Contracts are used to regulate and legitimize essentially all business transactions. They are, of course, appropriate instruments in contexts other than standard buy-sell and employment agreements. Any situation involving a reciprocal exchange of promises will almost always need the use of a formal, written contract. This is certainly relevant when significant intellectual property (IP) is under consideration. Contracts must be employed by companies with valuable IP to ensure that their internal employees and any external vendors or consultants who have access to their IP information act responsibly, regardless of the timing or duration of that access. Furthermore, corporations must clearly indicate who possesses the proprietary rights over the IPs to employees who are involved in or responsible for IP development.
The symbiotic link between copyright and contract law is examined in this article. The intellectual property bargain, or the delicate balance that purportedly exists in present IP laws, cannot simply be viewed as a matter of property laws stating a balance. A major characteristic of IP dispersed in the open market has always been the connection between IP and contract norms, and that interaction is central to whatever balance has been established. It is pointless to focus exclusively on the statutory provisions of copyright, patent, or trademark laws when discussing a current balance in the property rights sector. IP contracts deal with a wide variety of rights that can be assigned, or licensed to any other person or organization. It is necessary to grasp and incorporate the fact that the policy approach has always assumed that property rights are frequently transferred, waived, or released. The clauses adopted in such contracts, on the other hand, must be designed with extreme prudence and care.
Finally, firms can impose IP protection through a variety of contracts, including confidentiality and non-disclosure agreements, non-compete agreements, and property or assignment agreements, among others. Regardless of which contract is best for the situation, any IP-related contract must include the following provisions:
These are important factors in an IP contract that should be considered while drafting these agreements:
- Confidentiality
To safeguard the owner, a confidentiality clause is required. Because there has been a significant increase in technological knowledge, further security measures must be taken to secure the work, and hence a secrecy provision prohibits and binds the other party from disclosing the creation’s integrity. Patents, copyright, and trademarks are instances of intellectual property that have been published and are thus publicly accessible. They are, however, frequently used in conjunction with other confidential know-how to generate commercial outcomes – and such sensitive know-how must be kept confidential.
Contractually requiring tight confidentiality is perhaps the most important part of any IP arrangement. Companies must be exceedingly proactive, take extraordinary security precautions, and remain watchful to potential intrusions or data misappropriation as technological innovation thrives and competition grows. Undoubtedly, despite a company’s investment in the most advanced security measures, essential IP can be exposed purposefully or inadvertently owing to human frailties.
As a result, a robust contract that explicitly imposes an obligation to maintain secrecy, as well as serious repercussions for failure to comply, will dissuade irresponsible and/or malevolent action. Employees who are aware of the potential consequences of disclosing a company’s information are significantly more likely to take the necessary safeguards and follow any IP-related security policy.
Confidential Information Access
Conditions for access to know-how and confidential information by parties’ employees, consultants, or representatives must be stated in order to safeguard confidentiality in a realistic manner. Standards for guaranteeing the security of secret information might also be stated.
- Ownership of Intellectual Property Used or Created Over the Duration of the Relationship
The contract must state clearly who will be the owner of the intellectual property that is being used or constantly developed throughout the duration of relationship. Even if the connection is later terminated, the ownership status of the IP should be clearly stated. This is a common dispute in which an employee chooses to leave his job after the creation of the IP and wishes to take the creation with him on the assumption that it was developed by him. However, the fact that it was made while he was employed does not give him the right to own it, which must be expressly stated in every contract.
Disputes over IP often emerge when an individual resigns from the employment at the organization severs a relationship with external associates. Employees and consultants who contribute to the creation and development of IP may believe they have the right to take it with them when they depart. Even if this is acceptable to a corporation, it must be determined from the beginning to avoid costly misconceptions. In most circumstances, a business expects to keep ownership of whatever IP it develops. To avoid misunderstanding, this proprietary intent must be made abundantly explicit in any relevant contract.
- Access
A contract must unambiguously indicate which individuals are authorized to access the IP, when they may access it, and for how long they will have access, in addition to declaring explicitly which party will retain property rights over the IP. In some situations, a non-compete agreement may prevent an employee from working in a related area for a period of time after leaving a company. However, the extent and length of any such agreement are limited, and a former employee may presume that he or she can still refer to IP information that was created with their participation. Even if a corporation grants such access to current or former employees, the manner in which such access is granted must be specified in a contract. Companies may, for instance, aim to make sure that information is accessed through a secure server or a tightly managed data repository. The requirements for access to IP within a corporation must be clearly specified.
- Indemnification
IP indemnification on IP representations and warranties, can be used to hold a seller liable for violations of IP representations and warranties. These aren’t the only types of breaches that might trigger indemnity in a contract, but in contracts where IP may not be the main emphasis, the IP-related indemnification clauses can get neglected during negotiations, which can lead to dispute later if a claim occurs.
In discussions about IP indemnity, the scope and duration of indemnification should be addressed. The seller will aim to reduce the amount of time it can be held liable for indemnification, while the purchaser will seek a longer survival period. The seller will also wish to try to limit its indemnity liability, though this can be challenging. If there are restrictions in place for breaches of general representations, the seller may seek comparable caps for IP breaches, but the acquirer is more likely to push for a larger cap. Acquirers may also try to have specific matters exempted from the cap (i.e., fraud claims, and intentional breach). Control of claim defense is another area where IP indemnification is being negotiated. The seller may want to demand control considering he or she will be more compelled to resolve the claim if the acquirer has control and simply forwards the invoices to the seller.
In the event of an IP license, which may be a stand-alone agreement or a component of a larger agreement, indemnification terms may oblige the licensor to extend its IP protection to the licensee if and when a third-party IP dispute arises. It is critical for the indemnifier to understand what he is committing to indemnify, regardless of the type of IP matters that may be indemnified.
- Recourse
A contract must clearly point out the consequences of any breach of the agreement in order to have the bite it requires. It will not be adequate to utilize vague descriptions like “such fines or litigation”. It must be apparent to the person who will be signing the agreement that the company takes the security of its IP very seriously and will aggressively pursue any and all legal remedies available. In the unfortunate event where valuable IP is misappropriated, there should be no ambiguity regarding the next course of action.
- Intellectual Property Documentation and Records
Sophisticated contracts may include a system for recording and documenting the IP developed throughout the course of the relationship (e.g., by creating specialized lists) so that it can be identified. This allows for improved future valuation of IP and enhances the potential to monetize such property through full or partial assignment, depending on the interests of the parties.
- Termination/ Breach of Contract
Contracts must explicitly specify the consequences of breaching the contract. Because a vague definition of such termination/cancellation/penalty clauses might lead to years-long tedious legal battles, an ironclad contract with respect to penalty clauses is required. There should be no ambiguity or vagueness in a contract.
Author: Vinita Gaud, Pravin Gandhi College of Law
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