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Intellectual estate planning for intellectual property

Matthew Kramer Associate Attorney
When drafting an estate plan, most testators focus on who will get the house, car, and grandma’s jewelry. These items occupy physical space in our lives and are top of mind when deciding who will get what. Once these assets are transferred, it is relatively easy to determine who has that asset: whoever is currently grandma’s wedding ring currently has it (although ownership may be a different issue). More complicated than physical assets are intellectual property rights. These rights are intangible and may be split up over the years, so while one person has the right to republish a story, another has the right to make a movie about it. This article focuses on the ownership and distribution of the intangible intellectual property right. While I can pass on my physical copy of The Shining without taking into account the points discussed here, Stephen King has intellectual property rights to The Shining and needed to consider some of the following points while crafting his estate plan.When preparing an estate plan, it is important, especially for inventors and artists, to consider their intellectual property. Like other assets such as real estate, banks accounts, or heirlooms, intellectual property must be managed correctly to maximize its value. Unlike assets such as grandma’s wedding ring, intellectual property may continue to generate income for years and without a plan in place, those rights may become part of the residual estate, potentially causing heirs to lose out on the benefits of the inventor or artist’s years of work.

The term “intellectual property” refers to works or inventions that are the result of human ingenuity. Copyrights, patents, trademarks, and trade secrets are common intellectual property protections. These rights do not vanish when the creator dies. The distribution of the creator’s work and its financial benefits after death depend on several factors, such as the type of rights held, if there are named beneficiaries in a legal document, and the form of that document.

Determine the Type of Asset

When planning your estate, it is important to consider how to pass on your intellectual property rights to your heirs. These rights commonly fall into four categories: copyrights, patents, trademarks, and trade secrets.

Copyrights. Copyrights protect original works of authorship or art, such as books, photographs, music, and movies. 17 U.S.C. §§ 102-103. In the United States, copyright is automatic upon creation of the work (this article is copyrighted), but registering it with the U.S. Copyright Office can strengthen the author’s rights (this article is not registered). Artists can transfer their copyright and associated protections in an estate plan. 17 U.S.C. §§ 201(d)(1), 204(a). An artist should also include instructions in their estate plan for beneficiaries to register any works created after their estate plan has been executed. Most copyrights will last for seventy years following the death of the artist. It is important to plan so that the artist’s intended heirs can benefit from these years, which may include royalties.

Patents. Patents protect methods, processes, machines, devices, manufactured items, or chemical compounds. Essentially, a patent protects “anything under the sun made by man” and grants the inventor exclusive rights to exploit that creation. To receive protections, an inventor must file for a patent with the U.S. Patent and Trademark Office (“PTO”). Most patents will last for twenty years from the initial filing with the PTO.

Trademarks. Trademarks identify and distinguish goods or services, such as the Nike swoosh or the McDonald’s golden arches. If a trademark is transferred to a beneficiary, the executor of the estate must record that change with the PTO. Trademarks are unique because they can last indefinitely. Since trademarks are linked to businesses and must be used in commerce, owners usually assign ownership to an entity and not through an estate plan.

Trade Secrets. Trade secrets are confidential business information that provides an advantage over competitors. Examples of trade secrets include customer lists, recipes, and operating procedures. Some well-known trade secrets are KFC’s eleven herbs and spices blend and the Coca-Cola recipe. Keeping trade secrets a secret is essential because they lose their protection once they are disclosed. If an estate includes trade secrets, the testator should require beneficiaries to sign confidentiality agreements before receiving the asset to maintain secrecy. Alternatively, the estate plan could appoint a third party who already knows the trade secret to monitor and enforce claims on behalf of a beneficiary.

Determine Ownership of the Assets

Ownership should be confirmed before a creator considers distributing any intellectual property in an estate plan. It is possible that an artist or inventor has partial ownership of their work. For instance, a patent may have multiple inventors, or a book may have multiple authors, each of whom may own different percentages of the collaborative work. Additionally, rights may have been sold, licensed, or otherwise apportioned out over time. In some cases, the rights may belong to a former employer if the work was created as part of their job. For example, employment contracts for engineers and authors often contain clauses that automatically assign the rights to anything created pursuant to employment to the employer. E.g., 17 U.S.C. § 101. Consequently, all agreements between joint creators and employers, as well as any rights assignments, should be carefully reviewed before creating an estate plan.
Some people may not even be aware that they have intellectual property rights. Trademark rights and copyright protections can be obtained through simple use under common law, but these rights are limited and do not provide the same level of protection as registered trademarks and copyrights. Rights holders need to register their works to ensure the broadest protection and options for enforcement.

Valuing Intellectual Property

Intellectual property rights are not indefinite, and all of these rights require consistent enforcement to have value. The remaining protection time for these assets is a crucial part of their worth. Some intellectual property rights may not be valid when a testator executes their estate plan or may only be valid for a limited time after executing a plan. For instance, patents are limited to twenty years or less from the date of filing, 35 U.S.C. §§ 154(a), 365(c), while most copyrights will expire seventy years after the artist’s death. 17 U.S.C. § 302(a). Although trademarks can be renewed indefinitely, this requires continued and consistent commercial use. Similarly, trade secrets last as long as they remain a secret.

If you are considering including intellectual property in your estate plan, the first and easiest step is determining the amount of time left to enforce any rights to that property. An expert appraiser should be hired for other aspects of valuing the asset. The appraiser will consider many factors, such as the value of comparable work, past sales, and current popularity or use of the protected intellectual property. This valuation is crucial in deciding how to transfer the asset, such as through lifetime gifts, in trust, or through a will.

Transferring, Maintaining, and Enforcing Intellectual Property Rights in Estate Plans

When transferring intellectual property via an estate plan, the testator should plan to maintain that asset. For example, most patent owners must pay regular fees over the lifetime of the patent or risk losing their rights. See 35 U.S.C. § 41. Patent fees are set by law and cannot be paid early, so a testator may consider setting aside funds in a trust to pay those fees. The PTO does not calculate payment dates for patent owners, so estate plans should also include the fee schedule.

When it comes to trademarks, a careful estate plan will include the trademark’s registration date and when fees are due. Trademarks are considered abandoned if they are not renewed for a fee every ten years or unused for three consecutive years. 15 U.S.C. § 1127. Because trademarks are typically assigned to a company or business, they are not usually transferred independently in an estate plan.

For copyrights, if a transferee is not the creator’s surviving spouse, children, or grandchildren, the copyright should be transferred through a will. Under U.S. copyright law,
starting thirty-five years after a transfer or license was executed, creators have a five-year period during which they can terminate a transfer or license. 17 U.S.C. § 203(a). If the creator has passed away, the termination right passes to their surviving spouse or equally to their surviving children or grandchildren. Id. Even if the transfer is to a child, there have been cases where that child’s siblings have collectively terminated the transfer to redistribute the copyright equally to all of the children. See Brumley v. Albert E. Brumley & Sons, Inc., 822 F.3d 926 (2016). The only exception to this termination right are transfers through a will. Id.

Intellectual property owners should also plan for how their heirs will enforce their newly inherited intellectual property. Litigation can be expensive, but it may be necessary to maintain their new asset. One potential solution is to establish a separate trust to hold funds to cover potential litigation expenses, and have the trust distribute any remaining funds after the intellectual property right terminates. On the other hand, a copyright owner may want their heirs to actively pursue licensing opportunities and set aside money in a trust to hire licensing experts to grow value of the copyright without burdening the beneficiaries.

Intestate Succession

It is worth noting that in the event an intellectual property rights holder passes away without a will, their heirs at law will inherit those rights. How that will happen depends on the number of heirs and the rights at issue, but it will not be as clean as deciding who will take those rights now and preserving that decision in a well-crafted estate plan.