The proper treatment of intellectual property (IP) in divorce cases requires an understanding of the different types of IP, valuation of the IP and ultimately equitable distribution of the IP as a marital asset.
There are four types of IP:
- A Trademark is a name, word, phrase, logo, symbol, design, or image used to identify a product or service. Also known as a “mark”, trademarks are denoted with the symbol “™”, although trademarks registered with the United States Patent Trademark Office are followed by the symbol ®.
- A Copyright protects the expression of ideas captured in tangible form, such as drawings, sheet music, photographs, videotapes, computer files/software, books or paintings. . Copyright laws provide the creator with exclusive rights to publish and distribute his or her works for a certain time period after which the work belongs to the public. Copyright owners may also authorize others to reproduce their work or derivative works based on the original work
- A Patent protects a new or useful invention, such as a process or machine, as well as improvements thereto. An inventor may assign his or her rights to the patent to another party. Patent law exists for the purpose of excluding others from making, using or selling an invention for the term of the patent which is usually twenty years.
- A Trade Secret protects information which provides an economic benefit to the owner because it is not known to the public. Unlike other types of IP, the protection of confidential information of a trade secret does not expire as long as the secret is never disclosed.
In a divorce, the first question is whether the IP is subject to equitable distribution. Generally speaking, all assets acquired by the parties or either of them during the marriage (defined as from the marriage date to the date a divorce complaint is filed) are marital. Thus, premarital assets, inherited assets or assets gifted from a third party ( and not subsequently “co-mingled”) will not be divided; however, any increase in value of exempt assets which are the direct result of effort by one or both marital partners will be subject to equitable distribution.
Thus, in cases involving IP, appropriate areas of inquiry are whether marital funds were expended to market the IP or to defend the owners rights to the IP during the marriage. If marital funds were utilized, the non-owner spouse can assert that the otherwise exempt IP is subject to equitable distribution.
The valuation of IP as a marital asset is complicated by the fact that in many instances such value is based upon the IP’s ability to generate future income. To the extent that such income will also be a factor in an alimony or child support calculus, the conundrum of a “double dip” exists. In other words, having valued the IP as a marital asset based upon a future income stream and carried out equitable distribution based on that value, a court may nonetheless take a second look a the future IP income for alimony or child support. New Jersey courts have determined that such an approach does not constitute a “double dip”, a fact which attorneys, forensic accountants and owners of an IP must recognize from the outset.
Although there is no “bright line” ruling in New Jersey with respect to equitable distribution of intellectual property, guidance can be gleaned from decisions in other states such as a Kansas court’s decision that a disproportionate equitable distribution in favor of a patent holder was equitable since he would be required to expend post-marital efforts to ensure the continued income stream from the patents.
In summary, attorneys dealing with IP in divorce cases must be aware of the issues and pitfalls involved by exploring out-of-state cases and New Jersey cases dealing with different but analogous types of marital assets such as stock options and pension plans.