Divorce and Intellectual Property

A recent opinion highlights the ugliness of intellectual property when divorce occurs. The beloved Johnathan Livingstone Seagull was the rope in a tug of war between the author Richard Bach, and his ex, Ms. Parrish, in the Washington Court of Appeals case Bach v. Parrish,
60406-6-I (2008). Ms. Parrish had helped Mr. Bach out by buying the copyright rights to the book when Mr. Bach went through bankruptcy shortly after they were married, using her separate funds. She then granted him 50% of the rights. They then divorced and agreed as part of the divorce to share the rights to the book as tenants in common. They then executed a comprehensive settlement dividing up the rights including rights to accrued causes of action such as copyright infringement. There was an infringer. It resulted in a monetary settlement. Bach and Parrish fought over who got what. Ultimately, Bach won because the divorce agreement was comprehensive and clearly gave him the accrued causes of action. It also required resolution by arbitration before a specific judge. All of which the Court of Appeals agreed to.

Reading this case displays only some of the bizarre tangles that occur when divorce enters the world of intellectual property. Washington is a community property state. Thus, Ms. Parrish was able to purchase and own because of her separate funds. Would she have been unable to get individual rights in a non-community property state. There are numerous questions of who owns what in a marriage, depending on the State and the type of intellectual property.

One clear result from the case that entrepreneurs should take away, Bach was definitely benefited by having a well drafted agreement that contained an arbitration clause.

Buying the Cow

IP entrepreneurs frequently seek to acquire intellectual property from other entities, whether as a straight license or assignment, or as party of a merger or acquisition of assets. If a substantial portion of the value relies upon the intellectual property, the entrepreneur needs substantial due diligence to avoid buying the cow rather than just the milk.

First, intellectual property is subject to wide variations of valuation. Never take the seller’s word for it. Proven sales or established licensing rates help. Experts exist to give a fair market appraisal, to the extent that it can be done, for intellectual property.

Second, intellectual property can disappear. Patents and trademarks can be invalidated or rendered unenforceable. Copyright registrations can be invalidated, and/or the copyright protectable expression can be found to be non-existent.

Third, ownership is rarely clear cut. Ownership where employees or contractors are involved can be a nasty mess requiring tracing back through each person and each agreement to determine what, if anything, was effectively assigned, what was obligated to be assigned, or what might be hanging out free and clear. Like buying the cow, when buying intellectual property due diligence can sometimes show that the milk is free.