Are your IP contracts in order?

Contracts are part and parcel of business activity, and that’s also true for contracts relating to IP rights. Confidentiality agreements, licence agreements, merger or acquisition, sale or divestment, employee-inventor remuneration agreements… these are just some of the types of contracts that touch on a company’s IP portfolio. However, some contracts are more common than others. Novagraaf’s Jonathan Ney rounds up the most common IP contracts, and explains the importance of proactive contract management.

It is essential for companies to manage their contracts, particularly contracts relating to IP rights. Even if you have no intention of selling or licensing your IP, you will most likely find that you still have (or should have) IP-related contracts; for example, confidentiality agreements with your manufacturers; ownership/anti-theft clauses in your employee contracts; and, assignment agreements for IP rights acquired as part of a merger or acquisition.

Businesses need to understand and regularly review the scope of these and other such agreements if they are to ensure that they are both properly protecting their valuable IP rights from theft or accidental lapse and increasing the value of the IP portfolio.

In addition, there are a number of defined contract types that businesses will need to call on as their business evolves and grows. The most common of these enable companies to:

• Assign rights to or acquire rights from a third party

Contract type: Transfer of ownership/assignment This contract allows an IP rights holder to transfer all or part of its ownership of IP rights to a third party. Without this legal form of transfer, the new owner will not be able to exploit the rights.

• Authorise another person or company to exploit IP right/s

Contract type: Licence agreement The licence agreement is probably one of a business’s most strategic contracts. It enables the holder of an IP right to authorise another person to exploit that right. However, it is not an assignment contract. The IP rights holder does not assign any of its ownership rights in the IP to a third party, but may give the licensee some rights to enforce that IP. A licence can take many forms – sole, exclusive or non-exclusive; partial or full; indefinite or fixed term; fixed price, royalty or royalty free, for example.

• Manage co-ownership as part of IP creation

Contract type: Joint or co-ownership agreement This type of agreement allows the parties involved in a joint IP creation project to set out the rights and obligations of all the co-owners.

• Settle terms with the owner of a conflicting trademark

Contract type: Co-existence agreement This type of agreement comes into being where brand owners with conflicting trademarks need to record terms of their coexistence; for example, not to move into the other party’s industry sector.

• Use their IP rights to raise finance or secure debt

Contract type: security assignments/charges over IP rights This type of contract functions as a form of guarantee to the creditor that the debtor will repay the value borrowed or forfeit the IP set out in the contract.

• Protect know-how, as well as their IP rights; e.g. processes, manufacturing formulas, trade secrets, innovation that is not patent-protected, etc

Contract type: license agreement/manufacturing agreement/confidentiality agreement License agreements enable IP rights holders to license know-how to third parties. Commonly this will also form part of a manufacturing and/or confidentiality agreement put in place with manufacturers or sellers of goods. It provides a form of protection wherein a third party is entrusted with important technical information in order to exploit it. The holder of the know-how, however, retains full ownership rights of the expertise covered by the licence. It is also important to ensure that employee contracts specify that all confidential information and know-how information is the property of the company.

Contract management Of course, getting the contract terms defined and agreed is only the first part of the process. In order to ensure the terms are monitored, royalty fees paid and obligations fulfilled, businesses also need a system for organising, managing and searching those contracts. Here, an effective contract management system is crucial. As with your IP rights portfolio in general, properly recording your contract rights in an accessible and searchable database could make all the difference between a protected IP right and a lost deal.

Finally, whichever type of contract you choose, it is important to make sure that it’s drafted according to your unique business needs. For further advice or assistance, get in touch with your IP attorney or contact us.