Over the lifespan of a small business, you may find yourself needing to sell or transfer intellectual property rights. There are a variety of situations where this might come up:
Even though intellectual property rights are intangible, they can still be sold or transferred much like any other business asset. This week, we look at how to transfer ownership of these assets. Except for name changes, we first need an agreement between the parties describing the terms of the sale or transfer. Then, we need to record the assignment of the intellectual property rights in the appropriate office.
(Note: Licensing intellectual property is not the same as transferring ownership. Licensing deals with a temporary right to use intellectual property, not a change in the underlying ownership.)
IP Assignment Agreements
You want to use an IP assignment agreement because transfers of intellectual property rights generally are not valid without a signed, written agreement. In addition, an agreement assigning (or transferring) intellectual property rights from one person or entity to another will cover important details that aren’t specified in the documents that get recorded with the Copyright Office or USPTO. In addition to the obvious (names of the parties, payment terms, registration numbers), your typical assignment agreement will also specify whether any rights are being retained and will contain important representations and warranties for the new owner. For example, the current owner often represents to the new owner that the current owner does in fact own all of the rights in the copyright or trademark being transferred and that the current owner is not aware of any pending infringement claims. After all, you don’t want to purchase a copyright or trademark only to find yourself tied up in extensive (and expensive) litigation.
With trademarks specifically, you are not just transferring the registration with the USPTO. You are also transferring the “goodwill” associated with the trademark. Remember, a trademark represents your company’s branding. It is a visual representation of how your business is viewed by consumers, which is all tied up in the goodwill that is built up by your business over time through the use of the trademark. In order for the trademark assignment to be valid, all of the goodwill built up in the mark must be transferred along with it. Otherwise, the new owner isn’t really getting anything because by law, trademarks do not have any value outside of their association with particular goods and services. In other words, you can’t just transfer a trademark for a new owner to use without also giving the new owner the right to sale the goods and services you have associated with the mark. (This also protects consumers from being misled into purchasing the same goods or services from the new trademark owner, only to find out that the goods or services are now drastically different.) So the trademark assignment agreement must make it clear that both the trademark and the associated goodwill are both being assigned to the new owner.
Recording the Transfer
To finalize the transfer of a copyright or trademark, the assignment agreement needs to be recorded with the Copyright Office or USPTO. Recording creates a public record of the transfer in much the same way that deeds are recorded whenever real property is sold. When transferring rights in a trademark, both the USPTO and Ohio Secretary of State have relatively simple online forms (not to be confused with the assignment agreement) and short turnaround times.
Similarly, the Copyright Office has forms for recording the transfer of copyrights once you have a valid assignment agreement. However, the Copyright Office can take months to process the paperwork. And, unlike transfers of trademarks, recording copyright transfers is not mandatory to make the assignment legally binding. However, the recording of the transfer puts the public on notice of the facts stated in the recorded document. So you still want to record the transfer with the Copyright Office for all the same reasons you want to register your copyrights in the first place.
Get it Done Right; Avoid Legal Problems Later
If you are selling intellectual property rights, you want to make sure that both the assignment and recordation is done correctly. Assignment agreements are contracts and, when not drafted carefully, can easily lead to disputes just like any other poorly drafted agreement. Recording the assignment also protects the parties in the event of infringement claims or disputes over ownership.
For example, let’s say a claim of trademark infringement comes up after your business assigns the trademark to a new owner. If the assignment is not properly recorded, you could easily find your business dragged into the trademark infringement litigation because your business is still the record owner of the trademark. (And if you left the trademark registered in your name instead of the name of the right business entity, you might find yourself personally named in that lawsuit).
On the other hand, if your business is purchasing intellectual property rights, you don’t want to find yourself in a dispute with the previous owner regarding who owns what rights either because the terms of the deal weren’t properly documented or the deal was never finalized with a recording of the transfer.
Learn more about assigning and transferring your intellectual property rights:
 “Reps and warranties” are common in a wide variety of contracts. They are typically promises made about the truth of certain facts; if it turns out that a party misrepresented one of these clauses, that misrepresentation would trigger certain remedies specified in the contract.