Ownership of Patents by Corporate Officers

Corporate officers are often deeply involved in the development of the products and inventions made by their corporations. In such cases, the corporate officer may wish to retain ownership of the patent in his or her own name. This is not, fundamentally an improper procedure, but it may give rise to the need for special documentation concerning ownership of the inventions.

Unless there is an understanding to the contrary between the officer and the corporation, the usual rule is that the corporation is the rightful owner of any patent created by the officer relating to his or her duties. As an officer owes his or her utmost best efforts to advance the interests of the corporation, any inventions made by an officer are normally, initially, presumed to be the property of the corporation.

This rule can be reversed if a confirmation document, or "Assignment", has been signed, by both the inventor and by the corporation, changing the allocation of the ownership of rights in inventions. The Assignment acknowledges that the officer retains title to any inventions that he or she develops, even if the invention relates to the business of the company. Normally the person who would be sign the confirmation document on behalf of the corporation is the president. When the president and inventor are the same person, the Board of Directors should approve the confirmation document. If there are shareholders who are not members of the Board of Directors, these shareholders should approve the confirmation document as well.

The corporation should acquire some benefit in return that is commensurate with the cost of the patent before surrendering the patent rights (which are corporate assets) to a corporate officer. Not only is this fair, but taxation authorities would likely disallow the deduction of such expenses by the corporation if the corporation does not receive a reasonable benefit. In addition, the officer may be taxed as having received a benefit in the course of his employment when the corporation pays the costs for obtaining a patent in the name of the officer/inventor.

It is difficult to conceive what benefit the corporation could receive if it pays for patents that it technically is entitled to own yet is surrendering to an officer. If the officer is to own the patent rights, it would be preferable to have the officer pay all patenting costs and avoid complications with taxation authorities.

One possible benefit that may justify the payment of patenting costs by the corporation is the right of the corporation to use the invention under license. Such a license can be exclusive or non-exclusive. If the license is exclusive, then the officer/inventor cannot license the invention to others without permission of the corporation. A non-exclusive license will permit the officer/inventor to authorize other parties to use the invention.

A particular concern of an officer/inventor may be to ensure that patent rights are not lost in the event that the corporation becomes bankrupt or goes out of business. Proper documentation is essential in such circumstances to achieve this objective; otherwise a receiver or trustee in bankruptcy may endeavor to impose a trust on the officer/inventor in respect of patent rights held in his or her own name. Documentation between the officer/inventor and the corporation granting to the corporation a license which expires on bankruptcy will probably not be effective under bankruptcy law, but such documentation can legitimately stipulate that the license will terminate in the event that the corporation is not exercising its rights under the license by continuing to manufacture the product. Or, possibly, the license can stipulate that it is terminable by the officer in the officer's discretion, after the corporation has enjoyed a number of years of guaranteed entitlement to the license.

Officer/inventors who wish to maintain ownership of their patents and ensure that the rights are not lost if corporations become bankrupt or cease carrying on business should always take appropriate steps to ensure that the proper documentation is in place.

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