Intellectual Property - I'd like your input

Hello All,
I have a bit of a dilemma and I'd appreciate you input.
I have an associate that I hired to do some design work for me. I went to
him with a simple problem (design a simple control system). He took a look at the overall project and pointed out various things that needed improvement - he also sold me on a pneumatic control system rather than a 24VDC system .... as a result, the project has turned into a somewhat larger project -which is all fine.
Certain components (particular valves) aren't available off the shelf and I also needed them for another project, so I game him a sketch of what I wanted and he came up with a simple design. Its not rocket science, its basically a pneumatic cylinder forcing a plug into a hole stopping product flow (kinda like a plug valve).
Anyways, I stopped by for an update last night and he informed me that he will be maintaining ownership of the valve, and will require royalties if I use it. Furthermore, the new design on the system is his design and any future systems that I sell then he expects a royalty on that as well. Oh yes, he also wants a piece of the company.
Is this guy out to lunch? Am I out to lunch? Should I have my attorney draw up contracts that make my company the owner of all intellectual property that I hire other people to design?
Thoughts?
TIA, Darryl
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not to offer legal advise, but I'd say that in the absense of a specific contract specifiying otherwise, the work he's done for you is "work for hire" and you own it. A patent, if there was one, would be in his name, but assigned to you. That said, it may well be more costly to litigate it than to just throw his work out and start over.
In the future, you should probably have employees/contractors sign an invention assignment agreement before they start work.
In the near term, because of the lack of a specific contract, you have to decide if you're willing to risk the expense and annoyance of having him sue you.

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says...

I suppose he wants all this in addition to charging you for the design? And neglected to mention these conditions until after he'd started the design?
Accepting your side of the story as presented, I'd thank your designer very much for his time, pay what you owe, and walk away.
The contention that the components must be custom built also seems self- serving on your designer's part. I've been designing and building high speed automation for 25 years and can think of only a few times when off the shelf valves or actuators weren't suitable, where pneumatics were appropriate in the first place.
When working on an hourly or contract basis, I've never asked for royalties or retained rights to a design, much less asked for a piece of a business. I have had customers come to me when someone else has made such a proposal which the customer found unacceptable.
Ned Simmons
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I can't see plugging a hole and stopping fluid flow as a patentable idea, but the red flag goes up as soon as anyone mentions royalties etc. What I'm building isn't some great invention, I just happen to have sales and need help on the manufacturing side - If I run into problems on a small project, what would I be in store for on a larger project?
... yes I'm paying him a shop rate for his design work ...
This is a small project that I have sales for, but I also have a larger project that I also have sales for and need to contract out a substantial amount of the design ... I'm thinking I'll get a contract drawn up (non-competition / intellectual property etc etc.), and switch designers.
Besides, I think this guy (although quite gifted in his design capabilities) tends to overdesign his products and prices them completely out of the marketplace ... hard to sell a Ferrari to someone that can only buy a Honda Accord.
Cheers
Darryl

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Sound like you first have to bend over, grab your ankles and take it like a man. Then, you have to fire that guy's sorry butt. Finally, like others have said, you need to have an invention/innovation clause written into any contract.
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A quick call to your lawyer will answer this question exactly, and much quicker than you'll get from this group.
Unless he has a patent, there isn't really anything keeping you from ignoring him. Without one there's really nothing to license or negotiate, so his demands are moot for the time being. I'm not sure from your brief description exactly what the device looks like, but it doesn't really sound that patentable anyway...just everyday engineering. If he goes to the trouble of getting a patent, then he might be able to file suit for back-royalties, but again, your lawyer will be able to tell you just exactly what to do.
Don Kansas City
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DG wrote:

It was a "work for hire", you owe him nothing beyond wages. In addition, the valve idea was yours, he simply refined it, which is what you were paying him for. The only area which may have gotten sticky would have been if he wrote software. Software is an "expression", subject to copyright law at the time of creation, and unless specific assignment is made in the contract you would only be permitted to use the one copy delivered and not make subsequent copies. As a final thought, this type of extortion is highly unethical and could be cause for disciplinary action if he is registered, or acting in a professional capacity as an engineer.
--
jeff

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Thank you all for your advice - I will be following it - funny thing - its exactly what my wife said - but hey, I'd be thrown out of the brotherhood if I ever listened to her.
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Dear DG:

No, no! You are *supposed* to listen to her. Then you are supposed to completely forget about what she said.
David A. Smith
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Wrong still! You're only supposed to ACT like you listened to her. We all know that, as we age, we lose the ability to detect certain audio frequencies, which, coincidentally, happens to be the exact same frequency of your wife's voice....
Steve R.
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You hired him, the work he did for you is yours.

If he can't find a suitable off the shelf component it seems possible he is incompetent.

I
Other way round entirely... the design is your property.. ( you have paid him for it... ) You should ask him to pay you a royalty if he wishes to use it in work he does for any other client.
>Furthermore, the new design on the system is his design and any

Well if he wishes to work on systems ON HIS OWN TIME and then offer them to you for sale that's fine .

He likes your company and is offering to buy a share of the equity, well it's flattering to be asked, but I suspect you would not want to sell him a share at any price :-)

Has this guy thought about his future.. As a sub contract designer I have to offer my clients confidentiality. Any re use of YOUR valve design by this guy would IMHO be a major breach.
I would not expect any of my clients who became aware of his history to hire him, and if they had hired him to INSTANTLY lock up any work they had in their possession before throwing him out the door if they heard of it.
I'm an English chartered engineer, the Institute of Mechanical Engineers issues the charter, I would think there morels committee would cancel my membership if I behaved in this manor... Is you designer a member / licence holder of a professional body ??

Maybe. Local laws will apply, but a simple agreement stating clearly the terms you are hiring on should prevent any misunderstandings.

This guy may have made a simple mistake,,, if he apologises nicely to you then you might promise not to talk about how he behaved..... ( you have him by the ***** ).

--
Regards Jonathan

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Sorry for joining late, but just saw this thread.
Intellectual Property is a two way street. He was exposed to YOUR proprietary information while doing this task, important intellectual property, like marketplace requirement, sales potential, etc. It may have been exposure to such proprietary information that prompted his design which you paid for. In which case, you own the design. Or, and this may be the "gotcha" here, he had a previous working invention (which he didn't tell you about) that he applied to your requirement. Albeit, it sounds like he may have massaged the requirement around until you "needed" his intellectual property. Then ownership becomes mirky. In which case, he may have rights to the final design, since it's an application of his previous work. Sadly, ethical people are bit by this type of situation, since ethical people just don't think in such a manner.
A few written agreements before the work commences and money changes hands would have prevented this type of extortion. In the agreement, be sure to include a statement of his IP that might apply. It is my understanding that if this section is blank then you own ALL results since you are paying for the effort.
I'm sure members of this group would send you copies of their CONTRACTOR'S AGREEMENT FORM (if not proprietary to their firms). As you wade through everything from common English to Legaleeze, you will gain a flavor of the "important" issues to address BEFORE work commences. Also, if you add the clause that all disputes to be settled by <<state>> binding arbitration, you head off potentially costly court/attorney fees.
Also, Berkeley Press(?) puts out a lot of books addressing Intellectual Property Rights, including all kinds of contracts. Their "Patent it Yourself" author (Prescott?) probably has covered this, too.
If your contractor is a member of any professional organization, you might check the "ethics" of that group. Doesn't he have to be a Professional Engineer registered in your state to perform engineering for you? Represent himself as an "engineer". Or at least have a registered Business License with the city he's in.
Will look forward to your culmination on this one.
- Robert -
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