What is an IP Agreement?
An IP (Intellectual Property) agreement is a legally binding contract that lays out the terms under which a company, individual, or business entity owns and uses its intellectual property. Intellectual property forms a crucial part of many businesses and organizations and provides a competitive edge and an important asset to be protected. IP includes categories such as trademark and copyright . As such, it is important that an IP agreement is reviewed and signed by all parties involved in the creation, development, and marketing, or other use, of the intellectual property. Failing to outline intellectual property rights can have negative consequences including, but not limited to, litigation, trade secret misappropriation, infringement, and possible misappropriation of trade secrets.
Categories of IP Agreements
There are several different types of agreements involving IP that are commonly used, including non-disclosure or confidentiality agreements ("NDAs"), IP licensing agreements, and assignment agreements. An NDA has become a common part of many business transactions where there is either sensitive information being discussed or if third parties need access to confidential information. NDAs are typically one-way (where only one party is disclosing information) or mutual (where parties can disclose confidential information to each other). The NDA will usually define what information is confidential and how that information can be used and disclosed. In addition, the NDA may include certain terms like a term of confidentiality (e.g., 5 years after the disclosure) and restrictions on reverse engineering, copy, and disclosing the information.
IP licensing agreements are commonly used to obtain the IP rights to a particular invention. A license agreement typically gives the licensee various rights in the licensed IP that the licensee would typically not have (e.g., may enable the licensee to use patented technology that otherwise could not). There are many types of license agreements, including exclusive license agreements. An exclusive license gives the licensee the exclusive rights to use the patent. Non-exclusive licenses are commonly used for software and apps as many times they are granted to the general public. In an assignment agreement, the assignor (i.e., assigning the rights) agrees to transfer ownership of the IP to the assignee.
Important Features in IP Agreements
The key elements of an IP agreement include the scope of rights, duration, territory, payment and other specific arrangements applicable to the relationship between the parties.
The scope of rights will need to balance the competing interests of the licensee and licensor. For example, a licensee will want to obtain the broadest rights possible in order to maximise its commercial viability while a licensor will seek to limit the scope of rights to only what is necessary for its current commercial uses of the IP and to retain rights to exploit (or obtain future rights to exploit) the IP on its own behalf or the right to license the IP to other third parties in the future without any obligation (or obligation to pay additional royalties) to the licensee.
Whether IP granted to a licensee is to be exclusive, non-exclusive, or fully exclusive is another aspect of the scope of rights issue. Exclusivity may apply to a particular territory, a particular field of use, and/or a particular period of time. The licensor may also require that the exclusivity only applies to a licensee’s own use of the IP and not a licensee’s use in connection with third party development or commercialisation of the IP.
Duration refers to the term of the licence or franchise agreement. It is typical for a licence agreement to have a minimum term during which the licensee will be obliged to pay royalties, patent maintenance fees or other payments. After that period it may be possible for the parties to terminate the agreement and vary their obligations if either party is not satisfied with the terms and the relationship. Alternatively, the agreement may continue indefinitely until one party terminates the agreement. Whether the licensee has any renewal rights for a new agreement and if so to what extent the terms and conditions may be varied, is an important consideration for both parties.
Territory refers to the geographic area or areas where a licensee is permitted to exploit intellectual property. A licence agreement may be international or restricted to a single country or region.
A number of payment terms will generally be agreed between the parties including one or more of the following:
These are some of the principal elements that are common across many IP agreements but the specific elements required for an IP agreement will depend on the nature of the IP being dealt with as well as the scope and complexity of the commercial relationship between the parties.
How to Draft a Proper IP Agreement
An effective IP agreement must address a number of key elements to ensure both parties understand their rights and obligations. The following steps should be taken when drafting an IP agreement:
Define key terms: The agreement should clearly define all relevant terms, including what constitutes confidential information, what rights are being transferred, and any restrictions that apply to the use of the IP. Avoid using overly technical or vague language that can lead to confusion. Identify the intended use of the IP: Be specific about how the IP can be used. If there are any limitations on use, such as geographic restrictions or purposes, these should be clearly outlined. Outline the IP ownership: The agreement should specify who owns the IP and what rights are being granted. For example, is the IP being licensed or sold? Are there any restrictions on the transfer of ownership? Consider any legal requirements: Depending on the type of IP, there may be additional legal requirements that must be addressed, such as registering the IP with a government agency. Address dispute resolution: Include provisions for how disputes will be resolved, such as whether they will be subject to arbitration or litigation. Have a legal professional review the agreement: It is important to have a legal professional review the agreement to ensure it adequately addresses legal requirements and potential issues. Consider the governing law: Specify the governing law that will be used to interpret and enforce the agreement.
By taking these steps and consulting with legal professionals, the parties to an IP agreement can ensure that they are adequately protected and that the agreement meets their needs.
Common IP Agreement Pitfalls
The negotiation of IP agreements, especially those that grant licenses, can be a protracted and contentious process, due largely to the number of issues that must be addressed. Because the stakes are high and there are so many ways to slice it, both parties typically have an attorney involved when drafting agreements. But that doesn’t mean the process will necessarily result in a fair agreement. The same is true if a company chooses to use an existing agreement (or template). Even if the attorney or template drafter has considerable experience, agreements have a tendency to target the previous deal more than the current transaction. Consequently, the common mistakes described here shouldn’t come as a surprise. This section addresses common mistakes in the context of IP assignments and licenses, but the concepts apply to all types of IP agreements.
Failing to have an IP Audit Introducing new technology into an organization’s portfolio may be the goal of the IP agreement. However, failing to analyze the existing technology (or the extent to which new technology will interact with the existing technology) may result in roadblocks not easily overcome during the life of the IP agreement. For example, if one partner has developed a tool to monitor other technology and engage in arbitration with another partner, does the other partner’s technology permit such monitoring and arbitration?
Failing to consider circumstances that might lead to competition between partners Related to the above is the failure to adequately think through the relationship and work habits of partners. For example, is the selling company in a position to sell a customer that is an end user of a key component to the technology? If so, the selling company has created a competitor.
Failing to consider market and industry trends The technology industry is for many companies the primary (or only) means of obtaining critical technology. It is also highly dynamic. Allowing frozen terms may be forforeseen at the time of the transaction, but would also be a mistake. Just as the existing technology should be reviewed , so should market trends and business models. The agreement should offer some flexibility in these respects.
Failing to manage the information flow (positive and negative). The purpose of many agreements is to enable the parties to share proprietary information. However, this is often accomplished at the expense of knowledge regarding what information is provided and how it is being used. Where individuals obtain technology and introduce its key features into their own technology, proprietary information can leak into one party’s lines of products and business processes. The problem is particularly acute (and costly) when trade secrets or long-term business strategies are shared. Consequently, sharing an access to information should be carefully evaluated.
Failing to consult IT professionals IT professionals are at the heart of technology and technology issues. It is therefore no surprise that agreements that affect technology should involve consultation with IT. For example, if a licensee is developing a platform to which a licensed program or software will be integrated, how does it integrate and test the software? Or for an assignment, how does the licensee transition the program? Questions like these may not immediately come to mind for a lawyer whose credentials are exceptional, but whose background is not in IT. These questions should not go unanswered.
Failing to account for business model shifts Product cycles, market saturation, and technological shifts frequently result in significant changes for a licensee. If the technology is a key asset, a license can remain essential even once the business model has changed. This situation occurred when WebMD purchased doctorsdirect, only to be left with a failure to integrate. However, on the flip side, a licensee that has entered into a subscription agreement that the licensor has attempted to leverage may now be in competition with the licensor. A licensee may be told that the license will not be renew because the licensor is revising its business model. The business model should be another consideration for both sides.
IP Agreements in Various Sectors
The technology industry, for example, typically relies heavily on licensing agreements. Software agreements or software development agreements require comprehensive licensing terms to ensure that any third parties do not use the technology without permission. Entertainment agreements may feature arbitration clauses, which are often required by studios and production companies, but rarely expected by the front end of the industry. And even in the manufacturing sector – a strategic sector for IP law – the actual agreement can depend on an individual organization’s structure. Some companies may use commercial agreements to develop products internally, while others license the technology required to manufacture their product.
The products being developed, manufactured, or sold are another determining factor in how an IP agreement is created. Not every product created in one industry requires the same IP agreements that other products do. A toy manufacturer may create IP agreements for its licensed character images, but the same company may not need to license the technology required to produce plastic molds if they engineer it themselves. This example is not limited to manufacturers, who often rely heavily on trade secrets and patents, but also in the technology sector, where a software developer may require different agreements if they only distribute the app, versus developing and publishing it in-house.
The actual IP agreement types used can also vary by industry, but it is not unusual for a single organization to use multiple related agreements. A software license agreement for example includes both licensing and distribution aspects, while an entertainment contingent workforce agreement often has both employment and employee relationships.
The Future of IP Agreements
Globalization, technological advancements, and regulatory changes are continuously impacting the IP landscape in which IP agreements are enforced. With the pervasive nature of technology, IP agreements are being utilized for various depths of collaboration on both a domestic and international scale. We are continuing to see the emergence of new commercial applications for IP agreements, which will inevitably evolve as we continue to innovate and come up with new forms of technologies.
We are in a period of time where the speed at which new technologies develop is increasing but the time necessary for those technologies to be regulated and fields to develop is lagging behind. We saw this with peer-to-peer file sharing of music requiring the amendments to the Copyright Act in 1997 (which brought in the "safe harbour") … and then later with the ownership of music streaming platforms within the Copyright Act in 2012, which left room for amendments in 2017 for other fringe issues that were not yet prevalent. Peer-to-peer file sharing applications and systems were not an issue when the Copyright Act was originally created, so it took the industry ten years after the emergence of file sharing technology before the legislation was amended. It seems to be the case that the IP agreements that we encounter today are essentially established and tailored around the technologies of the past. The same will be true for IP agreements of the future when it comes to how we regulate technologies of the future.
For example, with the introduction of autonomous vehicles, there will certainly be differing international standards that will develop with respect to IP rights, liability, and even the validity of the technology itself. Outside of the tech world, we have ISO, IEEE, ANSI, and other standards developing bodies creating technical standards for these new technologies now. You may now find standard licenses or technical standards that protect IP rights in these new standards. Imagine how this evolves over the next century.
Additionally , quick iteration cycles through the development phase of products and services have created a need to be able to iterate on and change IP deals more quickly than ever. We are witnessing the process of IP agreements becoming more iterative or agile in manner.
The question is whether we will continue seeing the required security (including indemnities) or whether we will see more or less in 50, 100, or 500 years.
We are also witnessing the increasing risk that bad actors are posing to the economy with the development of more sophisticated security threats or unethical disruptions of business models. We are seeing industry regulators and legal scholars trying to address this issue, but from a global perspective, the fragmentation of regulation and enforcement by the means of mutual respect rather than uniformity will be a key to success.
With respect to the United States currently, we will be interested to see the impact of the emphasis on reducing government regulations in areas like IP, and will use the opportunity to observe as best as possible. Unfortunately, there is no historical reference as many of our peer jurisdictions are well governed with respect to IP. It is apparent that government regulation enacted to protect IP is necessary to building a healthy and sustainable economy.
AI and various other technologies are evolving as we write this article. With major corporations focusing on acquiring IP, we will likely continue to be surprised by the IP deals we see unfold before us.
Ultimately, IP agreements are written by the intelligence of humans for the benefit of mankind. As we change as a species or even expand our capabilities (through gene editing, for example), there will still be a need for human oversight – at least we hope so. We can only imagine the possibilities and recommend being on top of trends as developments emerge.