The Hazards of Joint Development

It is very common for companies to work with their customers or suppliers in developing products. For example, if you are a supplier, you may work with a customer to provide a component that fits and meets the needs of that customer’s products.  The auto industry is full of these types of interactions.  A supplier of seats will design its products to meet the needs of an automotive company.  The automotive company will communicate its specifications and needs to the seat supplier.  There will likely be some sort of interaction in the design and testing process until a final seat design is locked down.

What happens if the seats have patentable features?  Who owns those patent rights?  Can the car maker have another company provide the same seats without the permission of the company that designed them?

The answer depends on whose employees conceived of the patentable ideas and what the parties have agreed to.  Many people mistakenly believe that if one party pays another to make a product, the party that paid owns the patent rights.  That is not correct and failing to appreciate that can cost you valuable rights. 

Regardless of who pays for what, in the first instance, US patent rights always go to the inventors. With companies of any sophistication, the inventors will have assigned their rights to their employer, so if the seat manufacturer’s employees come up with a patentable invention, the seat manufacturer owns the rights. If the car maker’s employees come up with one, the car maker owns the rights. The companies can agree to assign those rights to one another, in part or in whole.  However, in the absence of an assignment, the company whose employees did the inventing owns the rights.  That company is the party that is entitled to file a patent application. 

What confuses things even more is that when people from both the supplier and car maker start collaborating, it can be hard to untangle who came up with what ideas. This needs to be thought out ahead of time.  The parties can make whatever agreement suits them, which is often dictated by who has the most leverage. For example, the car maker could insist that they own the patent rights to anything developed for them and put that stipulation in their agreement with the seat supplier. The seat supplier could insist that any rights related to the seat design belong to it, and the car maker could insist than any patent rights relating to the interior aside from the seats belong to it.

What is important is to think through how the parties are going to interact, and consider how intellectual property may emerge from that interaction. What information is the car maker expected to provide to the seat supplier? What activities is the seat supplier likely to perform, both alone or in collaboration with the maker?  Then, draft an agreement that accurately reflects how the parties want to allocate whatever intellectual property rights emerge from their collaboration. It is also a good practice to have a strong non-disclosure agreement in place to ensure that the ability to obtain patents or otherwise protect any intellectual property is not compromised by public disclosure.