of a joint interest gives the assignee record title to an undivided interest and constitutes constructive notice.[lxxi] However, the recording of a co-ownership agreement allocating or restricting rights between the co-owners may not be sufficient to create constructive notice of those allocations or restrictions.[lxxii]

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