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Fiscal Sponsors and Intellectual Property: Considerations and Concerns for Charitable Projects

 



Fiscal sponsorship, an arrangement between a 501(c)(3) tax-exempt nonprofit and a charitable project in which the nonprofit directs funds to advance the project while retaining discretion and control, drives a significant volume of charitable work seen in cities like Detroit. Many charitable projects, which include unincorporated associations and other nonprofits, find structure and guidance through a fiscal sponsorship. A fiscal sponsor generally accepts funds on a charitable project’s behalf, and provides fiduciary oversight, financial management, and administrative support to help ensure that the funds are properly spent. In addition, fiscal sponsors provide added access to grant funds and tax-deductible donations.

While fiscal sponsorships can provide great value, they can also create distinct complications. In the domain of intellectual property, working with a fiscal sponsor raises some important considerations. Intellectual property includes anything created that is covered by trademark, copyright, patent, or trade secret law. This includes a wide array of creations such as logos, art, inventions, articles, and systems. Generally speaking, trademarks cover branding, copyrights protect art, patents protect inventions, and trade secrets can be used for formulas and processes. Those entering a fiscal sponsorship should be mindful of their intellectual property and determine who owns the rights to pre-existing and future creations.

In traversing the risks and uncertainties of a fiscal sponsorship, a written agreement outlining the relationship may provide tremendous value. Many fiscal sponsorships are formed without anything in writing, which can lead to disputes down the line. If possible, the formation of a fiscal sponsorship should involve a written agreement that addresses matters such as intellectual property. With a written agreement in place, both ends of a fiscal sponsors will have a framework for resolving uncertainties and preventing conflict.

Protecting Pre-Existing Intellectual Property

            Charitable projects should identify and sort out their intellectual property rights before entering an agreement with a fiscal sponsor. Once that agreement is entered, a fiscal sponsor gains a degree of control that can muddle the question of who owns what. By clearly delineating preexisting intellectual property, charitable projects can better protect their own assets. This can be addressed in the written agreement that forms the fiscal sponsorship. Parties entering a fiscal sponsorship should seek to set expectations in advance of the relationship, with written terms dictating prior ownership of intellectual property. Accordingly, a party looking for a fiscal sponsor might want to register any copyrights or trademarks and file any patents before signing any agreement.

Accounting for Present and Future Intellectual Property

After parties agree to a fiscal sponsorship, assets made during that sponsorship are often attributed to the fiscal sponsor rather than those in the charitable project. Without a written agreement that says otherwise, the intellectual property that an employee creates typically becomes property of the employer. Since a party entering a fiscal sponsorship may be considered an employee of the fiscal sponsor, the intellectual property he or she creates likely becomes property of the fiscal sponsor.

Although fiscal sponsors will generally gain the rights to intellectual property created during the fiscal sponsorship, contractual terms figured out in advance could stipulate otherwise. Parties could create specific provisions addressing the matter, or pursue a form of fiscal sponsorship that provides control for both parties. For instance, preapproved grant relationship fiscal sponsorships, which tend to operate for a shorter period of time, may be appropriate where a charitable project does not want to give up ownership of intellectual property created.

 Concerns about intellectual property go beyond maintaining ownership. It can be helpful to include some language in the fiscal sponsorship agreement that outlines how intellectual property should be used. Matters pertaining to intellectual property like confidentiality and licensing should be discussed and addressed in advance. Parties will also want to determine the terms of terminating or transferring the project, as they want to be clear on what will happen to the assets.

In a general sense, parties should be mindful of recognizing and accounting for intellectual property that develops. Given their focus on finance, fiscal sponsors might be less conscious of intangible assets such as trademarks and content created with computers. Accordingly, organizations or unincorporated associations entering a fiscal sponsorship should take deliberate steps to ensure that intellectual property is adequately weighed in the fiscal sponsor’s guidance and administration.

Proactivity is the Key to Navigating Fiscal Sponsorship Concerns

Given the possibilities of uncertainty and dispute regarding intellectual property within a fiscal sponsorship, those looking for a fiscal sponsor must be vigilant and proactive. Whether securing preexisting assets or protecting future assets, parties should address intellectual property upfront in the formation of the agreement. Whichever direction one takes, it all boils down to two short pieces of advice: think ahead and get everything in writing!

By Kyle 

Sources

1. Internal Revenue Code, Section 501(c)(3)

2. National Council of Nonprofits, “Fiscal Sponsorship for Nonprofits,” https://www.councilofnonprofits.org/tools-resources/fiscal-sponsorship-nonprofits

3. Gregory L. Colvin, “Fiscal Sponsorship in the 21st Century”

4. Erin Bradrick, “Fiscal Sponsorship: What You Should Know and Why You Should Know It”

5. Marko Radisavljevic and Art Neill, “Guide to Intellectual Property & Fiscal Sponsorship Agreements for scientific, research, and archival projects”

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