Should you own your patent as an individual or under your company?
Startups frequently ask whether their patent should be owned by the company or the individual inventors. At the outset, a few disclaimers are in order. I’m not a tax attorney. Nothing herein should be construed as tax or financial advice. The IRS has a section of their website dedicated to intangibles. That being said, I aim to provide some helpful guidance on the legal implications of owning a patent yourself as an individual versus holding the patent in a company.
Why assign the patent to your company?
A US patent application must identify each individual inventor who contributed to the claimed invention whether or not they have ownership rights. That is why a patent application would never identify a company only. By default, the sequence of patent ownership starts with the individual inventors. If no transfers of ownership are filed, then the inventors are presumed to be the owners of the patent.
A patent assignment is a formal document to transfer ownership of patent rights from the individual inventors to someone else, such as a company. Besides the obvious reason of being compelled to do so by an employer, why might individual founders of startups, for example, choose to assign the patent to their company?
First, assigning the patent to a company can avoid complications and future disputes with cofounders. Imagine the bloody mess that may result from a dispute between coinventors, where each individual claims to have invented the patent-pending technology.
Second, investors might not be interested in a startup company that does not own the patent. There may be alternative options to keep inventors engaged such as an exclusive license agreement between the individual and the company. But, such written license agreements take time and money to prepare.
Third, there may be implications on any financial damages suffered as a result of others infringing your patent. If the patent is owned by you as an individual and not your company, what are the implications on lost profits? Does a written patent license agreement already exist if all sales of patented products are made by your company?
Do you want to be personally named in patent lawsuits?
If your patent is owned by you as an individual, expect patent lawsuits to involve you personally. The other side can then seek all kinds of discovery against you an individual. Do you want your personal finances to be subject to discovery?
Patent owned as company asset or personal asset?
Like many founders, you might imagine having other shareholders owning a piece of your company. If the patent is owned by the company, the patent would be a company asset just like anything else owned by a company. That is not necessarily a bad thing. As discussed above, some inventors may demand that the company own the patents.
Keeping a patent in your individual name would prevent other shareholders from claiming a piece of your patent rights. At the same time, owning a patent as an individual may limit investments in your company and potential money damages from infringement.
Are you trying to get your company acquired?
IP can certainly boost the value of your company. Owning patents and other valuable intellectual property rights, such as trademarks, can raise the valuation of your company in a potential merger or acquisition.