Intellectual property is often thought of as something held by big conglomerates, but it has become increasingly common for individuals to hold intellectual property rights including patents, trademarks, copyrights, or even trade secrets. With the Baby Boomers and Silent Generation expected to pass on significant wealth in the coming decades, special care should be taken to ensure their intellectual property is handled to achieve the goals of their estate plans.
Intellectual property is a broad term used to describe various forms of intangible assets produced by human intellect or creativity. Most intellectual property falls into a few major categories protected by the law: patents, trademarks, copyrights, or trade secrets. In general, these rights have no value per se like a tangible asset such as the family home or a stamp collection. However, with the proper planning and understanding of the nuances of IP law, these intangibles can be managed after death or passed on to the next generation while maintaining their value. An estate plan that includes specific provisions tailored to the type of intellectual property involved is a necessity. As always, before preparing a plan for disposition, proper cataloguing and investigation of the intellectual property is essential, there may be more than is first perceived, and there may be some additional rights available for protection that the estate planning lens will highlight.
Patents
A patent is a monopolistic right to exclude others from making, using, selling, offering for sale, or importing an invention for a 20 year term. Patents include utility patents (such as a process, machine, manufactured product, or composition of matter), but also aesthetic designs, and, in less common cases, plant varieties.
Patents can have one or more inventors, and, if multiple, they may all hold undivided rights in the patent jointly – it is not apportioned. Patent ownership is frequently governed by employment contracts, so an estate planner should validate patent ownership by examining those contracts. The entire transfer of a patent is called an assignment. Assignments can be made to a trust, via will, or in a standalone assignment to an LLC held by a trust, for example. In any case, they must be in writing. Aside from the typical considerations, such as valuation for gift or estate tax purposes, a key issue specific to patents is the recordation of the assignment with the USPTO. To protect the assignment from other interests it should be recorded as soon as possible. Statute protects the assignment from later purchasers if recorded within three months of execution of the assignment, or before any later purchase. So, recording within three months of any transfer, be it to a trust, LLC, or via will, is imperative. Certain patents require maintenance fees, and having a trustee, administrator, or heir who will properly protect and maintain the patent is essential.
If an inventor dies during prosecution (the term for the process of obtaining a patent), the inventor’s legal representative can take over the process and obtain the issued patent. Having an executor or administrator designated as legal representative is important to prevent any delay or misstep in prosecution because waiting for a court appointment may cause a missed deadline, which can be very problematic.
Copyrights
A copyright protects original works of authorship as soon as the author fixes the work in a tangible form of expression. No registration is required, but registration is a prerequisite to enforcement through litigation. A copyright generally lasts for the life of the individual author plus 70 years, making a proper estate plan a must for copyrights held by individuals. It is important first to understand who owns a copyright and where an employee-employer relationship exists, it is likely not the individual. This is due to the “work-made-for-hire” doctrine, which applies in other very limited circumstances as well.
If an individual wants to transfer a copyright, they may do it via trust, will or standalone assignment, although there are important considerations. A unique aspect of copyright law is termination rights, which are rights held by an author and inherited by a statutorily defined set of an author’s heirs that allows them to terminate a transfer after it occurs. They exist for a limited time after the transfer. The rights themselves cannot be transferred, so an author cannot “buy out” her heirs or have them enter agreements not to terminate transfers the author makes during life. So, a transfer during life is at risk of being undone later by disgruntled heirs. This is unfortunate because the grantor’s intent can be frustrated when using a trust, one of the best estate planning tools available. In contrast, when a will is used to transfer a copyright, the termination rights are cut off. However, then the copyright goes through probate, where it could be mismanaged or sidelined by a messy public dispute instead of generating revenue.
For copyright purposes, it is advisable to designate who will record the authors date of death with the copyright office, which is not required for validity, but can impact the term of the copyright. Also, if the original work exists, it is distinguishable from the copyright itself, and the author should be clear in the estate document to distinguish disposition of the original work versus the copyright. Clauses governing management of the copyright or licensing for use in derivate works should be tailored to the estate plan goals. Recordation of the transfer is not subject to any time limit with the office, but recording quickly is advisable; it provides public notice, a clear chain of title, and helps avoid disputes.
Trademarks
A trademark is a “word, name, symbol, or device” used in commerce to identify or distinguish goods or services from those of others by indicating source. Trademarks registered with the USPTO have broad protections nationally but may also include more limited common law rights. Trademark rights can exist in perpetuity if properly managed; making transfer almost a certainty. Registered trademarks require renewal every 10 years.
For registered marks, an assignment is the common mode of transfer, and it must be in writing. Because trademarks are considered to have no value beyond the goodwill and reputation of the source they are indicating, they cannot be transferred without that goodwill. Such a so-called “in-gross” assignment is invalid. So, an estate plan, particularly one also transferring aspects of a business, must be careful not to separate trademarks from their goodwill; terms and circumstances showing the goodwill is also transferred are important.
Like patents, assignment of a registered trademark can, and should, be recorded at the USPTO. The assignment must be in writing, identify the parties, and identify the trademark. Like with a patent, the window to preserve priority over others by recording at the USPTO is three months.
Trademarks can be placed in a trust or transferred by will. However, if made directly to a trust the assignment must be to the trustee and indicate the mark is being held in trust. Proof of the trustee’s status can be appended to an assignment when recording at the USPTO, but, of course, the trust document should stay confidential. Timing for filing declarations of renewal or incontestability for registered marks is limited, and appointing the right trustee or engaging counsel is essential to avoid accidental abandonment.
With common law trademarks, it is important to understand scope; they are limited geographically, and sometimes subject to co-existence agreements. It is important to designate who will manage the common law mark, and whether registration should be sought.
Conclusion
As with most estates, avoiding probate can be helpful, particularly if the property can generate revenue instead of being caught up in court. Also, valuation is important for tax, sale, or financing reasons, and because IP is intangible, it can be difficult to assess valuation or project future revenue; this may require expert appraisal. And, of course, the advisable recording and registration discussed above carries costs. One essential element of any plan includes the ability to police the rights and maintain their value. Lastly, intellectual property may be jointly owned, licensed, subject to creditors if collateralized, or impacted by an employment contract. Verifying ownership first can be easy to overlook, but it is extremely important. To ensure a smooth transfer of wealth, it is essential to seek competent counsel to ensure these assets can benefit generations to come.
Disclaimer: This article is intended for general informational and educational purposes only. It should not be relied upon as legal advice, nor does it create an attorney–client relationship. Laws vary by jurisdiction and may change over time, and how they apply will depend on the specific facts of each situation. For guidance on your particular circumstances, you should consult a licensed attorney.
Joseph T. Schuler is an associate attorney with the law firm of Heslin Rothenberg Farley & Mesiti P.C. His experience includes trademark and patent prosecution, IP litigation, copyrights, and general IP counseling. He can be reached at (518) 452-5600 or .