Intellectual property: A common dispute in partnerships

On Behalf of | Feb 8, 2021 | business litigation, intellectual property & trade secrets

Business partners do not always see eye to eye. Sometimes these differences have simple solutions; they might even help partners to grow and develop their business.

However, there are some disagreements that can strain the partnership – and jeopardize the business. Disagreements over expenses, draws, operations or intellectual property can quickly lead to legal issues or litigation. In fact, intellectual property is a frequent source of such disputes, and these conflicts can be particularly complex for business partners.

THE PRIMARY ISSUE: WHO OWNS IT?

Most often, the partnership disputes that erupt over intellectual property revolve around the question of ownership. Does the company own it, or does one partner own the rights to use the intellectual property? This generally depends on two factors:

  1. Who created the intellectual property; and
  2. When they created it.

Usually, intellectual property rights belong to the person who created it – especially if one partner created it before they formed the business. However, if the business partners created it together, it belongs to the business.

ADDRESS OWNERSHIP AS SOON AS POSSIBLE

The issue of ownership can often develop into a dispute when business owners wish to dissolve their partnership. One partner might claim they own the intellectual property and wish to use it in their future ventures. This could:

  • Hinder the other partner’s future ventures or their current business
  • Lead to larger legal disputes, such as trademark misappropriation or theft lawsuits

Litigation becomes a serious risk if the ownership of intellectual property is not clear. This is why it is critical to establish ownership rights at the beginning of the partnership, or when partners create intellectual property.

DOCUMENTATION IS NECESSARY

Maintaining careful records is a fundamental rule of the business world. Therefore, California business owners should ensure that they:

  • Document the details: Keep a written record about the creation and use of intellectual property. For example, business owners should note when they created it as well as who was involved in its development.
  • Establish ownership: Business owners must address ownership of any intellectual property created and used during the partnership in the partnership agreement.

Recording this information might not always prevent a dispute, but it can help mitigate disputes and inform strategies to reach a resolution for both partners.