When a Business Dissolves, Who Owns the Trade Secrets and Other Intellectual Property?
Ending or reorganizing a business can introduce a number of concerns for business owners – including questions over who owns any trade secrets or intellectual property inherent to the company and how those assets should be divided. Even when partners amicably decide to party ways, disagreement and contention can arise, as well as issues involving misappropriation and theft. In order to protect your fair share of trade secrets, trademarks, copyrights, or patents, assertive enforcement and legal representation is of the utmost importance.
Resolving Trade Secret & IP Ownership Disputes
Disputes over trade secrets and intellectual property ownership can involve a number of different circumstances, some of which include:
Employer / Employee Disputes – Many disputes over the ownership of intellectual property arise between employers and employees. While work-for-hire agreements and non-competes may help prevent these disputes or provide legal remedies when intellectual property is misused or misappropriated, many disputes involve employees who claim to have created such assets during “off hours.” For example, disputes over inventions created by an employee may focus on:
- When the invention / asset was developed (i.e. at home or during work hours)
- What resources an employee used to develop the asset (i.e. an employer’s software programs or personal equipment)
- Whether an invention / asset is in the same or similar field as the employer’s
Generally, employees who develop intellectual property unrelated to their employment, with their own resources and on their own time, own the asset. However, employers can make arguments as to their ownership rights, especially when existing agreements or the structure of a business define who owns what. When facts are unclear or disputable, resolutions may be reached by splitting ownership rights between the parties, such as when an employee is awarded ownership but must provide cost-free license (or “shop right”) to their employer.
Partnership Disputes – When a business owned by two or more partners dissolves, any internal disputes or disputes with other companies, contractors, or former employees must be resolved in order to divide IP ownership rights between the owners – whether they are divided through established agreements or court order. Determining who owns intellectual property and has the right to future use can be a difficult matter, even if partners had mutually agreed to part ways. While clear and enforceable partnership agreements, non-competes, and other agreements can help alleviate disputes and the need for litigation, some situations may require the assistance of experienced attorneys to help clients explore available options for resolution and appropriate division of a company’s intellectual property. This may include corporate restructuring strategies, temporary restraining orders or injunctions to stop infringement or the use of trade secrets by other entities or partners, negotiations to divide assets and intellectual property fairly in a dissolution, buy-outs, or litigation when necessary.
Joint Venture Disputes – Joint ventures can introduce complex intellectual property implications. This can include difficulties in determining who owns the right to certain processes, designs, and other trade secrets or intellectual property created through the collaboration of companies. Asserting ownership rights will depend on evaluating any agreements and contractual duties, as well as negotiations or litigation to reach a resolution over ownership.
Theft of Trade Secrets – Should disputes over trade secret ownership involve theft and misuse through improper means or without consent by another company, former employees, or business partners, Texas law provides remedies for temporary restraining orders, injunction, and a recovery of damages. In order to have a valid claim for misappropriation under the Texas Uniform Trade Secrets Act (TUTSA), plaintiffs must have taken reasonable measures to protect any confidential plan, formula, pattern, program, device, technique, code, collection of information, or other trade secret that provides a competitive advantage.
Proactive Protection Can Make the Difference
One of the most effective ways to minimize conflict over intellectual property assets when a business dissolves is to proactively establish and maintain safeguards. Proactive IP protection can entail various measures, including:
- Registration - Registering trademarks, patents, and copyrights is critical to protecting designs, ideas, and inventions you created. When these forms of intellectual property are appropriately registered, you have legal remedies available should another person or entity use them without authorization
- Non-Competes – Non-compete agreements, also known as covenants not to compete, can place restrictions on employees and former employees, including business partners, from unauthorized use of trade secrets and other proprietary information. To be enforceable under Texas law, non-compete agreements must be clear, carefully crafted, and reasonable in scope, duration, and geographic focus.
- Work-for-Hire Agreements – Disputes may arise over ownership of intellectual property created by employees or contractors, which is why employers should take steps to create work-for-hire agreements that protect this information and address issues over the scope of the work.
- Licensing Agreements – Technology licensing and development agreements can address intellectual property ownership rights arising from development work with another company or joint venture, and allow for enforceable terms and effective resolutions when disagreements arise.
- Partnership Agreements – Partnership agreements can eliminate a great deal of frustration and challenges during dissolution by clearly establishing terms for ending business relationships, IP ownership rights, and division of assets.
While prevention is a key aspect of establishing ownership rights and reducing risks of future disputes and litigation, these issues are not always effectively addressed during the formation of a business and contractual relationships. Business owners may also find themselves facing complications when there is misappropriation and infringement. To protect your rights and interests as a business owner or employee, working with skilled attorneys who have the breadth of insight and resources to provide comprehensive representation is vital. Discuss your case with a Houston business lawyer from Hendershot, Cowart & Hisey, P.C. by calling (713) 909-7323 for an initial consultation.