This article is written by Meera Annie Koshy pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from Lawsikho.com.
Intellectual Property (IP), is an intangible asset created by human intellect. Business Organisations can utilise the competitive edge provided by the IP to accelerate business growth. The ownership Interest in the Intellectual property like any other property can be Assigned, Licenced or Otherwise conveyed to third parties. IP rights are valued and traded internationally. The significance of IP in international trade has led to TRIPS (Trade Related Aspects of Intellectual Property Rights) agreement in the WTO. The TRIPS agreement Provides for minimum standards of protection of IPR for member states.
The most common forms of IPR are Patents, Trademarks and Copyrights. Apart from these there are Trade Secrets, Designs, Integrated Circuits etc. These protections foster the growth of knowledge-based industries, stimulates international trade in IP rights and encourages investment and technology transfer. Some countries recognise other forms of IP rights also. Besides, different jurisdictions provide different protections for the same right. The IP owner can choose to exploit these rights or may Assign or Licence the same to third parties for consideration. The transfer of these rights is affected through an IP assignment agreement. Whether you are seeking to commercialise your own IP or obtain third party IP it is important that your Agreement operates effectively to ensure that both the transferor and the Transferee is adequately protected.
Transfer of IPR
Monetisation of IP rights by exploitation by third parties through transfer is very significant in today’s scenario. Sometimes Owners of IP may not be in a position to exploit the same due to lack of capital or lack of expertise for commercial exploitation, Inventions made by research scholars is a classic example. Transfer of IP rights can be by way of:
Whether the transfer is a permanent transfer by way of an assignment or temporary transfer under licence, there is some due diligence to be completed by both parties even before deciding on which form of transfer will be most appropriate for the purpose for which the right is transferred.
All statutes relating to IPR recognises transfer of IP rights.
Determine the rights in the form of IPR
This has to be confirmed before drafting a transfer agreement. Sometimes there might be trade secrets or Confidential information associated in addition to a registered form of IP. IP may be registered or unregistered in India or abroad. Besides the same IP rights may be given different protection across jurisdictions. Example, protection given to plant variety in India and US. Besides the rights in one form of IP will also vary across jurisdictions. Like Compulsory licencing for Patents.
Let us examine the most important factors that needs to be considered for a compliant transfer of IP rights.
Ownership of IP
The first step is to ensure that the IP to be transferred is exclusively owned by the transferor and he has the right to make an effective transfer by way of assignment or licence. IP may be registered or unregistered. If the transferor and the transferee are from different jurisdictions, identify the registration requirements and the rights associated with the IP to be transferred. Ensure that the IP is legally recognised in both the jurisdictions.
Licence or Assignment
The registration requirements for each right are different across jurisdictions. If the registration requirements are not complied with the transfer may be invalid. It is often advisable to have country specific IPR transfer agreements if there is considerable difference in law applicable to the same IPR in different jurisdictions. Let us now examine the important clauses of an IPR Transfer Agreement.
Parties and Recitals
This is the preliminary part of all agreements. Ensure that the parties are identified properly with their address and jurisdiction. In case of corporate entities, the jurisdiction of their incorporation and the statute under which it is incorporated is to be mentioned. The Effective date and the place in which the contract is signed should also be mentioned in the preliminary part.
Recitals should mention the circumstances that led to the agreement, how and why the contract was made. In short it explains the context and background of the transfer.
The definitions clause should mention all the terms that are used in the contract with special emphasis to the IP transferred and all the related terms. Definitions can also be used to simplify the drafting process. For example, in a copyright assignment agreement where only the right to translate is assigned then it can be brought under a definition “Assigned Rights “and thereafter throughout the agreement this term can be used. All defined terms will have the meaning attributed in the definition’s clause throughout the agreement. Also do not forget to include a definition for all non-registered IPR which are included in the transfer.
Scope and Object
The agreement should define what IP is being transferred to the other party and what are the rights transferred to the other party.
In case of an Assignment the rights assigned should be clearly identified and the extent to which such right is assigned needs to be specified. In some cases, like technology transfer agreements along with the registered IP some technical know-how and trade secrets may also have to be transferred for proper exploitation of the right. Additionally, the territory in which the assignment has effect should be laid down in the scope.
In case of the licence this clause must specify whether it is exclusive, non-exclusive, whether the licence is worldwide or limited to a particular territory. Additionally, there are cross licencing agreements, where the parties licence their IP rights to each other. In sublicensing agreements, the original licensee grants the right to a third party. The scope of the original licence agreement should include the right to sublicence in such cases.
Improvement in IP Transferred
In some cases, like patents in the course of use the transferee may come up with improvements on the IP transferred. Parties should decide in advance who owns the improvements whether it is the transferee, the transferor or whether it will be jointly owned by both the parties.
Consideration and payment
There must be an exchange of value for the transfer. It may take the form of lump sum money or royalty, employment, Investment or other forms. Cross licencing is an example of another form of consideration where one technology is transferred as consideration for another technology. Part of the revenue generated by the transferee with the IP may be given to the transferor in the form of royalty.
The mode of payment, the time and frequency of payment in case of periodic payments and the penalties for late payments may be laid down in this clause.
Obligations of Parties
A detailed description of all positive and negative obligations to be fulfilled during and after the term by all the parties should be laid down in this clause. Positive obligations may include obligation to report breach, negative obligation may include non-compete clauses. Some obligations like confidentiality obligations continue even after the expiry of the contract. Obligations like non solicitation may continue only for a certain period after expiry.
Assistance and training by transferor in case of patent, Obligation of the transferee to pay royalty etc. will come under this clause.
Term and Termination
The duration for which the right is transferred should be laid down clearly in the term clause. A provision for renewal may be added to the term clause.
The termination clause lays down the conditions under which a contract may be terminated before the expiry of the period. This may be termination for cause or convenience. A breach by one party which remains unaddressed for a certain period which is specified in the contract as the cure period can lead to termination for cause.
Consequences or effect of termination may be laid down in advance.
If any dispute arises between the parties in future there must be a process for resolution of the same. Usually, parties prefer alternate dispute resolution methods like mediation or arbitration rather than going to court. The number of arbitrators, the governing law and the seat of arbitration will be laid down in this clause. The parties may agree that the arbitrator’s decision shall be final.
The agreement and the disputes arising from the agreement needs to be governed by the laws on one particular jurisdiction. In many IP transfer agreements, the parties may be from different jurisdictions. It is advisable to clarify the governing law in advance so that there will be no disputes relating to the law to be applied in case of future disputes.
Representations and Warranties
The transferor of the IP has to warrant that he is the sole and absolute owner of the right he is transferring either through a licence or assignment. This is one of the conditions precedents for an IP transfer agreement. Additionally, the transferor also has to represent that the IP which is transferred does not infringe any third party’s rights. The transferor will be liable to indemnify the transferee against any consequences arising from the defective title of the transferor.
Registration of Transfer
It is advisable to register all the transfer agreements especially the assignments. Some jurisdictions insist on registration of all transfer agreements with the relevant authority.
In this era of trade and commerce Intellectual property plays a major role in the economy. Owners of IP rights earn revenue through licencing and assignment of rights. Owners of trademarks earn a huge revenue from licencing of the trademark. Copyrights assignment is very prevalent in the entertainment industry. Patent and related know is transferred in technology transfer agreements. Whatever be the IP and the form of transfer a carefully drafted agreement will go a long way in ensuring a successful transfer.
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