This article has been written by Aarshiya Punera, pursuing a Certificate Course in Introduction to Legal Drafting: Contracts, Petitions, Opinions & Articles from LawSikho and edited by Shashwat Kaushik.
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Markets today are bustling. Businesses, companies, freelancers, and organisations worldwide are outsourcing, collaborating, and expanding more than ever. Food chains and marts are expanding their franchises. Startups and freelancers are constantly engaging among themselves, teaming and collaborating on R&D and other projects.
Such interactions among the different entities involve the trade secrets, business models, sales figures, know-how, and other confidential information of one being exposed to the other. The interactions are porous, as the intellectual property of one party is exposed to the other party. Therefore, there is a need to protect the intellectual property of the disclosing party from being exploited by others while also allowing the entities to collaborate, licence, assign, and fulfil their interests.
Why do IP rights need protection
Intellectual property is intangible. It does not exist in physical or material form like a property, a gift, or a house. The very reason that it is born out of human intellect and involves the hard work of the creator is why it is valued and should be protected.
IPs like patents, trademarks, business models, company sales figures, know-how, etc. are highly economical and are used by owners to alienate their competition and have an edge in the market. Trademarks help consumers connect a product with a certain brand. Patents establish an exclusive monopoly of the inventor over the invention and allow the invention to enter the market only through the owner. Trade secrets and know-how help food chains and businesses preserve their recipes and solutions, respectively. Copyrights prevent original literary, dramatic, artistic, or musical works from being exploited by others as their own.
Intellectual property rights promote and protect the exclusive economic rights of authors, inventors, businesses, and organisations. These original creations of the owner give them absolute, exclusive rights to use, reproduce, assign, exploit, and licence their intellectual property.
How does a contract protect intellectual property rights
As already stated, with the constant interaction among different entities, the valuable information of one entity is also exposed to the other. If there is no reassurance to the owner that his intellectual property and associated rights will be protected and he feels that they may be used against his benefit, companies, businesses, freelancers, authors, and inventors may stop collaborating and working on projects or R&D. In the long run, this might be disadvantageous to the consumers- who are at the receiving end of the market. Contracts and Intellectual Property Rights Agreements (IPRA) come to the rescue here!
Contracts are legal documents that are made by parties based on their terms and conditions. The rights and liabilities, duration, scope of work, obligations, penalties, etc. are all decided mutually by the parties. Contracts are thus tailor-made to address the apprehensions of both parties. IPRAs are legal contracts that specifically define, inter alia, how the IP of entities has to be dealt with.
Both of these documents protect the IPR of the owner in the following ways:
- Assert ownership: These contracts specify the ownership of an IP to an entity so that later it does not become a point of dispute and also so that the owner can assert his IP rights.
- Direct how IP is to be used: The contracts specify how and to what extent an IP is to be accessed, used, and shared among the parties. It also defines just how much information is to be disclosed by the parties to each other.
- Term of contract: These contracts define the term for which the parties are to share information and engage with each other. It also provides guidelines about how the IP is to be managed once the contract is over. (Post-Termination Obligations)
- Consequences of breach: These contracts also explain the relief available to the party in the event of its IP rights being violated by the other. Relief can be in the form of injunctions, compensation penalties, etc.
- Licencing and assignment: These contracts allow parties to licence their IP (either exclusively or partially) or assign them completely to another entity while enjoying the royalty and earnings.
Types of agreements that protect IPR
Non-Disclosure Agreement (NDA)
NDAs protect confidential information from being leaked. These are typically signed when the parties are in the negotiation stage of their deals. They allow parties to reveal their trade secrets, company structures, know-how, finances, and accounting for various collaborations, merger acquisitions, and R&D even before anything is finalised.
These contracts are also used by an employer and an employee, or an inventor and potential investors, while negotiating the terms of their deal without withholding anything material from the deal.
Licences allow other people to access and benefit from the IP of the owner. It gives licensees partial IP rights. The owner may grant an exclusive licence to a particular licensee, thus preventing others from using it, or may grant the licence to more than one person (Non-Exclusive licence). The owner benefits from them by earning royalties from the licence.
Agreements selling IP or assignments
Assignment refers to an absolute transfer of ownership of the IP by the owner to another person. Assignment transfers the title of the IP and the IP rights from the owner to the assignee.
Assignment is usually seen in employment contracts, where any invention or copyright by the employer automatically becomes the property of the employee and restricts the employer from selling it under his name.
Assignment of patents, copyrights, and trademarks is common in employment agreements.
When two businesses, companies, organisations, freelancers, startups, etc. engage with each other on R&D, projects, or joint ventures to create a new product, technology, or creative brand, it requires both sides to unveil some confidential information, figures, and models. Therefore, collaboration agreements are signed to protect the IPs that both parties reveal. It also determines the ownership of the new product or IP that will be developed.
Franchise agreements are mostly used by food chains and businesses that expand their businesses by allowing a person to replicate their business model, know-how, and trade secrets in exchange for some royalty.
Employment agreements are widely used by companies, agencies, and businesses when hiring and negotiating with potential employees. They allow companies and agencies to claim ownership of any IP created by the employee during his employment and prevent any dispute over the title of the IP later in time.
Important clauses to include in a contract protecting IP
Having discussed the importance of securing the IP rights of the owner through a contract, it becomes important to look at the most important clauses in a contract for protecting the IP. The inclusion of these clauses makes the contract strong, clear, unambiguous, and less likely to be a subject of dispute.
The following clauses are considered a must in IP contracts:
- Definition- The definition clause is extensively used for interpreting the meaning of the words used in the contract. It is advised that the definition of IP should be kept wide so that nothing confidential is left out. The broad definition also protects IP that is not registered. If the definition is limited, it allows parties to share and access information that is not protected by the contract.
- Term of the contract- The term of the contract specifies for how long the contract is subsisting and therefore specifies the duration of the period until the IP can be accessed by the parties. It prevents the unauthorised use of other’s IP beyond what is allowed.
- Ownership of IP- The insertion of this clause is highly recommended as it averts any dispute about the ownership of the IP at a later date. This is especially useful in Joint-Venture agreements where a new product or service is developed by two parties. This is also recommended in an employment agreement where any creation by the employee is, as a general practice, owned by the employer.
- Confidentiality clause- Parties, when forming a contract, share a multitude of pieces of information with each other. This clause specifies what information is confidential and is supposed to be treated as such. The party disclosing the information is advised to keep the scope of confidential information very wide to include all the information in it. On the other hand, the party that receives the information tries to limit the information that goes into confidential information to reduce its obligations.
- Representation and warranties- This clause is important as it lays down all the representations that were made by the parties to each other. It lists the information, the facts, and the disclosures made by the parties to each other so that, at a later date, one of the parties does not shy away from its disclosures. It empowers the other party, in the event that the first party makes any false representation, to avoid fulfilling its obligations.
- Obligations of parties- This clause lists the obligations and liabilities of the parties. It is advised to make this clause as comprehensive and clear as possible so that both parties are clear about their rights and duties. This also prevents any scope of confusion and helps put a person on responsibility.
- Post-termination obligations- Post-term obligations determine the rights and obligations of parties once the term of the contract ends. It specifies the date on which the contract terminates and how and by whom the IP is to be managed from that day on. It specifies how (if at all) the IP needs to be disposed of, destroyed by the party, or returned to the owner.
- Breach- This clause specifies the relief available to the party if the other breaches the terms of the contract. Relief can be in the form of an injunction, compensation, or penalty.
Intellectual property is a powerful tool in the hands of the owner. It can generate economic benefits for the owner and therefore it requires protection. IPR contracts provide protection and reassurance to the parties that their IP will be secured and allow them to engage freely with others to meet their interests. A good IPR contract is wide enough to encompass all confidential information in it. It clearly defines all the intellectual property. It contains all the clauses required to protect the IP of the parties.
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