What is an IP Agreement?
An IP agreement is a legally binding contract between an owner of intellectual property and another party who wishes to have access to that property. The party with ownership is the transferor, and the party getting rights to the property is the transferee. While IP agreements and contracts in general do not require consideration, they should have consideration to reduce the risk of breach of contract , which can lead to costly litigation.
It is very important to have an IP agreement to protect IP assets. Without such an agreement, the transferor does not have the legal right or the ability to transfer an intellectual property to the transferee. Even with an IP Assignment for example, the transferee does not get any ownership rights over the IP because the transferor is not legally entitled to assign it.
The Building Blocks of a Sample IP Agreement
When it comes to understanding the foundations of a sample IP agreement, there are several essential elements that need to be addressed. In general, these agreements are intended to protect the rights of an intellectual property creator while also giving permission for a third party to use some or all of that property. Some of the most important components to look for in a sample IP agreement include: ownership rights, usage permissions, confidentiality clauses and dispute resolution terms.
Ownership Rights:
A sample IP agreement should clarify who owns the IP rights attached to the property in question. In general, an IP owner reserves the right to keep control of the property, but the rights of usage can be granted to a second or third party. Under certain circumstances, IP owners sign all rights over to a licensee in exchange for a fee of some type. Determining the rights of ownership is an important part of creating an agreement and is usually done in consultation with an attorney.
Usage Permissions:
In general, usage permissions provided by a sample IP agreement are divided into two categories: exclusive licenses and non-exclusive licenses. Exclusive licenses give full rights to one party to use the IP exclusively, meaning that the owner does not retain the right to give permission to anyone else. Non-exclusive licenses have a specific window of time in which the IP can be used by the third party, after which the license expires. These licenses are typically specified in the base agreement, with details on the terms of use.
Confidentiality Clauses:
IP agreements may contain confidentiality clauses that disallow one party from releasing information about the IP to a third party. These clauses are designed to protect the use of the property by preventing the licensee from sublicensing the same rights to another entity.
Dispute Resolution Terms:
Finally, a sample IP agreement should contain dispute resolution terms aimed at resolving any future disagreements between the two parties. The agreement should outline the steps that both parties must take to resolve the issue and may also include stipulations for appointing a neutral third party to oversee the dispute process.
It is critical to building a tight IP agreement to consider all of the above elements. Optional addendums to the agreement can also be added to provide more structure and specificity.
Categories of Intellectual Property Included
The first thing to understand is what categories of intellectual property a sample IP agreement might cover. For purposes of example, let’s talk about four of them: a patent, a copyright, a trademark, and a trade secret.
Patents cover inventions or creations that are fundamentally new. For example, if you invent a new type of wheel, that invention is fundamentally new. You’d want to have a patent protection for it. Copyrights cover works of authorship or expression. A web site design or a song are examples of items that fall under this category of protection and copyright registration. Your original creation is documented for posterity, and you have the exclusive right to sell or transfer the sale or license of this work. Trademarks are a word, name, symbol, device, or combination of these protected to identify and distinguish your products or services from someone else. The most famous trademark is the Coca-Cola name and logos. If Pirana Cola ripped off their name and packaging, it would quickly lead to a lawsuit because of the Coca-Cola trademark: Trade secrets cover anything that is not subject to patentability, copyright, or trademark protection, provided that it derives independent economic value from not being generally known or readily ascertainable by others who can obtain economic value from its disclosure or use, and it is the subject of efforts to maintain secrecy such as the existence of an agreement between the inventor and his or her employer, or its maintenance as a secret in the employer’s records or cabinets. This is an extremely high standard, which 99.9% of inventions will not meet, but it is worth mentioning for completeness.
When You’d Need a Sample IP Agreement
There are various scenarios in which you would need a sample IP agreement. When different parties collaborate to create or conserve commercialized IP, the rights in that property have to be allocated among them. The parties could be jv partners or consortia members or the same business division or a single division. The IP they intend to create or conserve could be transactional data, a portfolio of R&D results, new technology or a trademark. For example, when two parties work in the same field and engage in joint R&D efforts, they may sign an IP agreement to allocate respective intellectual-property rights. Disputes over inventorship of patents, or the legal ownership of copyright in employee-created programming, art work, maps, blueprints, architectural or engineering drawings, written materials, photographs or sound recordings can result from failure to enter into a solid IP agreement.
A company could have legacy agreements that enlist IP created by its employees in the old days where there was no formal agreement between employer and employee. How that IP is to be monetized, dueled out or preserved would have to be outlined in a sample IP agreement. You may also use sample IP agreements when making a proposal to participate in R&D grants that states the respective rights of the parties in the IP to be generated in said research.
Instructions for Modifying a Sample IP Agreement
Many people use sample IP agreements which they find online. Given that the protecting of IP is quite important, how true and effective are these agreements? Here are steps to consider in customizing a sample IP agreement:
Step 1 – Consider Ownership
For example, is the ownership of the IP unclear? If so, you can customize the sample IP agreement to clarify the ownership of different types of IP, e.g., patents, trade secrets, copyrights, etc. Ownership can be addressed in the IP Agreement itself, or, if desired, a separate Assignment Agreement can be provided to further specify the ownership of the IP. While an assignment agreement and an assignment provision in an IP Agreement may seem to be redundant, they are not. The assignment agreement is usually used in the context of an assignment of a patent application from, say, an inventor, to a company. The IP Agreement is usually more focused on the ownership of trade secrets, know-how and copyrighted materials. And the assignment agreement may be preferred due to tax reasons .
- – Consider IP Provisions
- – Consider Contract Provisions
- – Consider Governing Law and Forum Considerations
"In most cases, a long and expensive litigation in a remote location after a "quick" resolution for your business may be avoided by proper planning. Therefore, have an understanding of which jurisdiction is beneficial to you given the nature of your business and the factors they consider when enforcing its laws versus the expense and time it takes to litigate and defend disputes in such jurisdiction is extremely important.
Step 5 – Consider Exceptions
Understand that the process of customizing is about removing several things (like those that may be irrelevant to your particular situation) and adding new things (like those that are specific to your situation). With an exception to the foregoing, some companies may grant their employees broad rights to use and exploit the employer’s confidential information and/or IP in employee’s individual capacity (as opposed to the employer’s capacity).
Step 6 – Consider Dispute Resolution
Understanding the nature of the dispute, and your goals as to establishing a resolution forum, will help you to craft the most favorable dispute resolution section in your IP agreement.
Commonly Faced Issues in IP Agreements
Common pitfalls and challenges when drafting IP agreements (and how to avoid them)
As we’ve discussed in other articles like Things To Know When Drafting an IP Agreement, a poorly drafted agreement, or one that does not take into account the particular IP assets being dealt with, is going to cause you pain or on- going costs in the future.
Typical challenges to avoid are:
- Over- generalization or over- specificity of definitions and descriptions.
- Omitting parties – make sure counsel has undertood who the parties are and you have named all parties involved.
- Omitting clauses required by law – for example, employment contracts are bound by particular regulations so make sure you have included everything you were obligated to provide under employment contract laws.
- Not considering jurisdictional issues – remember that each country has its own laws.
- Overlooking dispute resolution measures – if you think there’s a possibility of disputes arising from this agreement, see if you can include a process to resolve them.
- Assigning IP ownership too early – if you are dealing with IP that is yet to be created, don’t assign rights until after it becomes created. Otherwise, you run the risk of losing the rights to it.
Legal Requirements and Considerations
It is essential to consider the applicable law; jurisdiction; and dispute resolution mechanism for the agreement. The parties often select the forum for exercising judicial authority based upon convenience and practicalities.
The governing law is the set of legal principles selected as the basis for application to the contractual relationship between the parties. For example, in the absence of an express provision in an agreement regarding the controlling law, a court will apply the law of the jurisdiction whose rules were applied to interpret the agreement. If the agreement is silent and sophisticated parties are from different jurisdictions, or one party is based in one jurisdiction and the other after-acquired/formerly based in a new jurisdiction, it may be prudent to specifically select one jurisdiction’s laws as the basis for contractual principles and remedies.
The jurisdiction of the forum is the specific court that will exercise judicial authority to resolve disputes related to and arising from the agreement. Often, the parties will attempt to select a court from one of the party’s jurisdictions. Such a decision requires additional considerations such as access to that jurisdiction from opposite party’s jurisdiction, business-interruption and related expenses; as well as the sensitivity of the underlying subject matter to IP. One party that may be at an economic disadvantage from having to travel to an inconvenient forum may want to negotiate for the consideration of the waiver of the terms in favor of the other party. In such a case, if the terms cannot be agreed upon, the party with greater economic power may need to accept terms that may be considered by the party with comparatively weaker economic power as unfavorable.
The appropriate dispute resolution mechanism will vary by the maturity and sophistication of the parties; prior history concerning business matters; including the relationship and its maturity; and the nature of the subject matter that warrants inclusion of dispute resolution provisions within the IP agreement.
Formal methods of resolving disputes include litigation and arbitration. Where the parties are sophisticated and the matters are sensitive, an arbitration clause may be appropriate. Arbitration is more appealing to sophisticated parties if the subject matter is particularly sensitive and/or the dispute may require the disclosure of trade secrets by the parties to a third party judge or jury. Another concern to consider in weighing the pros and cons of various dispute resolution mechanisms is confidentiality. Most arbitrators will maintain complete confidentiality. Litigants, on the other hand, are usually required to waive any confidentiality in their pleadings and disclosures.
Arbitration can be either binding or non-binding. However, it is important to note that states recognize their right, purporting to be based in common law authority, to regulate the arbitration process. Parties in favor of arbitration should make themselves familiar with state and federal arbitration laws.
In addition to those above, parties considering a dispute resolution mechanism should also evaluate the benefits of informal dispute resolution procedures. Conciliation is usually informal and may involve a conciliator. Mediation is also non-binding and may involve the help of a third-party neutral. Finally, evidence of an agreement to mediate may prevent a court action from proceeding under some state statutory frameworks.
The disclosure requirements relating to the agreement may have been addressed previously, according to the requirements of the particular country, and further actions and disclosures may be required.
Sample IP Agreement Template
The following is a sample outline of sections and provisions that should be included in a comprehensive IP agreement.
Background
Representations and Warranties
A. Making
B. Status
C. Approvals and Agreements
D. Assignee
E. Rights
F. License
G. Ownership
H. Title
I. No Other Rights
J. No Conflicts
K. Violation of Law
L. Violation of Rights of Others
M. Compliance with Law
N. Sufficient Information and Documentation
O. Disputes
P. Execution
Q. Indemnification
R. Key Employees and Contractors
S. Confidentiality of Information and Inventions
Covenants
A. License Grant
B. Protection of Intellectual Property Rights
C . Review of Inventions and Improvements
D. Review of Confidential Information
E. Escrow Agreement for Source Code
F. Audits
G. Use of Trademarks
H. Confidentiality
I. Non-Competition
J. Non-solicitation
K. New Personnel
L. Invention Assistance
M. Marking
N. Affiliation with Competitors
O. Due Diligence
P. Confidentiality Agreements
Q. Change of Control
R. No Liability
S. Governing Law
T. Escrow Agent
U. Assignment
V. Waiver
W. Interpretation
X. Modification
Y. Severability
Z. Notice
AA. Section Headings
BB. Survival of Rights and Obligations
CC. Hemisphere 3D, LLC Policy Against Infringement