The four main types of intellectual property (IP) rights are patents, trademarks, copyrights, and trade secrets. Intellectual property always legally belongs to someone. Individuals can own IP, and so can entities, such as businesses and nonprofits. IP can change ownership several times, and intellectual property assignment is the process of an IP owner transferring those rights to another party. This transfer is complete and irrevocable, meaning the original owner gives up all claims to the IP once the assignment is done. It’s like selling a physical asset: once sold, the original owner no longer has any rights to the property.

IP assignment can happen for various reasons, such as an artist assigning the copyright of their artwork to a gallery or a publisher. One common form of IP assignment is an inventor assigning their IP rights to a business in exchange for money or as part of an employment agreement. So, what does it mean to assign intellectual property to a business? Below, we’ll explain how assigning IP to a business works, the legal implications of this kind of transfer, and the potential advantages and disadvantages.

What’s in this article?

• Who can own intellectual property?
  
• Intellectual property assignment agreements
  
• How to assign intellectual property to a business
  
• Advantages and disadvantages of intellectual property assignment
  

Who can own intellectual property?

Intellectual property rights can be owned by various entities depending on the nature of the IP and the context in which it was created. Here are some common holders of intellectual property rights:

• Individuals: Individual creators such as artists, authors, inventors, and musicians can own IP rights. For example, an author typically holds the copyright to their written work.

• Businesses and organizations: Businesses often own IP rights to the products, services, or processes they develop. For instance, a business might hold a patent for a new technology or a trademark for its brand logo.

• Educational institutions and research organizations: Universities and research institutions frequently hold IP rights to the discoveries and inventions made by their staff and students, especially when the research is institutionally funded.

• Governments: IP rights can be held by government entities, especially for inventions or works created by government employees as part of their official duties.

• Multiple owners: When a piece of work is created jointly by multiple individuals or entities, the IP rights might be shared among them according to the terms of their agreement.

• Heirs and estates: IP rights can be inherited or bequeathed, letting heirs or estates possess the rights after the original holder’s death.

• Assignees and licensees: IP rights can be transferred or licensed to others. Assignees receive ownership of the IP, while licensees receive permission to use the IP under certain conditions without obtaining ownership.

Intellectual property assignment agreements

IP assignment agreements are comprehensive, legally binding written documents dictating the terms of the transfer of IP ownership. These components must be considered and addressed when drafting an IP assignment agreement:

• Identification of parties: The full legal names and addresses of the assignor (the current owner of the IP) and the assignee (the party receiving the IP rights).

• Identification of the intellectual property: A detailed and unambiguous description of the exact piece of intellectual property being assigned. For patents, this would include the patent number, the title, and a brief description; for trademarks, registration numbers and the specific mark; and for copyrights, the specific works and their registration details, if applicable.

• Statement of ownership and right to assign: A statement of ownership and legal rights from the assignor, verifying the assignor has clear, unencumbered ownership of the IP and the legal rights to assign it. Existing disputes or liens on the IP complicate this ownership and might invalidate the assignment. Any prior licenses, agreements, or claims that could affect the assignment should be disclosed and addressed.

• Terms of transfer: A statement that the assignor transfers all rights, title, and interest in the IP to the assignee and whether the transfer is complete and irrevocable or comes with conditions attached.

• Assignment vs. licensing: A distinction in whether the IP is being assigned, meaning ownership is being transferred, or whether it’s being licensed, meaning the assignee is being granted permission to use it but does not own it.

• Consideration: The compensation or consideration being provided in exchange for the IP rights. This could be a monetary amount, equity, other property, or some form of value agreed upon by both parties. Compensation is required for the agreement to be legally binding.

• Warranties and representations: Guarantees about the IP, which might include that the IP does not infringe on the rights of others, that the assignor is the true owner of the IP, and that there are no hidden liabilities attached to the IP. The assignor typically provides warranties regarding the IP’s validity, their ownership of it, and the absence of infringements or encumbrances. Any breach of these warranties can lead to legal liabilities.

• Indemnification: Any compensation due from the assignor to the assignee if certain warranties are breached, such as if a third party claims the IP infringes on their rights.

• Dispute resolution: How disputes related to the assignment will be resolved, whether through arbitration, litigation, or another process. This should also indicate the governing law for any disputes.

• Assignment and delegation: A statement that the assignee can further assign the IP rights or delegate any associated duties unless restricted in the agreement.

• Future developments: How any ongoing developments will be handled and whether the assignor has any rights or obligations related to these future developments.

• Signatures: Signatures and dates from both parties. Some types of IP assignments need to comply with specific formalities such as notarization or recordation with the appropriate governmental authority to be effective or enforceable.

• Miscellaneous provisions: Any additional terms the parties want to include such as confidentiality obligations, the return of materials, or any specific terms relevant to the IP being transferred. This section might also address the implications if the assignor or assignee faces bankruptcy. IP assets are considered part of the bankruptcy estate, which can affect the rights and interests of both parties.

How to assign intellectual property to a business

There are eight steps involved in assigning IP to a business.

Step 1: Establish the need for assignment

The need for an IP assignment can arise in various scenarios including the sale of a business, a new employment agreement, a licensing deal, or one business acquiring another business’s IP. Once the need for assignment is established, the parties involved identify the specific IP assets that need to be transferred.

Step 2: Conduct due diligence

Before proceeding with the assignment, the assignee should conduct due diligence to verify the assignor’s ownership of the IP, identify any encumbrances, limitations, or potential infringement issues, and assess the value and risks associated with the IP. This step might involve reviewing public IP registers, contracts, and any previous licenses or assignments.

Step 3: Negotiate the terms

The parties will negotiate the terms of the assignment including the scope of rights transferred, the consideration (payment or other compensation), warranties, indemnities, and any other relevant terms. This negotiation phase defines the expectations and obligations of both parties.

Step 4: Draft the assignment agreement

After negotiation, they’ll draft the formal IP assignment agreement. Both parties can have legal counsel review the agreement to confirm it accurately reflects their understanding and complies with applicable laws.

Step 5: Execute the agreement

Once the agreement is finalized, both parties sign the document. Depending on the jurisdiction and the nature of the IP, the signatures might need to be witnessed or notarized. Though not always a legal requirement, notarization is a recommended practice for adding a layer of security to the transaction. It helps the document be taken seriously by authorities and reduces the risk of legal complications. Once the document is signed (and potentially notarized), the agreement has been executed and the IP rights are formally transferred from the assignor to the assignee.

Step 6: Record the transfer

In some cases, especially with registered IPs such as patents or trademarks, the assignment will need to be recorded with the relevant IP office. This record is a public declaration of the change in ownership and is often necessary for the assignee to enforce the rights. The parties should also update any public listings or registrations to reflect the new ownership status.

Step 7: Notify relevant parties

The parties should notify other stakeholders or third parties, such as licensees or business partners, about the change in IP ownership and how their rights or obligations related to the IP will change.

Step 8: Integrate the IP

The business should integrate the newly acquired IP into its operations, updating its asset records and planning how to use and protect the IP in alignment with its business strategies.

Advantages and disadvantages of intellectual property assignment

IP assignment can create potential advantages and disadvantages for businesses.

Advantages of IP assignment

• Ownership and control: Assigning IP rights gives the assignee clear legal rights to control the IP, make decisions regarding its use, and enforce the IP rights against infringers. This clarity can be particularly important for businesses looking to use IP strategically.

• Business opportunities: Business transactions such as mergers, acquisitions, or partnerships might be facilitated by the value and appeal of acquiring new IP through an assignment agreement.

• Monetization opportunities: For the assignor, assigning IP can earn them a lump sum or other agreed-upon consideration. For the assignee, owning IP rights can open up new revenue streams such as licensing, production, or further assignments.

• Investor attraction: Businesses with ownership of IP assets are often more attractive to investors because these assets can contribute to the business’s valuation and potential for innovation and market competitiveness.

Disadvantages of IP assignment

• Permanence of transfer: Once the IP is assigned, the assignor loses all rights to the IP. This is irreversible unless there is a specific clause in the assignment agreement that allows for reversal under certain conditions.

• Valuation challenges: Determining the fair value of IP can be complex and subjective. There’s a risk of undervaluing or overvaluing the IP, which can lead to financial loss or disputes.

• Potential for disputes: If the assignment agreement is not comprehensive, disputes might arise over the scope of the rights transferred, especially if the IP is used in ways that were not anticipated by the assignor.

• Integration challenges: For the assignee, integrating the newly acquired IP into existing operations or product lines can be challenging, requiring alignment and potential restructuring.

• Risk of overconcentration: If a business focuses too much on the acquired IP at the expense of innovation, it might miss out on other opportunities or become vulnerable to market changes that diminish the value of the IP.