An intellectual property agreement can refer to a range of different agreements, or even a clause within an agreement. Whether you have been tasked with drafting an intellectual property (or IP) agreement, you have been asked to sign an intellectual property agreement prepared by somebody else or would simply like to know more about them, this article is for you!
In this article, we'll cover:
- What is an intellectual property agreement?
- What are the types of intellectual property most relevant to intellectual property agreements?
- When do you need an intellectual property agreement, and what should it include?
- Why is an intellectual property agreement important?
- What else should an intellectual property agreement include?
- Expert lawyers for intellectual property agreements
The article will focus primarily on IP agreements from a UK perspective.
What is an intellectual property agreement?
An intellectual property agreement is an agreement, or a clause, within an agreement or contract, that deals in some way with how intellectual property is owned, used or both. In this article we will focus on intellectual property licences, intellectual property assignments, consultancy agreements and intellectual property arrangements between employers and employees.
What are the types of intellectual property most relevant to intellectual property agreements?
Intellectual property is intangible property, including certain types of information, the expression of ideas and other creations of the mind. Businesses need to be aware of different IP rights to ensure that they own and protect what their employees or consultants create, do not infringe the IP rights of third parties and leverage their competitive advantage.
There are a number of rights attaching to IP, which differ between different jurisdictions. Those rights are referred to as intellectual property rights or IPR. In the UK, the IP rights most relevant to IP agreements are copyright, patents and trade marks.
Copyright
Copyright protects original artistic, musical, dramatic and literary works. It is the IP right that we see most frequently in the context of IP agreements, since it covers such a wide range of material including software, music, videos, graphics and books. In the UK, for most literary works, copyright lasts for 70 years following the author's death.
Patents
Patents are registered rights that protect inventions. They protect new and inventive technical features or products and processes, and in most countries including the UK, they last for 20 years.
Trade marks
Registered trade marks are distinctive signs or symbols that can be represented graphically. They can include brand names, logos, shapes and even colours, sounds and smells (although the last three are very difficult to register).
UK and EU registered trade marks last for ten years, but are renewable for further ten-year periods. The distinction and specific rules and differences between UK and EU registered trade marks, particularly since Brexit, is beyond the scope of this article but keep your eyes pealed for further discussion on these topics!
Businesses (and individuals) can also protect goodwill they have built up in any registered or unregistered brand names, logos and other marks used to distinguish their goods and services.
When do you need an intellectual property agreement, and what should it include?
If your business creates, relies on or otherwise deals with intellectual property of any sort, you will almost certainly need an IP agreement of some description. Taking the example of software, the question of who owns it, who has the right to use it and exactly what that use encompasses is crucial to many businesses because software is at the heart of what they do.
The kind of agreement, or clause within an agreement, will depend on the circumstances. Below we list some of the key reasons for entering into IP agreements, explain which type of agreement or clause you will need and what should go in it.
Protect employee creations
When employees create works or inventions during the course of their employment, the default legal position in the UK is that IP rights attaching to those works or inventions will belong to the employer, unless there is a different arrangement in place. However, we always recommend that employers record the position in writing (usually in the employment contract) so that there is no ambiguity, and to deal with any specific circumstances that may apply.
There is a constant stream of intellectual property litigation cases involving IP rights and employees, which shows how important it is to get this right.
What should the clause say?
The clause should confirm that the intellectual property rights in any works or inventions, which are created by the employee during the course of their employment, will vest in the employer automatically upon creation. The clause should also state that, if the rights do not vest automatically, then they will be held on trust for the employer (this just gives the employer an extra layer of protection).
Employers may also wish to include a waiver of moral rights. Moral rights are certain rights that individuals have in relation to works they have created, aside from copyright, such as the right to be identified as the author of a work, and to object to the derogatory treatment of that work. However, this is more important when it comes to commissioned works – third parties are more likely to try and assert their moral rights than employees are.
The precise wording of these clauses will always depend on the circumstances of each case, and employers should include more detailed and specific in employment contracts for employees who are in technical or creative roles who are likely to be creating significant works or inventions as part of their role.
Protect works or inventions created by sub-contractors or freelancers
If a business engages sub-contractors, freelancers or any other third parties to create and works or products for them (logos or other artwork, software, written materials such as website content or anything else), the default position is that the third party will own the copyright in whatever they create. Therefore, the business should have a contract in place with them which deals with IP ownership and use.
What should the contract or clause say?
The content of the IP contract or IP clause will depend what has been agreed between the parties. The party hiring the consultant will want to ensure that the contractor assigns by way of present and future assignment all IP rights in the deliverables, immediately on creation. They will generally also include a further clause in which the contractor acknowledges and agrees that all IP rights created will be the sole and exclusive property of the hiring party, and a waiver of moral rights.
The consultant may wish to retain the IP rights in background materials (sometimes referred to as pre-existing IP). Background materials are materials a consultant may wish to use again in other projects, or have used in previous projects. These could be templates or fonts. If that is the case, they will need a specific clause carving out background IP (or pre-existing IP).
License IP from third parties
If a business needs to use products, solutions, content, materials or services provided by a third party, they will need a licence to do so. For example, many businesses will need a number of software licences in place which grant them the right to use all third party software products that they use, in the way that they need to use them.
What should the licence include?
When preparing or reviewing IP licences, it is crucial to consider (amongst other things) exactly what the business needs to use it for, how long they will need to use it and who will need to use it.
Taking a software licence as an example, the business will need to ensure that there is an appropriate "scope of use" clause, setting out what the business can and cannot do with the software – for example, whether it can be integrated with any other software or platforms, whether it can be sub-licensed and whether it is exclusive or non-exclusive. The business will also need to ensure that the term and termination provisions give them scope to use the software for as long as they anticipate needing it, with flexibility to terminate the licence and/or a mechanism to renew it without a right for the provider to increase fees, if appropriate. They will also need to check that there are enough user licences to cover the people who will need to use it.
Why is an intellectual property agreement important?
As we have discussed above, intellectual property agreements are crucial in ensuring that any IP that you create, use, commission, or otherwise deal with during the course of your business – or the sale of your business – is properly documented. There a number of good reasons for this, which we have touched on above. To summarise, the key reasons are:
- To ensure that you own the intellectual property rights in any works or inventions that your employees or consultants create;
- To minimise the risk of infringing the intellectual property rights of third parties, and becoming involved in expensive and time-consuming litigation; and
- To maximise the value of your business.
What else should an intellectual property agreement include?
We have been through the main types of intellectual property agreement above, and the content of those agreements will obviously differ according to the type of agreement, and what has been agreed. However, there are some key clauses and principles that will apply to almost any contract – set out below is a list of clauses and issues to consider, whatever type of contract or clause you are preparing or reviewing.
Intellectual property rights
The intellectual property clause is obviously the key provision in any IP agreement, and it should cover all of the issues mentioned above: who owns what, whether there are any exceptions or carve outs, territorial scope, any relevant licence or assignment and appropriate indemnities covering allegations of infringement in relation to IP provided by either or both parties.
Confidentiality
All IP agreements should include a confidentiality clause (sometimes referred to as an NDA) setting out each parties' obligations to keep the confidential information of the other party confidential, subject to certain exceptions. Confidential information will need to be defined, and should include all information of a confidential nature, whether or not it is labelled as such.
Warranties
In consultancy agreements and IP licences, the party paying for the IP (whether that is a business paying for a consultant's services or paying for a licence of some description) will want to ensure that there are appropriate warranties from whoever is creating or licensing the IP. Of course, those warranties will depend on the circumstances, but some of the key warranties that businesses should consider include:
- For businesses hiring a consultant: warranties that the contractor's work is original and does not infringe any third party intellectual property, and warranties that the contractor is the sole owner of the relevant IP and has not licensed or assigned it elsewhere.
- For licensees (taking software as an example): warranties that the supplier has the right to grant the licence, that the software will conform to the relevant description/specification, and that the software will be free from defects for an agreed period of time.
Of course, consultancy agreements and licences will generally be subject to negotiation between the parties, so the hiring party/licensee may not always be able to secure all of the warranties they want. However, the important thing is to be clear about what you want, and try to ensure that any compromises are reflected in the price.
Indemnities
An indemnity is an arrangement whereby the indemnifying party agrees to cover the loss suffered by the indemnified party in specified circumstances. In the context of IP agreements, the party paying for the licence/consultant/IP generally seeks an indemnity that the intellectual property being provided does not infringe the intellectual property of any third party. If it does, then the indemnifying party will cover the costs of defending the IP claim, subject to any limitations on liability.
Limitations on liability
Limitations on liability clauses specify the maximum amount for which each party is liable to the other in respect of different types of loss. The level of liability that each party will seek will always depend on the circumstances, but generally speaking the party paying for the IP/licence/consultant's services will be seeking a higher cap on liability to cover the losses they may suffer if there is an issue with the product/service they are paying for, and the party providing the product or service will be seeking to limit their liability as far as possible.
Limitations of liability clauses come in many shapes and sizes and there is no one-size fits all approach.
Expert lawyers for intellectual property agreements
In conclusion, IP agreements are crucial in almost any business. Drafted carefully, they will ensure that businesses own and protect the intellectual property rights in works created by employees and consultants, have the rights to use the products and services that they need to, and maximise the value of their business.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.