Introduction
Intellectual property rights (IP), such as copyrights, design rights, patent rights and trademark rights, play an important and pivotal role in fostering collaborations between parties engaged in research, development and exploitation of products/services.
Addressing ownership and user rights is crucial when engaging in partnerships, and IP clauses have become indispensable components in various agreements. These include Non-Disclosure Agreements (NDA), IP license or transfer agreements, research agreements, distribution or manufacturing agreements, as well as joint venture and joint development agreements.
For businesses navigating the realm of intellectual property, leveraging written agreements that comprehensively cover the IP involved is a sound practice. However, drafting effective IP agreements comes with its challenges, contingent upon the specific circumstances of each collaboration. The considerations of the parties not only define the foundational principles of the agreement but also shape how the collaborative efforts and business transactions under the contract unfold.
In this article we will provide some valuable insights that can elevate IP contracts, providing a robust foundation for seamless business collaborations.
Strategy of the parties and IP due diligence
First of all, it is essential that the parties communicate their collaboration goals to ensure legal feasibility and anticipate any potential IP issues. It is crucial for the parties to have a clear understanding of the types of IP that may arise during the collaboration or will be included in the agreement.
Performing a thorough analysis of all IP information and documentation (IP due diligence) is imperative for parties engaged in a business collaboration or transaction. This analysis enables the parties to assess potential risks related to their IP and make well-informed decisions before entering into an agreement.
IP definitions
Defining IP is crucial to avoid uncertainty and potential conflicts between parties regarding the scope of their arrangements. Parties should explicitly outline the IP definition in their agreement. It is important not to restrict the definition to registered IP alone if a comprehensive understanding is desired, as this could inadvertently exclude non-registered IP rights, trade secrets, or confidential information.
While know-how is not strictly considered an IP right, it is often included in the definition, reflecting its significance in collaborations. Parties might even consider a separate definition for know-how, given its importance. While there is a general preference for a broad definition, in case of an IP transfer, the transferring party might opt for a more stringent definition.
Background IP
Background IP arrangements are crucial for parties entering into a collaboration. Background typically comprises knowledge, know-how, materials, or IP already possessed by one of the parties before the start of the collaboration or developed independently during and/or outside the scope of the collaboration. Defining 'background' is essential to prevent future misunderstandings regarding IP ownership and user rights of the parties. It is furthermore crucial that a party contributes only the background knowledge it is authorized to use in the project, ensuring compliance with third-party licenses. Also, each party is advised to protect its background IP by applicable means, including registration of IP rights or gathering evidence if registration is not possible or mandatory.
Foreground IP: Ownership, transfer and licensing
Foreground IP generally refers to the IP rights resulting from the cooperation between the parties. Clear agreements are needed on the ownership and usage rights of the knowledge, know-how, materials or IP generated during the collaboration.
In this context, it can be agreed that one of the parties becomes the owner of the IP, but also that several parties become joint owners of IP rights. Note that joint ownership of IP rights comes with the necessary restrictions and does not guarantee that the IP rights can be independently exploited by the parties individually. In case of joint ownership, therefore, clear agreements on the management of the rights and their exploitation are needed. This mitigates disputes and ensures a mutual understanding of rights and obligations of the parties involved.
If the exploitation of IP rights is done by a party other than the owner, there are two obvious options: transfer of ownership or IP licensing. In both cases the scope of the transfer or license needs to be clear and parties should outline whether the IP can be used for commercialization, sublicensing, and/or further research. Clarifying these rights ensures that both parties are aligned on the permissible uses of the IP, preventing conflicts in the future. Prior to committing to a written license or transfer, a thorough evaluation of pros and cons is essential to ensure equitable value exchange.
Moreover, IP owners hold the authority to permit third-party exploitation of certain IP assets within agreed limits. Determining the license scope—exclusive or non-exclusive—is essential, and in exchange, the third party pays the IP owner a license fee, like royalties, a lump sum, or milestone payments. Negotiating the license agreement's term and post-agreement scenarios, including exit clauses, adds depth to the IP management strategy.
Confidentiality
Confidentiality plays an important role in research and development collaborations, especially during negotiations where sensitive information is shared. To protect proprietary data and prevent potential harm to future business, it is essential to agree upon confidentiality and non-disclosure provisions. Initiating a cooperation with a non-disclosure agreement (NDA) or integrating a confidentiality clause in the main agreement establishes a legal obligation for the parties to maintain confidentiality and to prevent unauthorized use or disclosure.
In this respect, clearly defining the purpose of sharing confidential information is equally important. By outlining the purpose, parties determine the permissible scope of use of confidential information. The focus should be on assessing the impact a disclosure may have on the company and whether the impact is remediable. This clarity allows parties to identify breaches and to evaluate remedial options.
If employees are involved in the project, it is important to add another layer of protection, for example through employee confidentiality agreements. These agreements ensure the preservation of valuable know-how, requiring employees to maintain confidentiality even after project completion. Post-employment provisions, encompassing the return of property and confidentiality, secure the continued protection of sensitive information.
Termination
It is important to determine the duration of the cooperation and the conditions under which the cooperation and any rights of use can be terminated (in the interim). Usual grounds for early termination include the breach of contract by one of the parties, e.g. due to non-compliance with the agreed license conditions, and the bankruptcy or cessation of business operations of one of the parties. It is also important to properly define what happens to the IP after the termination of the agreement and whether materials and information must be returned.
Applicable laws and dispute resolution
Although parties are free to select the governing law of their IP acquisition agreements, typically, this will be the law of (one of the) parties’ jurisdiction. Especially in cases where the parties are located in multiple countries, it may be desirable to identify the types of IP that will be included in the agreement before the parties decide which jurisdiction applies.
Despite best efforts, disagreements may arise. Defining clear dispute resolution mechanisms, such as arbitration or mediation, is essential for swift and efficient conflict resolution. It minimizes the risk of legal battles, saving both time and resources, and empowers parties to collaboratively address issues.
Final remarks
In essence, each topic contributes to the overall success of the partnership, by providing a legal framework that safeguards the interests of both parties and streamlines a smooth research and development process. While these areas are essential, they represent only a portion of the agreement. To finalize a thorough and accurate contract, additional topics, including competition law and privacy issues, must also be taken into account.
Are you planning to initiate a research, joint development or other form of collaboration which involves IP, and do you have questions on the optimal way to document the partnership? Please feel free to reach out.
Christel Jeunink - Dieuwertje Bouchier
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