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Intellectual Property

Intellectual Property Ownership Issues and Considerations 

Intellectual Property Ownership Issues and Considerations 

Laura Marmulstein

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Unfortunately, intellectual property ownership issues are quite common. Such ownership issues often arise when proper agreements are not in place from the very beginning of a business engagement. Without a written agreement, a third-party contractor or an individual hired to perform certain services may own intellectual property rights in any resulting work product. For this reason, it is important to have such agreements in place when engaging others to perform services on your behalf. The discussion below highlights common ownership issues and considerations for the various forms of intellectual property. 

Copyright 

Let’s say you hire a photographer to take photographs for your business website. You might think that because you paid for the services, you own the photographs outright. Unfortunately, copyright law does not work this way.  

Copyright ownership vests initially in the creator of the work unless there exists a written contract. Examples of this include an employment agreement, an independent contractor agreement, or an assignment agreement (i.e., an express transfer of ownership agreement). If an employment agreement is in place, copyright law allows ownership through “works made for hire,” which establishes that works created by an employee within the scope of employment are owned by the employer. If an independent contractor agreement is in place, the agreement must expressly contemplate that any resulting work product is considered a “work for hire” (which only applies to certain types of commissioned works) or otherwise provide an express assignment. Even if an employment agreement or independent contractor agreement is in place, it is best practice to have a separate assignment agreement specifically identifying the work to which it pertains.  

In the above example, the photographer would retain copyright ownership of the photographs absent an agreement. At best, you would have a limited license to use the photographs.  

Trademark 

A trademark owner establishes trademark rights by using a mark in commerce in connection with the sale or provision of goods and/or services. The trademark owner is the one who controls the nature and quality of such goods and/or services. 

An interesting place where we often see ownership issues with trademarks is with logos. Such ownership issues arise under copyright law. Copyright protection is granted for any original work of authorship fixed in a tangible form of expression. A logo falls under this definition. As discussed above, the creator of the logo owns the copyright in the logo absent a written agreement. While you may be able to establish trademark ownership rights in the logo by using it in association with your goods and/or services, your use may be limited by the logo creator’s copyright ownership of the logo. For this reason, it is necessary to have an agreement in place with any third party contracted to create your logo to ensure that you have full ownership rights. 

Patent 

Inventors are the initial owners of an invention and any patent that is granted covering the invention. An inventor is anyone who contributes to the conception of the invention. If someone merely reduces the invention to practice, and merely acts under the direction and supervision of the conceivers of the invention, that individual is not an inventor. It can get tricky if a third party is hired to reduce an invention to practice, and in the process of building the technology, contributes an inventive concept. If the third party ends up contributing to the conception of the invention, such third party can become an inventor with ownership rights.  

Patent ownership rights can be transferred by an express assignment. For example, an express assignment can be written into an employment agreement or independent contractor agreement, provided as an ancillary agreement, such as a Proprietary Information and Inventions Assignment Agreement (PIAA), or provided as a separate assignment agreement. If you want your company to own the invention and any resulting patent, it is important to have such agreements in place with anyone who works on the technology and could possibly be considered to be an inventor. It is vital to have these agreements in place at the onset, when you first engage a third party to work on your invention, as the third party may be less likely to sign such agreements down the road (or the third party may request even more compensation). As discussed above, even if an employment agreement or independent contractor agreement is in place, it is best practice to have a separate assignment agreement specifically identifying the invention (and patent application) to which it pertains. 

Finally, with any of the above forms of intellectual property, it is best practice to record any transfer of ownership documents with the respective intellectual property office. Recordation has various legal advantages, including providing priority between conflicting transfers and “constructive notice” of the facts stated in the recorded document to the public.  

In conclusion, when engaging others to help you create a work product (a design, marketing materials, a logo, a work of art, technology, etc.), make sure you have agreements in place assigning any rights that the creators may have in the work product to your company. Our firm is happy to assist you at the onset of any business engagement to make sure you have proper protections in place. 

ABOUT THE AUTHOR

PARTNER

Laura counsels clients on legal issues related to intellectual property, including patents, trademarks, and copyrights. Laura helps clients build strong intellectual property portfolios, taking into account various types of protection options, such as utility and design patents, including both U.S. and foreign, trademark and trade dress registrations, and copyright registrations.

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Recent Crypto Enforcement Actions and the Brewing Battle Between Regulators for Jurisdiction Over Digital Assets

Recent Crypto Enforcement Actions and the Brewing Battle Between Regulators for Jurisdiction Over Digital Assets

Rachel Yeates

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Readers of my last, irresistibly juicy blog post, “First-Ever Court Ruling Means Your Utility Token May Be an Unregistered Security,” know that the Securities and Exchange Commission (“SEC”) recently landed a blow against blockchain-based media company LBRY when a district court in New Hampshire held that LBRY’s native “utility token,” LBC, was an unregistered security.  

 Finally, we had a clear answer. [1] Hurray! Digital assets are securities, and now we can all get ice cream and start suing people for securities fraud.  

Sadly, things turned out not to be that clean after all. Read on to find out what the regulators have been up to in the crypto space and about the ongoing fog that surrounds what is and is not a security.  

Recent CFTC Enforcement Actions

The Commodity Futures Trading Commission (“CFTC”) has recently filed charges against FTX’s Nishad Singh for fraud and has sued an individual who manipulated digital asset exchange Mango Markets to artificially inflate leveraged positions in swap contracts on the platform.[2] [3] The agency also filed charges in California related to bitcoin (BTC)- and ether (ETH)-related fraud. [4] More on that later.  

Recent SEC Enforcement Actions 

The SEC’s enforcement activities of late have ramped up significantly. In the last three months, the SEC has: 

  • Sued digital asset exchange Kraken for selling unregistered securities (Kraken’s staking-as-a-service program); [5] 
  • Sued crypto-lender Genesis and crypto-exchange Gemini for the same thing; [6] 
  • Charged NBA star Paul Pierce for making misleading statements about EthereumMax assets; [7] and
  • Initiated fraud actions against Terraform Labs (best known for its stablecoin), FTX principal Nishad Singh, and BKCoin (an investment adviser). [8] [9] [10]  

One crypto enthusiast has described this recent campaign as an “SEC blitzkrieg,” a choice of words that enlivens the drabness of federal bureaucracy in a way that I, for one, appreciate and will attempt to emulate herein.  

But while these knight-errant agencies roam the land of crypto righting wrongs to maintain the integrity of the financial markets and protect retail consumers, recent signals from both the SEC and the CFTC indicate that all may not be well in government Camelot. 

ETH and Stablecoins Are Definitely Securities… 

Enter SEC Chair Gary Gensler. In a February 23, 2023, interview with New York Magazine, Gensler asserted that “[e]verything other than bitcoin” is a security.[11] The interviewer elaborated Gensler’s position, characterizing it this way: “pretty much every sort of crypto transaction already falls under the SEC’s jurisdiction except spot transactions in bitcoin itself and the actual purchase or sale of goods or services with cryptocurrencies.” And, in late February news broke that the SEC was in talks with the company behind Binance’s stablecoin regarding potential securities violations.[12] The CEO has vowed to defend its position that stablecoins are not commodities in court if necessary. Sounds like the SEC may be about to take the field. 

…No, Wait, ETH and Stablecoins Are Definitely Commodities 

And over here on the left we have CFTC Chair Rostin Behnam, weighing in at, honestly, I’m not going to venture a guess, but he could definitely take me in a fight. [13]

At a March 8, 2023, hearing before the Senate Agriculture Committee, Behnam stated that the CFTC considered BTC, ETH, and all stablecoins to be commodities, thereby placing them within its jurisdiction and outside the purview of the SEC. This isn’t, in fact, a new position for the CFTC, just a more vocal one. Back in 2021, the CFTC charged Tether on the basis that its stablecoin, USDt, was a commodity. [14] Similarly, in its December 2022 suit against FTX founder Sam Bankman-Fried, the CFTC took the position that BTC, ETH, and USDt were commodities under the Commodity Exchange Act. [15] The CFTC reiterated its position on BTC and ETH in its most recent digital asset suit, filed last month, in which it charged a California-based company and its CEO for allegedly running a Ponzi scheme. [16] 

A Splintered Landscape 

The public wrangling between the two agencies creates an uncertain regulatory framework. The issue could be resolved through legislation, but the likelihood of such a bill passing in the near future is slim. At this time, the most likely outcome looks like a patchwork of court decisions across the country, which may in time trend toward a case law consensus that settles the issue.


[1] Or did we? Stay tuned for SEC vs. Ripple Labs, now pending before a court in the Southern District of New York. Summary judgment motions on the issue of whether Ripple’s native token, XRP, is a security were fully briefed as of the end of last year, and observers, including yours truly, wait with bated breath for that decision.

[13] If you are wondering how many mixed metaphors one lawyer can cram into a single blog post, the answer is a boatload, a boatload of mixed metaphors.  

ABOUT THE AUTHOR

PARTNER

Rachel is an experienced trial lawyer, having litigated jury trials and bench trials, and represented clients in private arbitrations. She has worked with U.S. and international clients and with businesses of all sizes, from early-stage ventures to publicly traded companies.

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Intellectual Property

Intellectual Property Ownership Issues and Considerations 

Intellectual property ownership issues are quite common. Such ownership issues often arise when proper agreements are not in place from the very beginning of a business engagement. Without a written agreement, a third-party contractor or an individual hired to perform certain services may own intellectual property rights in any resulting work product. For this reason, it is important to have such agreements in place when engaging others to perform services on your behalf. The discussion below highlights common ownership issues and considerations for the various forms of intellectual property.

Read More »
Business & Corporate Law

Recent Crypto Enforcement Actions and the Brewing Battle Between Regulators for Jurisdiction Over Digital Assets

Readers of my last, irresistibly juicy blog post, “First-Ever Court Ruling Means Your Utility Token May Be an Unregistered Security,” know that the Securities and Exchange Commission (“SEC”) recently landed a blow against blockchain-based media company LBRY when a district court in New Hampshire held that LBRY’s native “utility token,” LBC, was an unregistered security.

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Entity Selection: How QSBS Could Save You Millions in Taxes

I often work with entrepreneurs starting new ventures. While there are multiple considerations for new businesses, the first important item to address is entity formation, governance, and finance/ownership. This is the starting point to get your venture headed in the right direction.

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Entrepreneur & Startup

Entity Selection: How QSBS Could Save You Millions in Taxes

Entity Selection: How QSBS Could Save You Millions in Taxes

Jonathan Milgrom

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I often work with entrepreneurs starting new ventures. While there are multiple considerations for new businesses, the first important item to address is entity formation, governance, and finance/ownership.  This is the starting point to get your venture headed in the right direction.  

When choosing an entity type, there are certain considerations you should be contemplating at the onset. These include: 

  1. Will I be seeking financing and, if so, will it be debt or equity? 
  2. How do I want my entity to be treated for tax purposes? Will I be making regular distributions? 
  3. Do I intend to offer my employees equity? 
  4. What is my long-term goal/exit strategy? 

Your answers to these questions will be critical in selecting the correct entity to set your venture and your partners up for maximum benefit. Most typically, we advise entrepreneurs to start c-corps or LLCs, and in certain cases, to consider using qualified small business stock. For this purpose, I am going to focus on a fairly common model for a tech company. This means the following: 

  1. The company will be seeking private equity investment. 
  2. Moneys derived from operations will not regularly be issued as dividends or distributions and will be reinvested into company growth. 
  3. The company would like to reserve an equity pool for key employees. 
  4. Long term, the founders would like to sell the company. This exit will be the liquidity event that pays back investors and compensates employees for sweat equity. 

If the above sounds applicable to your venture, you would be wise to consider whether forming a c-corporation and issuing Qualified Small Business Stock is applicable to your business. 

What is Qualified Small Business Stock? 

Section 1202 of the Internal Revenue Code allows owners of small businesses to exclude all, or a portion of gains recognized from the sale of shares in a company from their income if (1) the stock is eligible to be treated as Qualified Small Business Stock; and (2) they have held such stock for 5 years or more. This is a significant tax incentive that can reduce your tax burden from 30+% of earnings to essentially zero. 

Eligibility 

In order to be eligible for QSBS treatment, the stock must be: 

  • Issued by a US c-corporation having $50million or less in gross assets as of the date of stock issuance (and immediately following) 
  • Acquired from the c-corporation in an original issuance (not purchased from an existing shareholder) 
  • Issued by a company that uses at least 80% of its assets in the active conduct of a Qualified Business 

The IRS guidance defines Qualified Business in the negative. Essentially, Qualified Businesses are not: 

  • Professional services (doctors, lawyers, accountants, architects, consultants, athletes, financial advisors, or brokers, etc.) 
  • Businesses whose principal asset is reputation or skill (see above) 
  • Banks, insurers, financers, leasers, investors, or similar service-based businesses 
  • Farming businesses 
  • Producers or extractors of natural resources 
  • Hotels, motels, or similar businesses 
  • Real estate investment operations 
  • A Domestic International Sales Corporation (DISC- basically strictly exporting goods and making a special election for tax purposes) 
  • A co-op 
Takeaways 

Selecting the appropriate entity at the onset of your business journey is critical to set your company up for success. If you are starting a business that you hope to sell/exit in more than five years, and your business in a Qualified Business, the tax incentives under section 1202 can be very compelling and you should strongly consider incorporating as a subchapter c-corporation. 

ABOUT THE AUTHOR

MANAGING PARTNER

The founder of Milgrom & Daskam, Jonathan (Jon) Milgrom advises businesses of all sizes and works across a variety of sectors. His diverse client-base includes companies in tech, software, fintech, health insurance, brewing and distilling, retail, graphic design, and other creative industries. He also advises a number of family-owned businesses.

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