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Classification of Intellectual Property Upon Divorce
(Provided by National Legal Research Group, Inc.)

Since federal preemption is not a problem, the division of intellectual property interests is a pure question of state law. As a general rule, to constitute marital property, an interest must be both marital and property.

There is general agreement that intellectual property interests of all sort constitute divisible property:

Vincent believes that the interest in the patents does not have the qualities listed [in the definition of property.] This is not self-evident. The business plan, which is built on the patented concept, undoubtedly will be used in an effort to raise capital for the enterprise. Thus, there is a sense in which the patents may be said to have loan value. Another, perhaps more typical, arrangement is for a patent holder to enter into a licensing agreement with a manufacturer/distributor for the use of a patent. Consideration under the licensing agreement might be a lump sum. An initial fee and royalties is another likely form for consideration to take.

In re Marriage of Monslow, 259 Kan. 412, 912 P.2d 735, 744 (1996).

[I]ntellectual property, once it has been created, is less inextricably related to its creator than other assets now characterized as marital property, such as pensions and professional goodwill. Unlike pensions and professional goodwill, rights in intellectual property are highly transferable, and title may be placed in the name of one who did not originally produce them.

912 P.2d at 745 (quoting 2 Arnold H. Rutkin, Valuation and Distribution of Marital Property 23.07[1] at 23-135). Monslow held that a patent on a cable television service was marital property.

For additional cases holding that a patent was divisible property, see Lorraine v. Lorraine, 8 Cal. App. 2d 687, 48 P.2d 48 (1935) (patent for oil, gas, and sand separator); McDougal v. McDougal, 451 Mich. 80, 545 N.W.2d 357 (1996) (patents on automobile engine parts); Allen v. Allen, 601 P.2d 760 (Okla. Ct. App. 1979) (patent on "Volt Minder," an invention not otherwise described by the court); Rose v. Hatten, 417 S.W.2d 456 (Tex. Civ. App. 1967) (medical patents); and Zalusky v. Zalusky, 2002 WL 31553133, at *2 (Va. Ct. App. 2002) (patent on the "Twistee," an invention not otherwise described by the court).

For an additional case holding that a copyright was divisible property, see In re Worth, 195 Cal. App. 3d 768, 241 Cal. Rptr. 135, 137 (1987) (copyright on popular series of trivia books). See also Moon v. Moon, 790 P.2d 52 (Utah Ct. App. 1990) (right to reproduce works of art created by sculptor husband during the marriage; court did not use the term "copyright" but cited copyright law to support the notion that the right to reproduce the works was transferable); In re Perkel, 963 S.W.2d 445 (Mo. Ct. App. 1998) (husbandís copyright interest in software he wrote during the marriage was marital property; divided by lump-sum award).

For additional cases holding that a contractual right to receive royalties is divisible property, see In re Zaentz, 218 Cal. App. 3d 154, 267 Cal. Rptr. 31 (1990) (right to receive a share of future profits on the movie Amadeus); Gallo v. Gallo, 184 Conn. 36, 440 A.2d 782 (1981) (textbook royalties); In re Heinze, 257 Ill. App. 3d 782, 631 N.E.2d 728 (1994) (speech therapy textbooks); In re White, 537 N.W.2d 744 (Iowa 1995) (college music textbooks); Michel v. Michel, 484 So. 2d 829 (La. Ct. App. 1986) (novels written by wife); In re Perkel, 963 S.W.2d 445 (Mo. Ct. App. 1998) (menu and program launcher software); Hazard v. Hazard, 833 S.W.2d 911 (Tenn. Ct. App. 1991) (tracheostomy kit produced by husband during marriage); and Dunn v. Dunn, 802 P.2d 1314 (Utah Ct. App. 1990) (instruments for implanting artificial knees).

For a case involving the right to use a trade secret, see Teller v. Teller, 99 Haw. 101, 53 P.3d 240 (2002) (trade secret right in weather radio).

For a case involving actual physical possession of a creative work, see Stainback v. Stainback, 11 Va. App. 13, 396 S.E.2d 686 (1990) (paintings created by husband and owned by corporation, which was his alter ego).

Two reported decisions hold that an undeveloped intellectual property interest did not constitute property. In Yannas v. Frondistou-Yannas, 385 Mass. 704, 481 N.E.2d 1153 (1985), the husband was a world-renowned scientist who invented an artificial skin designed to treat burn victims. There was no evidence in the record that the husbandís interest in the artificial skin had any established capacity to generate income. The trial court refused to divide that interest. The court held in simple terms that the trial judge "was not obliged to place a value on the husbandís royalties, patents or copyrights" and that the judge "could have concluded on the evidence that the present value of the husbandís future income from [the artificial skin] was too speculative to consider." 481 N.E.2d at 1160.

In Woodward v. Woodward, 294 S.C. 210, 363 S.E.2d 413 (Ct. App. 1987), the wife had a patent on an unspecified invention. The court did not describe the invention or its status, but it did note that the husband had conceded that it had little or no present value. The husband argued that the trial court erred by failing to divide the interest, but the appellate court affirmed. "[T]o award [the husband] an interest in the patent upon the speculation that it may some day become valuable is contrary to the policy of finality desired in marital litigation." 363 S.E.2d at 417.

There is also a good argument that Yannas and Woodward are limited to their facts. Yannas affirmed the trial courtís decision that he could not place a "present value" on the patents, thus suggesting that the wife sought a present award rather than a percentage of any future income derived from the patent. Nothing in Yannas suggests that the court would have rejected a deferred distribution if the wife had asked for one. "The Yannas decision, because it rests on the record made in that case, does not necessarily preclude assignment in a future case, on a proper record, of the present value of future income from property interests such as patents, royalties and copyrights." Monroe Inker et al., Alimony and Assignment of Property in Massachusetts: A Survey of the Last Decade of Massachusetts Law, 26 Suffolk U. L. Rev. 21, 27 n.46 (1992).

Woodward, like Yannas, is limited on its face to situations in which the intellectual property at issue has little or no present value. Moreover, at the time Woodward was decided, South Carolina held that unvested retirement benefits, and probably unvested benefits of all sorts, did not constitute property. Brown v. Brown, 279 S.C. 116, 302 S.E.2d 860 (1983). Given Brown, Woodward is a defensible decision. In Tiffault v. Tiffault, 303 S.C. 391, 401 S.E.2d 157 (1991), however, the South Carolina Supreme Court overruled Brown and held that unvested retirement benefits do constitute marital property. There is an excellent argument that Brown also overruled Woodward, at least to the extent of permitting a deferred distribution of a percentage of future income from an intellectual property interest.

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