Legal Updates

When the agreement determines ownership of the rights in the event of termination it should be honored and remedies should be limited to financial compensation

October 27, 2020

Two companies entered into agreements for the development and distribution of a product, in which it was determined that one company will finance and the other develop and all rights in the developed product will be owned by the developing company. After the agreements were terminated, the funding company sought to register a patent.
The Court held that the funding company may not register the patent on its name and the patent is owned by the developing company. When the agreements between the parties clearly sets that the rights in the developed product belong to the developing company, there is no reason to deviate from such. The assumption is that the party filing for a patent is the owner of the invention, unless it was agreed otherwise. Parties to an agreement can establish the rights and obligations between them, including ownership of the product developed through the cooperation between the parties. Additionally, the parties can set what will happen to the rights in the event the agreements are terminated and limit the legal remedies available to each party in the event of termination. In the event that the parties’ understandings are clear and the agreements are normal business agreements where each of the parties had the opportunity and ability to enter into the agreement freely and consciously, they should be upheld, unless they violate the law or basic rules of decency. Here, the parties entered into the agreements freely, after long negotiations, with full understanding of their actions. The agreements between the parties expressly state that all rights in the developed product will be owned by the developing company, even in the event of termination and that upon termination the only right of a party is damages for the termination of the agreement. Thus, the agreements should be honored.