This is the starting point for all legal audits conducted by a potential investor: are the rights on creations (and inventions) made by the founders (and executive officers), employees and/or interns (who are often forgotten about) legitimately owned by the company?

While they are often the first “creators” for the company (according the French national institute for intellectual property, 90% of patented inventions are created by employees), the answer to this question is (unfortunately) far from obvious. Contrary to popular belief in young companies, the transfer of founder and employee rights to the company is not always a matter of course. Quite the opposite: it must be organised and must meet specific rules that can be quite restrictive.

This article goes over the essentials.

# 1 – Non-salaried founders: a rights transfer contract is necessary, regardless of the circumstances

The intellectual property rights attached to the creations produced by non-salaried founders are never automatically transferred to the company.

Additionally, the partners’ agreement is not enough to validly cover the transfer of founder rights to the company, even when it contains (often summary) provisions in this regard.

You must therefore organise the transfer of intellectual property rights via a rights transfer contract in due form (identifies the targeted creations/inventions and details where applicable the rights transferred, the method of operation covered by the transfer, the duration and territoriality of the rights transfer) between the company and each non-salaried founder.

This rights transfer contract is necessary regardless of the nature of the creation and their protection regime: software, patentable inventions, texts, graphics, visual works, etc.

Two main issues must be addressed when drawing up this type of contract:

• The compensation or the payment of the right transfer

This issue must be addressed on a case-by-case basis, depending on circumstances. It is possible to provide for remuneration that is proportional to the income generated by the use of the creations, a flat fee, or a free transfer. In certain cases, it is also possible to provide that the transfer of rights is agreed to as compensation for the remuneration received as part of a corporate office.

• The impact of rights transfer over time

For creations protected by copyright, the code of intellectual property sets a principle of nullity on “overall transfers of future works ” (L.131-1). In other words, it is not possible to commit to transfer to the company, in advance, all future works not yet created, without any further detail or restriction.

To bypass this difficulty, one option is to integrate the principle of transfer in the initial contract, and to provide for (and organise!) confirmation or renewal of rights transfers on a regular basis (every month, quarter, semester or year, or as part of any new significant creation project: new version of a software programme or a platform, change in visual identity, etc.). The solution is restrictive, but it is the only one likely to fully validate the transfer of rights to a company.

# 2 – Employees: all rights do not automatically belong to the company

The intellectual property rights attached to the creations and inventions of employees follow different legal regimes depending on the nature of the creations or inventions.

These are the main rules to be aware of:

• Software

The rights on software developed by employees as part of their role or on employer instruction automatically belong to the employer, except where a clause to the contrary is part of the employee’s employment contract (L.113-9 of the French code on intellectual property).

N.B. the rule only applies to actual software (IT developments in code and related documentation) and not to the graphic part of software (interfaces, etc.), which is protected by general copyright rather than the rules applicable to software.

• Patentable inventions

There are three types of inventions:

1. Inventions during an assignment, created by an employee during the execution of his or her employment contract that includes an invention task in line with the employee’s role (e.g. a research engineer): the rights on the invention automatically belong to the employer, from its design onwards, but the employee must receive additional remuneration.
2. Inventions outside an “attributable assignment”, other than the above-mentioned inventions during an assignment, but which are linked with the company as they are part of its activity sector or were created using company resources (e.g. invention created by a marketing or financial director): the invention is the property of the employee but the employer can obtain the attribution of the property (or only enjoyment thereof via an operational licence), and must also pay the employee the “fair price” of such invention.
3. Inventions outside a “non-attributable” assignment (created outside of all employment-related assignment and not related to the company): the invention is the property of the employee, with the employer having no particular rights on the invention.

• Copyright (excluding software)

Rights on creations (excluding software) protected by copyright are never transferred automatically to the employer. As for the rights of non-salaried corporate officers, the transfer of intellectual property rights to the company must therefore be organised via the conclusion of a rights transfer agreement or a rights transfer clause that is detailed in the employment contract.

In addition to the rules applicable to copyright transfers, this rights transfer must be in line with the two issues mentioned above for founders: that of compensation or employee remuneration (on a case-by-case basis), and that of the ban on the overall transfer of future works (requiring a regular renewal of the transfer of employee rights to the company as and when new creations are finalised).

# 3 – Interns: pay particular attention to internship agreements!

The intellectual property rights attached to creations and inventions of interns are never automatically transferred to the company.

The transfer of intellectual property rights to the company must therefore be the object of a rights transfer agreement or a rights transfer clause that is detailed in the internship agreement, even for software creations.

If a rights transfer clause is included in the internship agreement, it remains advisable to confirm this transfer at the end of the internship by drawing up and signing a document detailing the creations actually completed by the intern during his or her internship.

Lastly, practice shows that a number of internship agreements, including those of engineering higher education bodies that specialise in IT developments, provide that the rights on creations completed by the intern belong said intern and that the company will have to pay specific remuneration to the intern if it wishes to acquire such rights. In light of this, a word to the wise: make sure you read internship agreements carefully before signing them!

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The transfer of executive officer, employee and intern rights must be of primary concern for a company, and must be the object of long-term corporate asset monitoring.

In conclusion, one last tip: as always when it comes to the transfer of intellectual property rights, the rule of thumb “the sooner the better” applies. Do not wait for a dispute to arise between partners or with one of your employees to organise the transfer of rights to the company. It can be a very expensive mistake.