Contracts are part and parcel of business activity, including how IP rights are managed, exploited and transferred. Confidentiality agreements, licences, mergers or acquisitions, sale or divestment, employee-inventor remuneration agreements… these are just some of the types of contracts that can touch on a company’s IP portfolio.
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, not only to ensure they protect their valuable IP rights from theft or accidental lapse, but also to maximise opportunities to increase the value and income of their IP portfolios. To do so, however, such contracts need to be monitored, centralised or controlled by or with the internal IP department.
Tracking IP-related contracts
There are a number of defined contract types that businesses typically need to call on as their business evolves and grows. The most common of these are as follows:
- Transfers of ownership/assignments
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.
- Licence agreements
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.
- Joint or co-ownership agreements
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. Clarifying ownership of IP rights is particularly important in cases of collaborative innovation.
- Co-existence agreements
This type of agreement enables brand owners with conflicting trademarks (e.g. similar names, but registered for different classes) to agree and record terms for their co-existence; for example, not to move into the other party’s industry sector.
- Security assignments/charges over IP rights
When IP rights are used to raise finance or secure debt, 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.
- Manufacturing (licence) and confidentiality agreements
Such contracts commonly come into effect when a company enters into a new manufacturing or sales arrangement and needs to protect ‘soft’ IP rights, such as processes, manufacturing formulas, trade secrets and innovation that is not patent-protected, etc. The contracts provide a form of protection wherein a third party is entrusted with important technical information in order to exploit it. It is also important to ensure that employee contracts specify that all confidential information and know-how information is the property of the company.
Best practice in contract management
Of course, defining and agreeing the contract terms is only the first part of the contract management 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.