An applicant, for the purposes of filing a patent application, is the individual or entity that owns the invention and is seeking patent protection for the invention. While this may sound straightforward, determining the right ownership structure for your specific situation often requires careful analysis.
1. Who Can Be an Applicant?
The applicant for a patent is generally the inventor, the employer, or an assignee who holds the invention’s rights. Here’s a breakdown of the primary categories:
- Inventor(s): If an individual or team develops the invention, they can file as applicants. For jointly developed inventions, all inventors may file together as joint applicants but that isn’t recommended. Generally, they should either assign the invention rights to a company or enter into a joint exploitation agreement.
- Employer or Company: Many inventors work as an employee or independent contractor that must assign their invention rights to their employer, making the company the applicant. This approach is common in engineering companies.
- Assignee: An inventor can also assign their rights to another party, such as a company or investor. The assignee then becomes the applicant, holding legal rights to file for and enforce the patent.
2. When Should the Inventor Be the Applicant?
If the inventor is funding everything and working as a startup, the inventor will typically be the applicant. Creating a corporation too early can add unnecessary costs. Building revenue should be the priority; once the business gains traction, then the corporate structure can be formalized.
With personal ownership, there’s no immediate downside, as an individual patent owner typically cannot be sued for patent infringement. When the time comes to sell your product, it will likely be through a corporation, often referred to as a use company. If a lawsuit were to arise and potentially bankrupt the use company, the inventor still retains the patent rights independently of the corporation, keeping these valuable assets protected.
3. When Should Patent Rights Be Assigned to the Company?
If you are a business and have employees or independent contractors contributing to the invention, it’s best to assign the patent rights to the company. In fact, when you hire your employees and independent contractors, you should have them sign an invention assignment agreement. This approach consolidates ownership, ensuring the company has complete control over its intellectual property. Having all rights under the company name prevents issues with overlapping or fragmented ownership, which is essential to maintaining the value and enforceability of the IP.
4. When Should Patent Rights Be Owned by Two People or Entities?
In almost all cases, it’s best to avoid joint ownership of patent rights between individuals or entities. When two parties share ownership, each one effectively has full control over the patent, which includes the ability to dedicate it to the public without the other party’s consent. This can undermine the patent’s value and create serious risks.
If multiple people are involved, it’s recommended to assign the invention rights to a company which is owned by the interested parties. This structure not only consolidates control but also protects the patent’s value, as both parties have a duty of loyalty to the company, preventing any action that could compromise the asset’s worth.
5. Use Company vs. IP Holding Company
For added protection and strategic flexibility, consider establishing two separate entities: an IP holding company and a use company.
- IP Holding Company: This entity holds the patent and other intellectual property (IP) assets. By isolating the IP in a separate holding company, you protect these valuable assets from the operational risks faced by the use company, such as liability in lawsuits or creditor claims during bankruptcy.
- Use Company: This is the operational entity that sells or licenses the patented product or process. The use company licenses the IP rights from the holding company, allowing it to manage production, distribution, and sales while keeping the IP protected in the IP Holding Company. If the use company faces bankruptcy, the IP holding company remains unaffected, safeguarding the patent rights.
This structure not only helps protect your intellectual property but also offers strategic benefits for licensing, tax optimization, and liability management. For most inventors and businesses, the holding company model is highly recommended as it ensures the IP remains secure while the use company can handle the risks associated with bringing a product to market.
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