Intellectual Property Clauses in Mining Services Contracts - an Introduction for Commercial and Legal Professionals
The status of intellectual property (IP) clauses in a contract
The primary focus of the parties to a mining services contract is often on the goods or services, their price, and the commercial schedules. IP is often a secondary consideration, but is an essential part of the contract. In this article we highlight some key issues and relevant principles for you to consider.
Why is IP particularly important in mining services?
Many mining technology improvements will involve methods, information and inventions that are IP. We have recently acted on a technology joint venture which will potentially create significant value and IP for a junior miner. Maximising and protecting IP can be a competitive advantage in the mining services space.
What kinds of material are IP?
IP for mining services contracts can include data, software, inventions, reports, guidelines, procedures, business methods, and designs that have been developed for or are part of:
- computer software
- business and operational methods
- specialised know-how
- geological information
- proprietary tools.
In more technical legal terms, IP is often very broadly defined in a contract to include a broad range of rights, whether registered or not, such as:
- innovation patents
- trade marks.
This definition is also commonly expanded to include items such as confidential information, trade secrets, know-how, business names, and domain names.
IP may be held in computer files, paper documents, registered rights such as patents and innovation patents, and in the knowledge of staff.
How can you protect your IP?
There are two key methods for protecting your IP:
- security systems and procedures
- registrations, contractual mechanisms and legal action.
No security system is watertight and therefore both methods of protecting IP should be used. Further, both means of protecting IP should be specified in the relevant contract. Insufficient attention to the need for protection of IP in a contract may expose parties to future disputes.
The longer the life of the IP, the more protection is required. Short life IP such as techniques that are context specific may not require as much protection as long life IP such as an algorithm to solve a common problem.
From a contract point of view, well-drafted IP clauses will:
- reduce the likelihood of misunderstandings arising between the parties
- make compliance simpler
- make any future legal action to protect IP more likely to succeed because the IP clauses clearly define the IP and the limits of how the parties may use and handle it
- deter those trying to misuse IP.
The civil remedies available through legal action can compensate for some or all of the loss suffered as a result of IP infringements. For example, the remedies available under statute for copyright infringement include injunctions, and damages or account of profits.[i] In some cases, criminal liability applies[ii].
What are the types of IP dealt with in a mining services contracting context?
There are three main types of IP:
1. Background IP – IP that is owned by a party to the contract that:
• already exists prior to the contract; or
• comes into existence during or after the contract’s term, but is developed independently of the contract (e.g. through R&D expenditure).
2. Third Party IP – IP that:
• may be provided by one of the parties to a contract; and
• is owned by another person/company who is not a party to the contract (e.g. Microsoft).
3. Project IP – IP that is developed during the contract by one or more parties to the contract (e.g. a new procedure, tool or data).
Background IP and Third-Party IP may be used to meet the requirements of the contract, whether as a tool or reference, or built into the goods or services used for the contract. This IP may have been obtained under a licence agreement or is owned by the supplier or the client.
Project IP may be part of the deliverables under the contract or may be incidental to the contract.
What kinds of mining services contracts need to make provision for protecting IP?
IP may be the subject of the contract or ancillary to the contract - in both cases the contract’s IP clause should be carefully considered.
A contract which at first glance appears to be solely for the supply of goods will often include the supply of IP. For example, a computerised mining machine may utilise inbuilt IP in the form of control systems and other technology from the supplier and from third parties. The supply of services will generally involve IP in the form of skill sets and methods that are based on IP belonging to the supplier.
What is the impact if an IP clause is not well-drafted?
For the supplier, an IP clause that is not robust in a legal sense may result in considerable financial loss if the IP is a key part of their business. The supplier may also be exposed to litigation if IP belonging to a third party is inadvertently or deliberately allowed to be used without the permission of the owner of the IP.
The client may be exposed if the client’s Background or Project IP is taken by a supplier and used or given to a competitor. As for the supplier, the client may also be exposed to litigation if IP belonging to a third party is inadvertently or deliberately allowed to be used without the permission of the owner of the IP.
The test for who “created” and who owns IP can be complex. This should be examined on a case by case basis.
Where one or more persons create the Project IP, then the Project IP will sometimes be jointly owned. The terms of the contract may alter this, as explained below.
Joint ownership of IP
Joint ownership of IP can create complex IP management issues. In the absence of agreed terms, with respect to copyright (e.g. reports, manuals, software), confidential information and trademarks, a co-owner is able to prevent any other co-owner from exercising the normal rights in the intellectual property – for example:
- the right to copy (for copyright)
- the right to disclose the confidential information (for confidential information)
- the right to apply the mark (for trademarks).
There is more flexibility in the use of IP embedded in registered jointly owned patents. A co-owner can exploit the IP in a jointly owned patent but cannot assign it in any way to a third party or grant a licence[iii].
Joint ownership of Project IP may be the subject of considerable negotiation between the supplier and client during contract negotiation, but should ultimately be clearly defined in the contract to avoid future disputes.
An alternative to joint ownership is for one party to own the IP, but to provide a broad licence to the other party or parties. A broad licence can provide IP user(s) with all of the rights they expect to need.
The key issues with protecting background IP are:
- identifying the IP before the start of the contract
- proving who the IP belongs to
- agreeing the scope of any licence of the IP
- agreeing on how the background IP will be protected and maintained.
An implied licence for background IP may be claimed if a licence is not expressly created in the contract. However the implied licence may not meet the expectations of the IP owner and user in terms of how the IP may be used so it is much better to contractually agree written terms. Such background IP could include IP:
- embedded in the Project IP; or
- necessary to gain the benefit, or to maintain or update, the Project IP.
Third party IP
As mentioned above, problems can arise if, for example, a client or subcontractor provides access to IP sourced from a third party which they do not have a right to or only have a licence to for their own use. Unauthorised use of the third party’s IP would be potential grounds for a letter of demand, court proceedings, or other disruption.
All third party IP should be clearly identified, appropriately licensed or sub-licensed, and conditions for use clearly stated in the contract.
Ownership of Project IP or a licence of Project IP on favourable terms can enhance the competitive position of the supplier, although the client will be cautious of any arrangement that ultimately also benefit its competitors.
At a minimum, a supplier will need to obtain a licence of the Project IP for the purposes of performing its obligations under the contract. It may also want to obtain rights to use the Project IP to:
- share in or generate its own revenues from licensing or future exploitation
- add to its tools of trade
- improve work methods and documentation
- conduct training and internal reviews.
There are many other ways in which these rights can and should be defined, such as by geographical area, time, exclusivity, and any rights to transfer or encumber. The terms of any licence will depend on the interests and bargaining power of the parties.
A customer will need to ensure it gains all necessary rights for the proposed commercial exploitation of the relevant Project IP. Ancillary matters such as transition support and the format of deliverables support the primary Project IP clauses.
Can an IP clause provide protection after the end of the contract?
IP clauses are usually drafted in a way that protects IP after the end of the contract. This can include restrictions on use, and destruction or return of IP to the provider of the IP.
While the immediate focus for a business seeking to enter into a mining services contract may be on securing or awarding the work, IP-related issues can be business-critical in both the short and long term. Well-drafted IP clauses are an essential part of the reward system of a mining services engagement and should be carefully considered.