Modern Family Matters

What Is Intellectual Property, & How Is it Addressed in Divorce and Estate Planning Cases?

September 23, 2021 with J. Curtis Edmondson Season 1 Episode 34
Modern Family Matters
What Is Intellectual Property, & How Is it Addressed in Divorce and Estate Planning Cases?
Show Notes Transcript

Join us as we sit down with Patent Attorney, J. Curtis Edmondson, to discuss intellectual property, what it is, and common issues that clients face in divorce and estate planning cases. In this podcast, Curtis and Steve discuss the following:

•    Understanding What Constitutes Intellectual Property
 •    Issues That Can Arise When Dividing Copyrights, Patents, Trademarks and Trade Secrets in Divorce.
 •    How Licenses and Assignments of Intellectual Property Are Considered in Divorce.
 •    Transferring & Dividing Intellectual Property During a Divorce, or by Will or Trust.
 •    Valuing Intellectual Property in a Divorce or Estate Plan.
 •    Accumulating Intellectual Property by Spouse.
 •    Pre-Marital Agreements Regarding Intellectual Property. 

If you would like to speak with one of our family law attorneys, please call our office at (503) 227-0200 or visit our website at https://www.landerholmlaw.com/

To learn more about how Curtis can help you, you can view his website at: www.edmolaw.com

Disclaimer: Nothing in this communication is intended to provide legal advice nor does it constitute a client-attorney relationship, therefore you should not interpret the contents as such.

Intro:

Welcome to Modern Family Matters, a podcast devoted to exploring family law topics that matter most to you. Covering a wide range of legal, personal, and family law matters, with expert analysis from skilled attorneys and professional guests, we hope that our podcast provides answers, clarity, and guidance towards a better tomorrow for you and your family. Here's your host, Steve Altishin.

 

Steve Altishin  0:31  

Hi, everyone. I'm Steve Altishin, Director of Client Partnerships here at Pacific Cascade Family law. And today, I'm here with attorney Curtis Edmondson to talk about intellectual property issues in divorce and estate planning. Hey, good morning, Curt. How you doing? 

 

Curtis Edmondson  0:48  

I'm pretty good. Steve, good to see you again. 

 

Steve Altishin  0:51  

You too. So before we start, Curt, just tell us a little bit about yourself. 

 

Curtis Edmondson  0:55  

Well, my background, I was a consummate engineer, grew up tearing down television sets. Went off to college and studied electrical engineering. And then worked for Lawrence Livermore labs, Hughes Aircraft, and then at a software company, and went back to law school later in life and studied patent law. And since that time, I've been primarily doing patent, trademark, and copyright litigation, and other other interesting things.

 

Steve Altishin  1:27  

Well, you are the perfect guy to have today. So, Curtis, on some other Facebook Lives we've been doing, we've discussed how an intellectual property is subject to division and divorce. And it's also transferable in a will or trust. But let's talk about some issues today that are unique to intellectual property that can happen when there is a divorce, or when you do have an estate planning property you want to transfer. And so to start, I'm just going to start with the real basic question, what is intellectual property?

 

Curtis Edmondson  2:09  

That's a very good question. So there's really four areas of intellectual property: patents, which are for inventions, and these are new processes, methods, things you create once you prove things or devices that you build. And what that involves is going to the United State's Patent Office, applying for a patent, it's looked at by an examiner, and at the end of the process, you get a patent issued, hopefully. And that patent is typically then used by a company. Ideally, it's licensed by a company, or you might use it in your own company, to manufacture a product. And then people might pay your licensing fee if they want to use that patent in the manufacturing of their own product. So I've worked with a lot of inventors, for example, who in their course of their job, they'll invent things to improve their job. And then they'll go to companies who will make those devices. For example, in the medical device space, it's very common, you have a surgeon or an anesthesiologist or a physical therapist, they say, 'Yeah, here's a need for a new type of device'. So Spanner, for example-- well, they don't want to be in the spanner building business. So they invent this, they get a patent on it, and they'll go to a company that makes spanners and the company might say, 'We'll pay you 5% of our gross sales'. And there are individuals who have made millions doing that sort of thing. The second area of intellectual property law is known as copyrights. So those are things we're very familiar with. They're expressive works, creative works of music, writing a book, writing a web page, writing software, these sorts of expressive activities that are covered by the Copyright Act. And the copyright interest is not necessarily-- it's created at the point of you writing it down, or you singing the song, or you writing the software. And you can go to the copyright office and get a registration for that copyrighted work. And that is a very wise thing to do. But it's not a requirement to say you have that copyright. So it's a little different than patents, but they share a lot of common characteristics. The third area of IP law is known as trademarks. Trademarks are rights that are associated with you either selling a product or having a service. So they go all over the map. Being here in Oregon, we're very familiar with Nike. Nike differentiates itself because it has a particular brand. And they might make a shoe for $1, and the ability to sell it for $200 is the strength of their brand. And so brands are very important to companies like Nike, Columbia, they're important to even companies like Intel, or Intel Inside a branding for their chips. But it also covers services. So for example, if you have a unique brand for a plumbing company, that in itself has a certain value, because people will look up Bob's plumbing in Tigard. I'm just using that as an example, I don't know if there is a Bob's plumbing, but then that's something that becomes a brand that can be searched by a Google search engine. You might want to then get a trademark for that, so that you can prevent other people from using the same mark. So that's a trademark. And a trademark is something that comes into existence from you either selling a product or performing a service. So trademark, as that third group, is directly connected to your business activities. Whereas copyrights and patents are creations of the mind, and we call them encoded rights, you don't necessarily have to sell them or use them to have those rights in existence, whereas trademark is a little different. The last area of intellectual property law is commonly known as trade secrets. So these are things that are secret, that you don't disclose to anybody else. One that we always refer to in our business is the recipe for Coke. In theory, nobody knows what it is. And it's a trade secret. And it's held in a vault somewhere. Likewise, you know, what is the level of herbs and spices of Kentucky Fried Chicken? Well, you know, the myth is nobody knows what that is. And as long as you keep something as a trade secret, it has intellectual property value. And that can be a wide range of things. For example, if you have a business and you keep a list of your customers, those customer lists can be considered trade secrets, because not only do you have those list of customers, you might have some notes that this customer likes to be called on a Tuesday, and that knowledge that you've gained by working with that customer over time, it has real value. So those are the four general areas of intellectual property law. Where these come in to play is when does that right, or that interests, attach to the person, nd how does that interact with these life events? Marriage, divorce, death, all of it-- it's those types of things that Steve and his firm are experts in. But when these events happen, you talk to intellectual property professionals to help value what these interests are.

 

Steve Altishin  8:24  

Is there ever an issue on who owns the right? And I guess what I mean by that is, in a patent, I assume that the person who files the patent obviously files to be the owner of that patent, potentially, That person has a thing of value. If they sell it, let's say to someone else, first of all, can they do that? Can they just take something that they own like that and just say, 'Here, it's yours, you can use it'?

 

Curtis Edmondson  9:04  

Yeah. Each area of law has little different quirks to it. They share a lot of common characteristics, but we'll go through each one. For a patent, when you as the inventor-- or there can be more than one inventor, there are co-inventors--create something, the ownership of that invention attaches to the inventor at the start. And then typically, if, for example, you work for a company, there's some sort of agreement or contract, where that invention is assigned to that particular company. That's usually part of an employment agreement. But it's not uncommon for a garage inventor, or somebody doing things on their own, to just think of something on their own and file for a patent themselves. That ownership right is personal, and whether it attaches to the marital estate is probably some controversy because, well, you have the inventor who's doing things in the basement inventing these things. But clearly his wife or husband or partner is contributing to the marital estate and may have contributed to the things needed to make that iinvention. And that's where a lot of these things can be clarified ahead of time. If there is, for example, a divorce, to clarify that at the point of divorce, because down the road, that invention might be something that becomes very valuable. And this is where the disputes come up. I'll give you an example. Say a woman invents a new type of syringe. She's the homemaker, the husband works at a big company, he's been supporting the family, quote, unquote. And then they get a divorce, but they don't determine what that patent interest is gonna be treated under the divorce decree. Down the road, at that time of divorce, the patent might not be worth anything, there's no licensors for it. But she then, after the divorce, because she's the purported owner, goes off and makes $10 million. And her husband and says, 'Well, wait a minute, you got that patent while we're married, I should get half. And that leads to a lot of disputes down the road. So by valuing that particular patent at the point of a divorce, and clarifying, well, what's going to happen to it? If the patent is turned into something, then it'll be divided equally. Or, another aspect of patents is, once the patent issues then every approximately three years, you have to pay additional money to keep it enforceable. Who's gonna pay that money to keep it enforceable? Are we gonna let it go bad? The other thing, too, is that the patent itself, typically has to be marketed to somebody who wants to use the patent. So who's gonna pay for that marketing effort to make the patent have value? And those are things after divorce, I'm just using divorce as example. But it certainly comes up in the context of death, where the estate or the kids are trying to figure out what to do with this patent that dad or mom had. How do we deal with paying to have it marketed? How do we have to deal with paying for the maintenance fees? And it's better treated ahead of time while the people are still on good terms, or not such bad terms.

 

Steve Altishin  13:11  

Yeah, that makes complete sense. Let's talk for a second about people. Let's say I didn't invent it, or I didn't write it, but I've been given the right to use it or market it or something like that. And I get into a divorce situation, and the court says, 'Okay, you're going to split that 50/50'. And so you say, 'Okay, I'm just going to deed over to you, or the decree is going to give you 50% interest in this'. Can that cause some issues down the road? What if it's an exclusive license? I mean, are there issues you can get into not knowing what your actual rights are under a license or even an ownership?

 

Curtis Edmondson  14:12  

Absolutely. So, in the case of both patents and copyrights, typically, if there is a contract or somebody is using that particular right, like, let's say your spouse was a singer, and they have a contract with Warner Brothers for the song, and they're getting royalties on that song. And there is a contract there that might obligate the the artist or the author to do certain things as a condition for getting royalties. If that contract is not reviewed by both parties, so they just say, 'Well, we're going to split it 50/50', what they do or don't do might impair those future revenues. So that's the problem when two people or three people or many people get partial interests to a right. They might not agree to what should be done with that, right? There are a lot of similarities between this and owning a piece of real property. Say your father passes away, and he leaves three kids a house. Not all the three kids can agree on what to do with the house. One kid wants to keep living in it, another kid wants to sell it off, and the third one wants to keep it as a rental, and they all get in a big fight. The same sort of scenarios could occur with intellectual property rights. The dad leaves a patent, he's licensed it out to Intel, it's making $50,000 a year. But it was good, and the contract says certain people have to pay the maintenance fees. And then what if trike wind comes in and says, 'We want to buy that patent for a million bucks'. Who's gonna make that decision, if there are three people? That is something that is better managed ahead of time, and the common way to do it is to take these sort of intellectual property rights and you put them in another company. You put them in an LLC, or something like that, which manages those intellectual property rights. It's not hard to do, and it's not that expensive to plan for that.

 

Steve Altishin  16:40  

What about, let's say I make copies of an artist's paintings, and then I sell them. And I've been given the rights to by that artist. And then a divorce comes up. And I, as part of the divorce, say, 'Okay, I'm just going to transfer that to you. We were kind of working this business together, and I don't want to do this anymore, so you now have that right.' And we put it in the decree, and it goes on. Do you need to get permission from the artist again?

 

Curtis Edmondson  17:18  

Typically, the contract is going to be some form of a license. And it's very common in these license agreements to say that the license is not transferable. And so that person who granted the license would probably object, because they could relicense it out for maybe a more favorable rate. Especially in the context of exclusive licenses, which were originally licensed out at a very low amount, but then could become popular, and they can license it out for much more.

 

Steve Altishin  17:59  

So that dovetails into valuation. For everything you're saying, it seems like the key is figuring out how to value intellectual property, no matter whether it'd be a trademark, or copyright, or patent. not only at the time of the divorce, but as it goes into the future, and especially, like you said, if there's going to be some sort of stream of income.

 

Curtis Edmondson  18:30  

Yeah. And valuation ties directly to the right itself. In the case of a patent, you're granted a limited monopoly, quote, unquote, for a period of 20 years from the date of application of a patent. So let's say the patent was issued five years ago, you might have another, roughly speaking, 10 years left on that enforceable patent. So you know the period of time that you could potentially receive revenue. Now, if the patent is coupled to a product, depending how the license agreement was written for the product, it's possible to write a license that covers not only the patented aspects of the product, but also the unpatended aspects of the product. So you might receive royalties indefinitely on the unpatented aspects of the product because of that agreement with the manufacturer. The most famous case of that was a toy that squirted out like Spider Man type liquid, and the debate was over whether they had to pay royalties. For copyright, it's a little different. The period of a copyright, in some instances, can extend in excess of a century. So you have a longer horizon of that copyright, it's worth value, and what typically happens is that if it's a singer, and more so as a writer, that they make a lot of money at the beginning when the song script leads to the popular song. And then they make a lot of money when they die, because that's another triggering event where people go, 'Oh, I just heard that artist 'X' died, I really want to listen to their songs'. And so it's  those two events, which are usually separated by decades, which affect valuation significantly. The other thing that's affected valuation is the type of work, especially in view of the fact that the internet allows you to copy things for free. So if the person has a sculpture, that's less likely to be copied than if somebody has a digital pop song.

 

Steve Altishin  21:11  

So if a couple gets married, and maybe they both are artists, and they each have some intellectual property. Each maybe have some copyrights, or something like that, that they own. Are there any sort of issues they might want to consider before they get divorced? I mean, while they're still, like you said, together, in terms of how to handle that, even while they're married. Is there some sort of issue that can arise?

 

Curtis Edmondson  21:51  

Yeah, whether it's treated as separate property, or they decided to make it part of the marital property. Especially if there's going to be activities like paying maintenance fees, or investing in those particular inventions or copyrights. That might affect how the court determines, down the road if there's a death or divorce, what portion should be allocated to the non-creative spouse, or the kids who get that intestate. Also, prior to going into the relationship, it's good to talk to a tax attorney, especially if these things are generating lots of money, on how to treat particular things like copyrights. Because how you transfer that interest, or whether you keep the interest, it can affect the tax treatment of it. And what you don't want to happen is have an unfavorable tax treatment, down the road, especially at a copyright, where upon death, you don't get things like the equivalent of a stepped up basis or something like that.

 

Steve Altishin  23:07  

So if someone comes to you and says, 'My spouse that I own this business with, we've got several licenses now, and it looks like we're gonna get divorced. What's the first thing we should do?' What would be your answer?

 

Curtis Edmondson  23:23  

Yeah, I mean, the context of a business, it actually can make things a little easier. Assuming that the business has been assigned the rights of the inventions, the patents, they are now the property of a business, so they can be dealt with in the context of business. Likewise, for the copyrights, if the creative works were created under the auspices of the business, the ownership is generally considered as part of the business. But it's good to clarify that because down the road, if anybody wants to clear title to these works, it's better to clear that title while it's still fresh in everybody's mind. And that means formally saying that these rights belong to this business. And when I'm saying business, it can be a corporation, or an LLC, or it could be just a general partnership. But it's usually cleaner if it's part of a separate legal entity. Likewise, with the trademarks, if the business is operating as its own, the rights are going to accrue to that business itself. And where things come up is usually less of an issue with married couples, but sometimes with family members, where you have, let's go back to my plumbing example. I won't call it Bob's plumbing, I'll call it Edmondson plumbing. And I've got three sons: Jack Edmondson, John Edmondson, and Jill Edmondson. And they all don't get along, but they're all really good plumbers. And I die, and now I've got three people who want to use the Edmondson name in Beaverton. Well, what is going to happen to that Edmondson name when we have three other competitors, and what's the goodwill associated? What are the trademarks? That becomes a tricky thing that should be dealt with in the will, or the plan for succession, on what's gonna happen to the business in the context of the kids. Or it be dealt with, the business part of itself, through a non-compete clause.

 

Steve Altishin  25:51  

It seems like that's really another huge reason, if you don't have a will, to make a will. Because if you own something, intellectual property wise, and you die without a will, it may automatically split off and go a third, a third, a third, or half, half, or something like that. And who knows what that's gonna end up causing.

 

Curtis Edmondson  26:19  

Right. The evaluation of intangibles, intellectual property assets, and other assets in the context of probate, from my experience, is a lot more expensive than if you plan for it ahead. And from my experience and what I've seen is, it's orders of magnitude more expensive dealing with it after the fact, rather than planning in advance.

 

Steve Altishin  26:48  

So is there, I should say, someone like you, or you, that a person maybe should go to, in addition to their estate planning attorney, in addition to coming to us, when they have a piece of intellectual property that may have either issues of what it's valued at-- maybe it's a patent,that's never actually it's been granted, but no one's done anything with it, or it's a license that's exclusive to the test data--can they come to you and kind of figure out the the patent rules, or valuations, and then go kind of back to their lawyer and say, 'Okay, this is how we're going to split this'?

 

Curtis Edmondson  27:40  

Yeah, it's usually best done through the estate plannin, attorney. But for example, let's use myself again. I'm 80 years old, I've got a bunch of patents, I got a bunch of trademarks, I got a coin collection, and I got a house. The house is worth a million, the coin collection's worth a million, and then I've got all these other intellectual property rights that are generating some licensing revenue, let's say they generate $200,000 per year. Those licensing revenues could go up over time, or they could decline over time. And if my question is, 'I got four kids, and how do I divide these things up fairly amongst the four kids'-- I know my parents were very, very big about dividing things equally between the kids-- it's more difficult to say you each get a quarter of a patent, than it is to say you get a quarter of a coin collection, right? Just like with a house, you can say 'I'm going to give the house to all four of you kids', but then they get in fights over what needs to be done with the house. So knowing what the value of that property is for the intellectual property is something that a patent attorney or intellectual property attorney can help advise your estate attorney on what this valuation is. So there are standards for it, saying, 'Well, we think this song or this book is worth so much money'.

 

Steve Altishin  29:10  

Yeah. Gosh, 30 minutes just ran out. That was quick. This was really, really informative Curt, thank you so much for joining us today. I mean, you provide an insight on a complex issue, and really made it easier for folks like me to understand. So, thank you for coming today. 

 

Curtis Edmondson  29:33  

Thank you very much, Steve. Appreciate it. 

 

Steve Altishin  29:35  

Oh, I do too. And I also want to thank everyone else who tuned in today to today's Facebook Live. And if anyone has questions on today's topic, please feel free to post them here, or shoot me an email at [email protected], and I will shoot them over to Curtis and maybe somebody can get together. So always, until next time, stay safe, stay happy and have a great day. Thank you.

 

Outro:

This has been Modern Family Matters, a legal podcast focusing on providing real answers and direction for individuals and families. Our podcast is sponsored by Landerholm Family Law and Pacific Cascade Family Law, serving families in Oregon and Washington. If you are in need of legal counsel or have additional questions about a family law matter important to you, please visit our websites at landerholmlaw.com or pacificcascadefamilylaw.com. You can also call our headquarters at (503) 227-0200 to schedule a case evaluation with one of our seasoned attorneys. Modern Family Matters, advocating for your better tomorrow and offering legal solutions important to the modern family.