Participants in a new business venture that incorporates a concept subject of a actual or intended patent application, often to seek to document their mutual participation in the venture by joining as co-inventors. This is not a good idea.
As I mentioned in my earlier blog “Who is the Inventor”, the law provides that each owner of a patent possesses an undivided joint interest in the patent. Each participant can separately utilize, license or sell their interest in the invention without any duty to account to the other owners. This can create chaos. The existence of separate parties owning a share of the invention will reduce the value of the invention to all concern. For example, it will reduce the ability for one inventor to raise funds to exploit the invention if others are separately proceeding to commercialize the patent or application.
The parties should enter into a legal agreement wherein the respective rights of each participant are spelled out. This is true even if there are in fact joint inventors. The agreement can establish a partnership, a limited liability company (LLC) or a corporation, etc. Consideration may be given to an S corporation. The participants should obtain the advice of a qualified attorney specializing in business organizations.
If there are indeed joint inventors, then all should be named in the application. The co-inventors should agree to convey their ownership interests to a separate entity, i.e., the partnership or corporation, to solve the joint concurrent ownership dilemma. The organization documents will establish each party’s ownership interest. Also parties that are not co-inventors but that are important actors in the new venture should share in ownership in the separate entity. This can include individuals that are furnishing marketing, accounting or executive direction.
In my opinion, one of the most useful functions served by the creation of this separate legal entity is creating agreement up front as to how disputes of the participant’s are to be resolved. Most important, how will a party be able to leave the venture but receive compensation for prior service? There can be buyout provisions, etc. Most important, however, is that the ownership of the invention will remain with the single legal entity.