Proprietary Interest: Everything You Need to Know
Proprietary interest defines the rights and duties related to an item a certain party owns.3 min read
2. Long-term Implications of Proprietary Interest
3. How to Prove Proprietary Interest
Updated November 6, 2020:
Proprietary interest defines the rights and duties related to an item a certain party owns. An interest in a property is said to be proprietary in general when you own or have control over that property, and it is normally the case when a party has a lease or mortgage to a property.
Proprietary interest encompasses the rights, profits, advantages, and ownership shares associated with full or partial ownership of an asset. The doctrine was conceived to try to preserve the permanence of ownership of land and other assets. Non-proprietary interests, on the other hand, may include permission to enter someone else's property.
Characteristics of Proprietary Interest
A party is said to have proprietary interest in an asset in the following situations:
- If the party owns a property.
- If the party has a mortgage or lease to the property.
- If the party can sell or give away the property.
- The right to the property is definable or identifiable by third parties.
- A person's ownership should have a level of stability or permanence for it to qualify as proprietary interest.
- A proprietary interest can represent either owning a stake in an item or having full ownership.
- Someone with proprietary interest in an asset is legally entitled to profits and other rights from that asset.
- The asset in question can either be tangible or intangible.
Just having rights to enter a property, on the other hand, is said to be non-proprietary interest.
Long-term Implications of Proprietary Interest
Proprietary interest may be retained by a party even if that party transfers the ownership to another party. For example, consider a landlord who gives a lease to a piece of land and eventually transfers his interest in the land to another party. The initial landlord's lease continues existing although the land has a new landlord. Such a lease is a proprietary interest in the land.
Similarly, a book author will also generally continue to have a proprietary interest in his book, even though he might have exchanged many of his rights to the book for financial rewards from the publishing company. This is not the case with giving a license to another party. If the licensing party sells his interest in the property, the new owner is not bound by the terms of the license.
The continuity of interest doctrine enables a company that has bought another to save on taxes if shareholders from the acquired company continue holding a stake in the acquiring company. Before 1998, the IRS required shareholders in acquired companies to hold a stake in the new company. But the current law allows the shareholders in the new company to subsequently sell their ownership stake in the business. And, in such a case, the proprietary interest is lost.
How to Prove Proprietary Interest
Often, disagreements arise over whether a certain party has proprietary interest in an asset. These disagreements are common between employers involved in creative businesses and their employees concerning proprietary intellectual property. An employee may claim that she owns rights to the inventions she made while under the employment of the employer. Lawyers will seek to furnish proof to the courts that the party indeed has proprietary interest in the asset. Examples of acceptable proof include:
- When an inventor of an item, for example, an employee, agreed in writing to assign the invention to the other party, for example, an employer. In this case, a copy of the agreement can furnish the needed proof.
- If the agreement to assign proprietary interest has conditions, there should be evidence that the conditions were met.
- If there is no written agreement, the party that claims that it was assigned the interest must show that they have proprietary interest in the asset.
- Proprietary interest can also be demonstrated by a legal memorandum that shows that a court would award the proprietary interest of the asset in question to that party. The memorandum should be prepared by a knowledgeable lawyer in the jurisdiction. In this case, an affidavit or declaration should be made by a person having knowledge on the interest.
You can learn more about potential employer-employee conflicts and agreements that can potentially ward off such conflicts in our article on proprietary information and inventions agreements.
If you need help with proprietary interest, including help with making a legally-binding assignment of interest agreement or a claim involving proprietary interest, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.