There is a right way and a wrong way to inherit intellectual property. When a person dies, their assets, including their intellectual property (IP), typically become part of their estate. The distribution of these assets is determined by the individual’s will, trust, or applicable laws of intestacy if there is no will. The intellectual property rights may be passed down to the individual’s heirs or beneficiaries according to the terms of the will or trust. The specific process and laws surrounding inheritance of IP rights can vary based on the jurisdiction and type of IP being inherited (such as patents, trademarks, copyrights, etc.).
If the IP rights are still in force at the time of the individual’s death, the ownership and control of the IP will typically pass to the designated heir or beneficiary, who will then have the right to use, license, or sell the IP. However, the terms of any contracts or agreements related to the IP, such as license agreements or assignments, may also impact the transfer of ownership.
Generally, using trusts to manage IP as part of an estate gives the testator or settlor the ability to set the terms for the management of that IP well into the future. For example, let’s say you wrote a book in 2008 and there’s a chance of your book being turned into a movie. In the United States, the length of copyright protection for your book is the life of the author (you) plus 70 years (for works created on or after January 1, 1978). You have two children aged 17 and 15, and you’d like them to benefit from your book in the event of your death. Instead of letting them fight over a copyright, create a trust for their benefit and install an experienced trustee.
The trustee will then have the power and authority to license your copyright. The money earned from that license agreement will be used for the benefit of your children pursuant to the terms of your trust agreement.
Click here for an example of what can happen if you fail to plan for intellectual property.
How is Intellectual Property valued as part of an Estate?
The value of intellectual property depends on several factors, including its potential revenue-generating capability, its market demand, and the strength of the IP rights. Some common methods used to value IP include:
This method compares the value of the IP to similar IP that has been bought or sold in the market.
This method values IP based on the costs incurred in creating or acquiring it, including research and development costs, acquisition costs, and any other related costs.
This method values IP based on the expected future economic benefits it will generate, such as royalties or license fees.
Relief from royalty method
This method determines the value of IP by calculating the hypothetical royalty that would be paid for the use of the IP if it were licensed.
IP valuation is complex and can be subjective. Organizations such as the World Intellectual Property Organization (WIPO) help manage and value IP.
Regardless of whether you are dealing with a single asset of intellectual property or if you are managing an entire portfolio, you should consult with a lawyer experienced in estate planning with intellectual property for guidance on the specific laws and procedures related to the inheritance of IP rights in your jurisdiction.