What every nonprofit CEO needs to know - Part 4: Intellectual Property

Posted by Heidi Forland-Fetty | Feb 15, 2021 | 0 Comments

Intellectual Property

Intellectual Property is the intangible rights protecting products of the human intellect, comprised generally of copyrights, trademarks, patents, and trade secrets. Without exception, IP permeates throughout every nonprofit: websites; newsletters; logos; books/articles; music; computer code; unique systems, processes, and methods; campaigns; and more. Often, nonprofits create intellectual property without even realizing it. Knowing how to handle IP is vital for nonprofit Executive Directors and CEOs.

Copyright

  • Copyrights protect original literary, musical, dramatic, pictorial, choreographic, audiovisual, and graphic works (among others) fixed in a tangible medium of expression.
  • Examples include websites (including words, images, code, layout), videos, newsletters, music, software, blogs, books, and visual art.
  • Ownership of a copyright provides the owner with exclusive rights to the underlying work:
    • Reproduction
    • Adaptation/creation of derivative works
    • Distribution
    • Public performance
    • Public display
  • Registration- A copyright exists from the moment it is fixed in a tangible medium, but formally registering that copyright provides additional benefits (though registration may not always be in one's best interest) and can be relatively easily accomplished online.
    • Benefits:
      • Registration is a prerequisite to sue for infringement in federal court.
      • A copyright owner can recover statutory damages and attorneys' fees only if registered before infringement commenced or within 3 months of first publication.
      • If registered within 5 years of publication, prima facie evidence is needed for validity.

Work for Hire (Copyright)

Typically, the individual writer, composer, software developer, or other creator is considered the author and owner of a work's copyright. The work made for hire doctrine changes that in some cases where a party hires the artist/creator to create the work.

  • In the employment context, WFH is usually considered the default position, but the Copyright Act allows for parties to opt-out of WFH via a written and signed agreement.
    • Best practices:
      • Include language in offer letters and employee handbooks that specifically acknowledges that WFH applies and the organization will own copyrights.
      • Institute an organization-wide IP policy that defaults to WFH but allows for certain exceptions.
  • Executive Directors and CEOs of nonprofits regularly create copyrightable works, often with little understanding or discussion with the Board regarding ownership of the copyright. While the law allows for parties to opt-out of WFH, in this context it can have serious unintended consequences.
    • A nonprofit ED/CEO is considered an insider, or “disqualified person” (DQP), for purposes of excess benefit transactions.
    • An excess benefit transaction occurs when a DQP receives something of value while giving the nonprofit something of lesser value (or none at all).
    • There is little to no case law regarding this issue, but some practitioners believe that if a DQP and nonprofit opt-out of WFH, the IRS can consider that an excess benefit and subject to intermediate sanctions.

Trademark

  • A trademark: (1) identifies a single source of origin for goods and services; (2) distinguishes the owner's goods and services from those of others; and (3) provides the owner of the mark with the right to prevent others from adopting similar marks likely to cause confusion in the marketplace.
  • Trademarks generally consist of a name, word, logo, etc., and are registered with the US Patent & Trademark Office.
    • Benefits: Provides evidentiary presumption of:
      • Ownership of the mark
      • Validity of the mark
      • Exclusive right to use the mark nationwide
      • Right to use the registered trademark symbol

Trade Secrets

  • Broadly includes all forms and types of information (e.g., formulas, patterns, processes, methods, etc.) that provide an economic or competitive advantage to its owner because the information is not generally known and is subject to reasonable efforts to maintain its secrecy.
  • Trade Secrets are governed primarily by state law, though Congress added some federal protection in 2016.
  • No registration is available for trade secrets.
  • A key method of protection is taking reasonable efforts to maintain the secrecy of the trade secret (e.g., nondisclosure/confidentiality agreements; data security; etc.).

In our years of experience working with nonprofit organizations of all sizes, intellectual property issues are not only one of the most prevalent issues we have seen, but also one of the most neglected. Many organizations simply are not aware of the IP that is being created, licensed, or otherwise transferred on a regular basis. Unfortunately, in our practice, we have also seen that IP is one of the most often-contested issues when employees leave the organization. This is particularly true regarding senior-level executives and founders.

We have learned that the best way to avoid these conflicts is to get clarity on these IP issues as early as possible. This helps set expectations correctly and makes sure that all parties are on the same table.

If you have any questions regarding how to handle ownership or use of IP, how to register a trademark, or how to protect your trade secrets, please don't hesitate to reach out to Mission Counsel. Our team is dedicated to the success of nonprofits and their missions.

About the Author

Heidi Forland-Fetty

Hi, I am Heidi Forland-Fetty. I am the head paralegal for Mission Counsel. I joined Terry in June 2020 and am excited to help expand the firm. I have strong interests in nonprofit, contract, business, real estate, and intellectual property law. CONTACT US My Story Growing up in the Greate...

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