Why Should I Include IP Clauses In My Commercial Agreements?

Protecting your proprietary information and intellectual property (IP) rights should be a key business priority for business owners, whether you are a supplier or customer of products and services. You should carefully consider IP clauses in commercial agreements for each project. Including robust IP clauses in commercial contracts can protect your business from risk in several ways. This article will explore why you should include IP clauses in your commercial agreements and how this can protect your intellectual property assets.

Why Does IP Need Protection in Commercial Agreements?

IP is a valuable business asset, sometimes the most valuable one. IP assets can include valuable inventions and patents and original works protected by copyright, such as written works, trademarks, and logos. When shared with third parties, IP is subject to the risk of misuse and infringement. For instance, sharing your company logo with a third party could risk that third party misusing the logo and damaging your brand. Even if you think a third party will use your IP with good faith, IP protection through IP clauses is essential in your business contracts. 

As such, safeguarding IP in commercial agreements is vital. IP needs protection in commercial agreements to preserve its value, maintain competitive advantages, prevent misappropriation and infringement, and uphold brand reputation. By including robust IP protection clauses in agreements, businesses can have confidence that their IP assets will be safe.

Which Types of IP Clauses Should My Agreements Include to Protect IP?

There are various types of clauses to protect IP in commercial agreements.

Here are some of the most common and critical clauses to protect IP:

• Clarity of IP Ownership: Intellectual property ownership and clarity over this is vital. Identifying who owns IP created or used under an agreement is critical. This can include specifying whether the IP rights belong to one party exclusively or are jointly owned. IP clauses around ownership can also prevent disputes around newly created IPs under a commercial agreement;
• Assignment of IP Rights: If a commercial party transfers its IP to another, it is vital that the assignment is documented and complies with the necessary formalities to be valid. Otherwise, the assignment of IP may be ineffective and cause long-term damage; and
• Licence Rights Scope: Specifying the scope and limitations of any IP licences granted under commercial agreements is vital. This is particularly important in licensing agreements, including intellectual property licences. 

Otherwise, licensed IPs can be subject to misuse. For instance, as a customer, you may want to exert control over when a supplier uses your company logo in their marketing materials. For example, the supplier may need written consent before using your logo. 

You may also want to negotiate classes that allow you to provide written consent to prevent the other party from using your intellectual property in certain circumstances.

Additional Examples of IP Clauses 

The following are examples of further IP clauses your business should consider:

• Indemnification Obligations: Indemnities can be vital tools to apportion risk under commercial agreements. Where IP is misused, indemnities can be valuable tools to allow the indemnified party who has suffered harm to recover its losses from the other party. For instance, the indemnified party suffers any IP infringement or misappropriation claims;
• Warranty Protection: A warranty confirms that a particular state of affairs is accurate; in this context, IP warranties are valuable. Breaching a warranty triggers various legal remedies. IP warranties may cover critical provisions such as ensuring that the services provided by a supplier will not violate the IP rights of third parties. For instance, in a website development agreement, your business will want assurances that the website created for your use does not infringe on any third party’s IP rights; and
• Audit Rights: A commercial agreement can include clauses granting one party the right to audit the other party’s compliance with the agreement, particularly concerning the use or protection of IP. Audit rights can allow your business to check whether the other party is using IP as per your instructions and not for any other purposes. 

What if My Agreement Omits IP Clauses?

If IP clauses are absent in a commercial agreement, parties are vulnerable to potential disputes and uncertainties regarding IP ownership, usage, and protection. 

Supplier Contracts Checklist

Download this free Supplier Contracts Checklist to ensure your contracts will meet your business’ needs.

Download Now

Without explicit provisions related to IP in a business contract, parties may face challenges in asserting their rights, protecting their IP assets, and resolving conflicts.  This lack of clarity can lead to costly litigation, valuable IP loss, and damage to business relationships. 

Therefore, including IP clauses in commercial agreements is essential to safeguarding the interests of all parties involved.

How Can A Solicitor Help My Business?

Determining the required IP clauses for a commercial agreement involves assessing the specific nature of the business, the project involved, and the potential risks related to intellectual property. 

A solicitor can offer tailored legal advice, draft or review contracts to ensure comprehensive protection of your IP rights and help negotiate favourable terms to safeguard your interests. With their expertise, an IP solicitor can help mitigate IP risks, prevent disputes, and ensure compliance with relevant laws and regulations. This can contribute to both the success and security of IP in your business ventures.

Key Takeaways

Incorporating robust IP clauses into commercial agreements is essential to protect IP assets and allocate risks appropriately. However, there is no one-size-fits-all approach to drafting IP clauses in commercial contracts. IP clauses in a commercial agreement must be tailored based on the unique IP elements of each project, considering the significance of IP and the potential risks involved. 

It is sensible to seek legal advice before signing any contract to ensure your IP is fully protected. An IP solicitor can assess specific risks, offer guidance on relevant terms, and assist in negotiating to mitigate those risks effectively.

LegalVision’s experienced commercial contract lawyers can assist as part of our LegalVision membership if you need advice on IP protection and IP clauses in commercial contracts. For a low monthly fee, you will have unlimited access to our lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.