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INTELLECTUAL
PROPERTY CONTRACTS

CERTIFICATE COURSE

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DEVELOPED BY

MODULE - 4

IP CLAUSES IN AGREEMENTS

4.1 INTRODUCTION ensure that, where relevant, your IP is covered in
those agreements.
There are many ways in which Intellectual Property
(IP) owners can protect their valuable assets. The Protecting and managing IP through well-drafted
most apparent ways are to register the IP in relevant agreements is a key for business success. If one owns
jurisdictions and then enforce that IP right against a business and entered into contracts with others for
infringing third parties. There is, however, a very various purposes. However, one may not fully
practical and pre-emptive way of protecting your IP understand the legal implications of contracts that
on a commercial level in your relevant contracts. A require you to provide a product or service
large proportion of the value of your business is implicating some form of intellectual property, such
derived from IP due to its presence in your everyday as trademarks, copyrights, patents and trade secrets.
business. Nowadays, the value of a business is Therefore scrupulous care while drafting provisions
increasingly linked to its intellectual property (IP) that protects its valuable intellectual property
assets, which are becoming more important in many interests is required to be taken. It is always
sectors. IP can create value and revenue in a number important to remember that each word in a contract
of ways: it can be sold or licensed, contributed as has meaning and legal effect. Clarity is the key. These
capital in a joint venture, offered to enter into “intangible property’ rights and interests may be of
strategic alliances, integrated with a current considerable value to a company moving forward. In
business, or used to create a new business. The such cases, it is therefore crucially important that the
people and companies that SMEs do business with, contract clearly and concisely address the issue of
and therefore contract with, will often use your IP to ownership of any intellectual property. It may be
varying degrees. When doing business that involves beneficial to your company to retain ownership of
your IP, there are two key points to bear in mind: this intellectual property. In that case, a company will
always use written contracts wherever possible and want to insist that the contract contain a clear,

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express provision that both identifies the intellectual otherwise, that the agreement does affect the
property that is subject to the agreement and that ownership of their intellectual property. These
ownership of it will remain with your company. clauses dictate how Intellectual Property created
during the agreement, by one or both parties or will
The Intellectual Property clause handles the be owned-either solely by the party that created it, or
ownership of all intellectual property related to the jointly between the two parties as co-authors.
agreement, including each party's pre-existing
intellectual property. The Intellectual Property 4.3 IP CONTRACTS
clause can be found in virtually any agreement. A
case-in-point is the “work-for-hire” agreement Before drafting of an IP contract and during the usual
relating to ownership of original works of authorship preliminary negotiations leading to a business
created under the agreement. Here, for example, you partnership, it is important to consider several
hire another person to take a photograph of you in questions, which will determine the specific drafting
front of your business, or a graphic design or software of the clauses and, in general, how the business under
program for your company. Under copyright law, the contract is to be conducted. The following are
unless your contract contains a clause that points that are to be considered:
specifically and expressly creates a work-for-hire
arrangement in which ownership of the copyright i) Strategy of the parties: The parties must inform
vests in your company, all your company gets is the each other about the aims sought under the
product but not the copyright in it. The creator of the collaboration to anticipate any applicable laws
product would retain the copyright and the important and therefore, whether the business sought is
exclusive rights conferred on the holder of copyright. feasible from a legal perspective, as well as to
foresee any potential IP issues resulting from
4.2 THE COMMON INTELLECTUAL PROPERTY such collaboration.
CLAUSES
ii) Applicable laws and types of IP: It is essential
The common Intellectual Property clause, used in that the parties know the mandatory rules that
most types of agreements, makes it clear that each apply to their contractual relationship, and the
party retains the ownership over their intellectual types of IP that will be included in the
property; that is, unless the agreement says agreement, in order to assist them in

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understanding the type of contractual (NDA) or include a confidentiality clause in the
relationship allowed and the impact that will main agreement.
have on the project.
vii) Material transfer agreement: In the area of
iii) Freedom to operate: Prior to carrying out any research, it is common that the parties exchange
business project, the parties must establish tangible materials, such as biological materials,
whether they will actually be able to exploit any chemical compounds, prototypes or even
results derived from such project. software. To protect such materials and regulate
their use by the recipient in these pre-
iv) IP Protection: In business collaboration, it is contractual stages, concluding a material
usually advised that each party protects their transfer agreement is advised.
own IP by any applicable means. This will avoid
potential conflicts as to which party owns what viii) Competition laws: Business practices can
and which rights of use 'each party enjoys sometimes be in conflict with the prohibitions
regarding their own IP. contained in national and competition laws.
When it comes to IP contracts, companies often
v) IP due diligence: The parties should gather and enter into concrete arrangements, which may be
perform an in-depth analysis of all their IP- considered as anticompetitive in-accordance
related information and documentation, in order with such laws. Before including this type of
to assess the risks potentially involved in arrangement in a contract, the parties should
business collaboration or a transaction. make sure whether such an arrangement is in
compliance with competition laws. Lack of
vi) Confidentiality: Contractual negotiations compliance with competition laws can entail
significant fines and/or court proceedings.
necessarily imply the disclosure of information
ix) Recording of the agreement: When it comes to
by the parties. This information is often sensitive IP contracts, such as assignment or licence
agreements, some national laws may require the
and its disclosure to third parties may damage recording of the agreement within the registers
of their intellectual property offices in order for
the parties’ respective and potential future

business. Therefore to avoid any issues deriving

from such disclosure; it is recommended to start

by concluding a non-disclosure agreement

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it to be legally valid and/or enforceable. not affect ownership; the licensee does not own the
Therefore, when applicable, it is advisable to intellectual property licensed to him, the licensor
include a clause regarding the obligation to retains ownership. The Intellectual Property clause in
register the agreement and to pay any relevant a license is to make it clear that the license is only a
fees. license, that it does not affect the licensor's
ownership of the intellectual property, and that any
x) Special employees: The parties should identify existing goodwill in the Licensed IP, or good will
those employees with a particular status. accrued during the agreement, is for the benefit of
the Licensor, not the Licensee (the 'ownership' of
4.4 IP USUALLY APPEARS IN THE FOLLOWING goodwill is most important in trademark licensing).
TYPES OF AGREEMENTS: The clause can specify how modifications to the
Licensed IP are owned. If the Licensor owns it, is the
1. Non-Disclosure Agreements (NDA) and Licensor required to "grant-back" to the Licensee a
Confidentiality Agreements license to use that modification? On the other hand, if
during the course of the agreement, the Licensor
2. Employment agreements modifies or updates the intellectual property (for
3. Agency agreements example, if a new version of licensed software comes
4. Trade mark/patent license and technology out), does the licensor automatically get a license to
that modification, or must it get a new license?
transfer The ownership of modifications is highly-negotiable
5. Franchise agreements and highly-varied. There is a need to include a pro-
6. Distribution agreements provider and pro-providee option for handling
7. Manufacturing agreements modifications, but the parties should carefully review
8. Joint Venture agreements these options and alter them to suit their purpose if
9. IT-related agreements need be.
10. Selling/assigning your IP
4.6 INTELLECTUAL PROPERTY CLAUSE IN
4.5 INTELLECTUAL PROPERTY CLAUSES IN INDEPENDENT CONTRACTOR AGREEMENTS —
LICENSES OWNERSHIP OF WORK PRODUCT

In license agreements, the Intellectual Property The Intellectual Property clause in an independent
clause makes it explicit that the only intellectual
property rights that change hands are those
specifically licensed in the License Grant clause. A
license is not a transfer, sale, or assignment, it does

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contractor agreement could also be called the licensed (or sublicensed) to other venturers for
Ownership clause, or the Work Product clause. The project implementation.
clause here says that the company, not the
contractor, will own the work product and all Specific IP clauses covering the following issues
intellectual property rights in the work product of the should be established:
agreement. The simplest way to accomplish this is by
assigning ownership of the work product, including i) IP ownership and access rights
intellectual property rights, to the company. ii) IPRs registration protocol;
Alternatively, the parties can include a Work Made iii) Exploitation strategy;
for Hire clause, indicating that the work product iv) IP management in case of termination of the
should be considered a work made for hire, belonging
to the company, not to the contractor. agreement.

4.7 INTELLECTUAL PROPERTY CLAUSE IN JOINT 4.8 INTELLECTUAL PROPERTY CLAUSE IN
VENTURE AGREEMENTS FRANCHISE AGREEMENTS

A joint venture agreement regulates the contractual Franchising is a special type of licensing, enabling the
relationship among two or more independent replication of the owner’s (franchisor) business
organizations (venturers) which undertake to carry concept in another location by providing continuous
out a specific project together or to achieve a certain support and training to the recipient (franchisee).
goal by sharing risks. As in other collaboration Since business concepts include the use of IP allowing
projects, it is common that the venturers bring into the business to be run, franchising has an intrinsic
the project their previously owned IP assets and that connection with IP based on licensing of IPRs and
they generate new IP as a result of the project know-how. Franchising always involves six basic
implementation. It is essential that the agreement features:
contains provisions on access rights for venturers to
both previously owned IP and resulting IP. Depending i) independence of the parties involved
on the decision of the parties and the objectives of the ii) economic interest
project, the previously owned IP can be assigned or iii) a business format
iv) a brand
v) control of the franchisee by the franchisor
vi) the provision of assistance to the franchisee

by the franchisor.

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Specific IP clauses in franchising agreements are of the Franchisor, and shall only use this
similar to those in IP licensing agreements. Knowhow according to the provisions of this
Information on some relevant IP-related clauses Agreement.
together with some examples is provided below: ● Franchise disclosure document: It is a good
practice to prepare a franchise disclosure
● IPRs of the franchisor: the name and all the document which encompasses, inter alia,
distinctive signs which distinguish the detailed information about the franchisor,
premises or the franchised products belong to franchising system, related IP, references and
the franchisor and the franchisee should not financial figures (e.g. details on the IP to be
register any IPRs connected to the franchise licensed, namely evidence regarding the
arrangement. The Franchisee shall not apply rights over the trademarks and description of
for registration of any trade mark, or the know-how or financial information to
distinctive signs of the Franchisor, as well as allow the evaluation of the total investment
any other similar symbols which may be required by the franchisee).
confused with any elements of the
Franchisor’s activities. 4.9 INTELLECTUAL PROPERTY CLAUSE IN
SOFTWARE DEVELOPMENT AGREEMENTS
● Know-how: The know-how is owned by the
franchisor and the franchisee should not A software development contract is a services
disclose it to anyone without the prior agreement entered into between a company
consent of the franchisor in writing. This (contractor/client/user) and a software developer,
obligation is usually agreed upon for an under which the software developer undertakes to
indefinite period and it is usually foreseen create a software program for the company based on
that the franchisee shall notify the franchisor its requirements or specifications.
of any improvements and discoveries, as to Specific IP clauses shall mention which party owns
the know-how that occur as a result of the the IP to the software program. Usually, it is agreed
operation of the system. The Franchisee shall that the contractor owns these rights. Since the
not, during the term of this Agreement and developer is the creator of the software, and
thereafter for an indefinite period of time, therefore is the original owner, the contractor will
disclose the Franchisor’s Know-how to any become the owner by means of an assignment of the
third party without the prior written consent

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IP in the software. Being the owner the contractor laws and on the type of IP created by the employee.
shall have the right to use the software as it pleases, To avoid later disputes the ownership of the IP
make modifications, etc., subject to any legal created by an employee and the right to receive an
limitations. On the Contractor‘s acceptance of the additional remuneration shall be laid down in the
Software and payment of all compensation due to the employment contract, in accordance with the
Developer under this Agreement, the Developer shall applicable laws.
assign to the Contractor all Intellectual Property in
the Software. 4.9.1 Ownership: The employer is vested with the
Confidentiality: This clause should contain the economic rights in the software created within the
developer’s agreement not to disclose any details to scope of the employee’s duties or under the
any third party regarding the contractor, its instructions of the employer. Employee’s inventions
operations or its clients. Usually, the developer are often regulated by national laws. They usually
should also agree not to create copies of the software provide the same solution regarding the following
or to distribute the same to third parties. The two scenarios: -
Developer shall not disclose to third parties any
information regarding the business of the Contractor i) the invention created in the course of the
and the Software program, unless the Contractor employee’s duties is usually owned by the
authorises the Developer in writing. employer and,

4.9 INTELLECTUAL PROPERTY CLAUSE IN ii) the invention created outside the
EMPLOYMENT AGREEMENTS employment contract is usually owned by the
employee.
An employment agreement is a written legal
document that lays out binding terms and conditions The Employee acknowledges that all IP that the
of an employment relationship between an employee Employee generates, modifies or improves in the
and an employer. course of the Employment Contract is and shall
remain the Employer’s sole property during and after
The main questions that arise when IP is created by the Employment Period within the legal limits. The
an employee relate to the ownership status of the IP Intellectual Property created by the Employee under
and to whether compensation is payable to the the direction of the Employer shall remain or be
employee. The answer will depend on the applicable assigned to the Employer from its creation, within the
legal limits. The assignment referred to herein is for

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the entire term of protection of the respective rights
without compensation other than that established
under this contract and within the scope of the law.
4.10 CONCLUSION
The importance of IP clauses in various agreements
cannot be undermined and the same needs to be paid
proper attention for the reasons firstly to prevent
others from copying ones products / service secondly
improve our position when negotiating with other
companies in mergers, sales and cross licensing
agreements thirdly prevent patent infringement and
lastly increase licensing revenues.

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