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”