In today’s business environment, the development of technology is occurring at an unprecedented rate, with new breakthroughs occurring almost daily. Artificial Intelligence (AI) is just one of the more recent examples of new technology implicated in this global development race.
In creating new technology, many businesses utilize their employees, engage independent contractors, or both. Many business owners assume that since these employees and independent contractors have been hired and engaged by the business, and are being paid for their efforts on behalf of the business, that the business will own the resulting technology that arises from these development efforts. This may be true, but only if the legal distinction between an employee and an independent contractor is recognized, taken into account and the proper legal protections put into place. In fact, failure to recognize this important distinction can result in the loss of significant value in the intellectual property assets of a business.
Generally, under the U.S. Copyright Act and its “work made for hire” provisions, the owner of the copyright in technology created by an employee working within the scope of their employment on behalf of the business will automatically be owned by the business. Intuitively, but wrongly, many business owners assume that this same principle would apply to the independent contractors used by the business to develop technology on behalf of the business. The reality is that absent a written signed agreement in place between the particular independent contractor and the business whereby the intellectual property rights in the developed technology are assigned by that independent contractor to the business owner, the default position under the U.S. Copyright Act is that the independent contractor is actually the owner of those rights. This counter-intuitive fact often catches business owners by surprise. In order for a business to obtain those rights from the independent contractor it is critical that such a written signed agreement is entered into between the independent contractor and the business whereby all intellectual property rights in the developed technology are expressly assigned by the independent contractor to the business owner. In many cases the failure to do so is often not discovered until long after the independent contractor’s development work has been completed and the oversight negatively impacts the valuation and sale of the business to a third party acquiror.
If your business is using or considering using independent contractors in its technology development, carefully consider the impact of this decision on the value of the intellectual property assets of your business. The terms to be included in an intellectual property assignment agreement are critical to properly affect an assignment from an independent contractor to a business. At Parsons Behle & Latimer we have expertise in drafting and negotiating such agreements, and we are here to assist you in dealing with the legal issues associated with the development of intellectual property assets. Please let us know how we can help your business in this regard.
