Don’t Stink Up the Joint Ownership: Co-Owning Intellectual Property in Canada
March 21, 2022
One of the most difficult terms to negotiate as part of any joint venture or other co-development agreement relates to ownership of intellectual property (IP) developed as part of the venture. At the outset of the relationship, it can be difficult to know if any valuable IP is going to be developed. In that context, neither side is eager to forego ownership rights, lest it be ceding rights in a potentially valuable asset. Often the parties compromise and agree to jointly own any IP that is developed.
Joint or co-ownership can take the form of a joint tenancy, or ownership as tenants in common. Joint tenants must own equal interests in the property, whereas tenants in common may own differing partial interests in the property. If one tenant in a joint tenancy dies (or is dissolved), that tenant’s interest in the commonly owned IP is inherited by the remaining tenants (this is sometimes referred to as a “right of survivorship”). As tenants in common, one tenant’s death or dissolution does not redistribute the deceased tenant’s interest to the other tenants; the deceased tenant’s interest becomes a part of their estate.
While sharing ownership of IP seems appealing, via either a joint tenancy or as tenants in common, parties often do not consider the practical and legal ramifications flowing from that decision. Specifically, the treatment of jointly or co-owned IP rights differs significantly from property to property and from country to country. For example, and as will be further discussed herein, while tenants in common in the context of real property may have an unfettered right to transfer or dispose of their partial interest, a tenant in common of a Canadian copyright does not enjoy a similar luxury.
This article will canvass the rights of co-owners of IP under Canadian law and provide some guidance as to how co-owners can protect their rights.
Joint or co-ownership of trademarks is generally not recommended in Canada, except in the case of a partnership or joint venture. This recommendation is based on the source theory of trademarks. The source theory, and the consequential requirement that a trademark be distinctive of a single source, has historically constrained the right to assign and license a trademark in Canada for fear that an assignment or license could weaken the distinctiveness of the mark.
To acquire, maintain or enforce rights in a trademark, whether under the common law or the Trademarks Act, it is imperative that a trademark be “distinctive” of a single source. Section 2 of the Act defines “distinctive” as referring to any trademark “that actually distinguishes the goods or services in association with which it is used by its owner from the goods or services of others or that is adapted so to distinguish them”. This accords with the organizing principle of trademark law that a mark is first and foremost an indicator of source.
Under the source theory, the public interest is thought to be in the knowledge that a trademark identifies a single supplier of the goods or services. The Supreme Court of Canada has said that a trademark “allows consumers to know, when they are considering a purchase, who stands behind those goods or services.” It is not necessary that the public knows the identity of the source, rather it is sufficient that the public can identify the goods or services with the trademark of the source.
The requirement that a trademark be “distinctive” is undermined if a trademark points to more than one source. In the case of a joint or co-ownership, the subsistence in two or more persons of rights to use a trademark, and the exercise of those rights by those persons, would mean that the trademark ceases to be distinctive.
Co-ownership of copyright is permitted under Canadian law. However, the law places some limits on the exploitation of each owner’s share of the work.
Co-ownership can arise in numerous situations. For example, in the absence of an agreement to the contrary or special circumstances, the authors of a work of joint authorship own copyright in the work as co-ownership. Co-ownership may also arise through a contract or inheritance.
In Canada, the Copyright Act is generally silent on the mechanics of co-ownership in a work that is subject to copyright. Subsection 13(4) of the Copyright Act provides that owners may assign the whole or partial copyright to their works. Beyond that, the Copyright Act does not explicitly define the exact nature of a co-owner’s rights in relation to other co-owners.
What we can glean from Canadian jurisprudence and the Copyright Act is that a co-owner of copyright in Canada may assign their interest in a jointly owned work without the consent of the other co-owners. However, a co-owner may not transfer the whole of a work without the consent of the other co-owners.
Similarly, the consent of the other co-owners is required to license or use the work. Therefore, a co-owner must account to other co-owners for their activity, or revenue, such as licensing royalties, resulting from the work. However, a co-owner does not require consent to enforce copyright or the co-owner’s moral rights, if any.
Based on the foregoing, there is a strong basis to presume that co-ownership of copyright is as tenants in common in equal shares, rather than as joint tenants, unless otherwise agreed. As alluded to above, one of the consequences of this distinction is that, if a co-owner dies, the interest passes to their estate rather than to the surviving owner(s).
Co-ownership of a patent can arise in many situations. For example, if two or more inventors apply for a patent, the patent will be granted conjointly to all the parties. Co-ownership may also be the result of an express agreement which provides that any technology developed by two or more parties remains jointly owned by all parties.
The rights as between co-owners in relation to a patent are not addressed in the Patent Act. At law, co-owners are deemed to equally share in the patent, absent an agreement to the contrary. It is also possible for two or more persons to own separate interests in a single patent. For example, two parties could agree between them that one party will be the sole owner of certain claims and the other party will be the sole owner of the remaining claims.
There is limited jurisprudence in Canada dealing with co-ownership of patents. However, under Québec jurisprudence, guided by the Civil Code, a co-owner cannot exploit the invention covered by the patent for their own gain (which includes granting a license) without the consent of the other co-owners, to whom there is owed a duty to account.
In the common law provinces of Canada (i.e. all the provinces except Quebec), it has been held that a co-owner of a patent can independently make or sell the invention covered by the patent without consent of the other co-owners. Likewise, a co-owner of a patent can, without the consent of the other co-owners, assign or license his or her entire interest in the patent to another single party, whereby the new purchaser becomes a co-owner.
However, a co-owner cannot do anything to dilute the interest of the other co-owners. For example, a co-owner cannot grant a licence to more than one third party, cannot assign only a portion of his or her interest in the patent, or assign his or her entire interest to more than one assignee without consent of the other co-owners.
Co-ownership of an industrial design can arise in many situations. For example, two or more designers may apply for an industrial design registration. Co-ownership may also be the result of an express agreement.
The Industrial Design Act provides that the right of another person to an industrial design shall only be co-extensive with the right that the other person has acquired. This suggests that, absent an agreement to the contrary, co-owners will have an equal share to the design.
Unfortunately, there is little case law dealing with rights of co-owners in the industrial design context. It is unclear if the rights would be treated akin to patents or copyright.
In view of the above, it is highly recommended that parties observe the following precautions when they embark on a relationship that could lead to the creation of IP with another party:
- Parties should attempt to ensure that their respective rights are settled at the outset of the relationship. A good pre-nuptial agreement may smooth the divorce.
- Any agreement should provide whether either party can disclose, exploit, assign or license the IP rights, and, if so, on what conditions.
- Since different jurisdictions have different presumptions or default rules governing joint ownership, the joint owners may not be fully aware of the implications of joint ownership in a particular jurisdiction. This heightens the need to agree to avoid any unknown pitfalls.
- Canvass alternatives to co-ownership, such as licensing, or establishing a jointly-owned corporation for the purposes of owning the IP.
- Ensure that the pre-existing contractual arrangements of the parties have been considered to ensure that existing obligations are not breached. For example, a party may have an obligation to license improvements to an existing licensee. If the newly created co-owned IP is seen as an improvement, the party will need to ensure its ability to include that IP in its license.
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