IP Ownership Issues IT Consultants Should Know About

By Richard L. Sampson

IT consultants are often hired not just for their ability to solve knotty technical problems, i.e., “hired to invent,” but also because the hiring company wants access to the consultant’s intellectual property (“prior IP”), including issued patents and pending patent applications.

Well-publicized examples of these situations are so-called “acqui-hire” deals, in which companies pay large sums for startups to recruit their employees without necessarily showing an interest in their products and services. And, while the particular products and services may not have been of much interest, the IP owned by the startups is often driving the deal.

Unfortunately, however, headline-making paydays are far less common than situations in which the potential acquirer seeks to hire talent without actually purchasing the prior IP, e.g., by hiring the consultant to invent and merely licensing the prior IP.

Hired to Invent

The hired to invent doctrine is derived from a Supreme Court ruling that states, “Anyone employed to make an invention, who succeeds, during his term of service, in accomplishing that task, is bound to assign to his employer any patent obtained.” In a hired to invent arrangement, determining whether an employer or consultant owns the IP depends on a number of factors including:–Whether there was a written consulting agreement addressing IP rights;

–Whether past consulting agreements or policies addressed patent rights;

–Whether the contracted work was done in an inventive capacity;

–Whether the contracted work was performed by the employee;

–Whether the contracted work was performed at the employer’s facility;

–Whether the consultant permitted or refused to allow the employer to use the invention;

–Whether the employer provided guidance and direction to the employee; and

–Whether the employer’s resources were used in development.

It is important to note that the rules for independent contractors differ from employees, and companies that hire you as an IT consultant have more latitude in how they structure their assignment agreements.

The Control of IP Prosecution Clause

It will come as no surprise that consulting agreements used in these hired to invent situations require any inventions (“new IP”) developed during the course of employment to be owned by the company. The agreements also typically concede that the prior IP belongs to the consultant, which may then be licensed to the company on reasonable terms.

What may be less apparent is that there are often innocuous-sounding provisions in these agreements that enable the hiring company to effectively capture some of the consultant’s prior IP without compensation. Complications arise, for example, when some of the consultant’s IP remains patent pending during the course of the employment. In these situations, there is a real danger of the company taking control of the consultant’s IP through a common “Control of IP Prosecution” clause.