If you co-own a cannabis business, you probably have a formal operating agreement that sets out who owns what—at least if you’ve been reading this blog. As I noted in my previous blog post, your cannabis company probably owns some intellectual property (IP): trademarks, copyrights, trade secrets, or patents. But who owns the IP, if, as is common, the operating agreement is silent on this issue? You may not have thought much about this, but you should. As any divorce lawyer can tell you, many assumptions about who owns what turn out to be mistaken.
LIke any other kind of property, IP is subject to general default rules that establish ownership, at least to begin with. The default owner of a patent is the human inventor. The default owner of a trademark is the entity (human or not) that uses the mark in commerce. Caution: it is easier to state these IP default rules in the abstract than to apply them in the real world. For example, though there is an ownership rule in copyright law called “work for hire,” it turns out it doesn’t apply to many people who are hired to create copyrightable works. Making mistakes about these default rules can lead to disappointment, or litigation.
You can diminish this risk, however, by making your own IP ownership rules. Virtually all of the default IP rules can be contracted around. A well-drafted IP ownership contract allows the parties to arrange their conduct knowing who will own the resulting IP. It will also discourage those who might try to take advantage of uncertainty to claim ownership of IP.
Co-owners of a business: IP issues arise in connection with a business formation in at least two situations: (1) some or all of the owners come to the business with preexisting IP, like brand names or trade secrets; and (2) the business will create new IP during operation. An IP agreement can define ownership so that the business will not be left without important assets (such as the brand name of the company) if the partner who brought IP to the business decides to leave. It can also provide ways to protect IP owned by the corporation, such as by requiring inventors to assist with patent filings or assign IP rights.
Deals with other businesses: Many deals between businesses have IP consequences. For example, a joint venture to create new growing processes could result in creating trade secrets or patentable inventions. In a distribution agreement, it is common for one party to have a license to use the other party’s trademarks. Determining the ownership of IP is critical when two companies work together.
Employer/employee/independent contractor: Any time a business entity pays a human being to create something, IP ownership issues will arise. Many businesses assume they know the default rules that apply depending on whether the human is called an “employee” or an “independent contractor.” The rules distinguishing these categories, however, vary from state to state, and are notoriously hard to apply. So, an IP agreement should not turn on the classification of the worker. Having a solid IP ownership agreement will allow both parties to concentrate on creating IP, and will lower the risks of disputes if and when the relationship ends.
IP ownership agreements need not be separate documents. The appropriate language can be included in your cannabis company’s operating agreement or even in its employee handbook. If you really want your own IP, however, don’t rely on the default ownership rules.
For more previous posts on cannabis litigation, go here for Cannnabis Litigation: Spotting Criminal Law Issues in Cannabis Cases and here for Cannabis Litigation: How to Avoid IP Disputes by Changing Your Oil Filter.