Issues to consider when deciding which affiliate will own a patent

Companies that have multiple affiliates may consider several options when deciding which corporate entity will own the organization’s patents.   Often, tax considerations and royalty structures are a driving factor in deciding whether an operating entity or a holding company will own the patents.

Before placing patent ownership in a holding company, patent holders should consider whether they are likely to enforce the patent against infringers.  If so, separation of the patent from the operating entity may limit the damages that patent holder can receive from the infringing entity.  The failure to document a license arrangement with affiliates also can limit damages.

This risk was highlighted in the recent case of Duhn Oil Inc. v. Cooper Cameron Corp. (E.D. Ca., Jan. 21, 2011).  In the case, Duhn Oil sued Cooper Cameron for patent infringement.  Although Duhn Oil was the patent holder, it had been acquired by Seaboard International, Inc.  After the acquisition, operations were transferred to Seaboard, and Duhn remained as a holding company for intellectual property and other assets.  Because Duhn was the patent holder but had no operations and no royalty-bearing license agreement, the court found that patent infringement caused Duhn no lost profits.