If I Think in the Shower...

Consultants are different- different from regular, so-called W-2 employees that is. And perhaps nowhere is the difference more important to than in the area of Intellectual Property ownership rights. The question of who owns the IP generated wholly or partially by a consultant can have an impact on your bottom line for years to come and can determine whether you or your competition have a leg up in the marketplace.

Most companies these days will not hire an engineer or scientist who won't sign an IP agreement that effectively assigns all IP rights to the employer. With a few exceptions the agreement covers the engineer's thoughts 24/7- even those thoughts in the shower.

On the other hand, consultants rarely sign such an all encompassing agreement. You are generally NOT buying a consultant's time; instead, you are hiring a consultant to produce a specific set of results and his shower thoughts are his, unless they are part of the specified results. Therefore, you must clearly define a priori what IP is yours.

In a case recently decided by the Court of Appeals, Caterpillar ("CAT") hired an experienced consultant, Sturman, with terms defined in a Joint Development Agreement (JDA). Under the JDA, Sturman agreed to assign CAT "INTELLECTUAL PROPERTY made or conceived by [Sturman]... pursuant to the [joint development program]". CAT agreed to pay Sturman royalties on any uses of such intellectual property, even after termination of the JDA.

When the JDA expired, CAT bought out Sturman's future royalties. During negotiations, Sturman repeatedly tried to get clarification about what he was relinquishing. He was told, "everything generated in the program," specifically the "2 applications w/[him] as co-inventor." And when asked if the release would cover "just these 2 applications" Caterpillar replied the $275,000 will cover whatever CAT [received] during our time together" and would "cover anything from our program that [Caterpillar] utilized now or in the future."

Sturman took these words to mean there were only 2 inventions covered; CAT, however, was working on an additional invention based at least in part on Sturman's ideas. Sturman sued, feeling he had been intentionally misled.

The case is still unresolved. However, the Appeals Court has ruled that although it is true that CAT never explicitly said a list they provided were the only inventions they felt the buyout covered, "one can justifiably infer that Sturman may have been lulled into thinking that" the listed inventions were all that CAT was buying. In other words, when you can't have a person's brain 24/7 you need to be very clear what intellectual property you are buying or selling. You cannot presume that a consultant has partitioned his work the way you would like.