On a fairly regular basis, parties negotiating a joint development or joint venture agreement involving significant IP rights will tell us that they want the IP to be jointly owned. No amount of weeping, wailing and gnashing of teeth on the part of the lawyers will convince the parties that this is a bad idea and that a licensor/licensee structure would be better for everyone. The potential licensee feels that joint ownership gives them more than a license. The potential licensor feels that agreeing to joint ownership will earn them negotiating points. At this stage I usually feel a severe headache coming on.
So why, in fact, do we think joint ownership of IP is such a bad idea?
Lack of Statutory Scope and Clarity
The rules governing joint ownership of IP under Israeli law are neither comprehensive as a statutory matter nor entirely clear, neither of which is a good thing. Both the 1967 Patent Law and the 2007 Copyright Law recognize the concept of joint ownership, but neither makes reference to such basic issues as whether or not joint ownership of IP creates an unregistered partnership or how such partnership – or the joint ownership itself – may be dissolved.
When, back to the wall, we actually draft contracts of joint ownership of IP, we try to make up for that lack of statutory coverage and clarity by setting out exactly what each party is and is not allowed to do with the jointly owned IP. Including limitations on fields of use, licenses that may be granted, non-compete provisions and accounting provisions – but these are all merely contractual. If a party breaches its contractual obligation not to license the jointly owned IP to its partner’s competitors, all this will give the injured party is a cause of action for breach of contract. It will not necessarily void the license.
Ease of Termination
Dissolution of the joint ownership is another problem. Under Israeli property law, a joint owner of property (whether real or movable) may apply to the court for dissolution of the joint ownership where the parties cannot reach agreement. If this is a viable option for a joint owner of IP, it makes the joint ownership a very risky proposition, at least for one of the parties. There is no guarantee that a clause in the contract preventing either party from applying for dissolution of the joint ownership will be enforced (nor am I certain that the right granted by the law should be overruled by contract).
Continuation After the End of the Contract
A third problem is that the joint ownership of IP is often intended to survive the commercial relationship between the parties. As one client succinctly put it, “if I am investing all this money and effort in developing a brand, I have no intention of letting the other party enjoy it just because the agreement has come to an end”. True. But on the other hand, the commercial arrangement will have come to an end for a reason. Maybe the venture has failed. Maybe one party has materially breached the agreement and failed to remedy the breach. Even if the agreement terminates by simply coming to the end of its term, the fact that the parties have failed to renew it is indicative of one thing: they no longer wish to be in business together. Joint ownership of IP is a little like having children in a bad marriage. You can divorce your spouse, but you are tied to them forevermore by ties of custody, child maintenance and college tuition. Joint ownership of IP can be brought to an end, but that opens up a whole new can of “buy-me-buy-you” and other termination arrangements.
Would it not be much simpler to decide which party is to be the owner of the IP and agree on license terms that are sufficient to satisfy the other party (putting aside for the moment the fascinating question of whether or not a perpetual license really is perpetual)? The ownership is clear. The rights of the parties are clear. It may not be perfect, but then again, not very many contracts are.