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Intellectual property (IP) is a crucial asset your business must protect. However, entering commercial projects and transactions opens your IP rights and IP assets up to risk. For example, as a customer, you are at risk of a supplier’s misuse of your IP rights. As such, IP protection is of crucial importance in contracts. Having robust agreements in place will enable you to prevent IP misuse by mitigating the risks your business could face. This article will explore how contracts can help avoid the risk of IP misuse.
Which Types of IP Misuse Risks Could My Business Face?
When entering commercial relationships involving IP, you could face several risks. Various problems could arise, leading to misuse of your IP and brand damage to the brand and reputation you may have spent years developing.
Here are some of the risks your business may face:
- your business IP and know-how could be illegally disclosed or leaked into the public domain, thereby diminishing your brand value;
- a third party could misuse or infringe your IP rights and tarnish your reputation; or
- if your business co-creates IP with another company without agreeing on who owns it, this could lead to costly and stressful IP ownership disputes.
As such, it is vital to mitigate these potential risks by protecting yourself contractually.
How Can Contracts Help Mitigate the Risks of IP Misuse?
When executed correctly, a contract is a legally binding document with the potential to protect your business from various risks and potentially tricky scenarios.
Your contract can cover different types of clauses to protect your IP rights, both as a supplier and customer.
Below, let us explore some key ways contractual clauses can safeguard your business IP.
1. IP Ownership Clauses
Your contract can include provisions stating who owns which IP rights under the project. This can also cover who will own any IP created during the project.
This is particularly useful for collaboration or life sciences agreements, where an organisation may develop new inventions. This can help prevent potential disputes around IP ownership.
2. IP Rights Clauses
If one party needs the right to use another’s IP in specific ways, your contract can define which rights are granted and which rules apply. These clauses are commonly referred to as IP licences.
For instance, a supplier may need to use a customer’s IP rights to deliver services. By way of further example, a graphic design company needs to use a customer’s logo to create a new infographic for them. Including watertight IP licence clauses can ensure that the supplier will only use the relevant logo to deliver the services and nothing else. This can prevent IP misuse by the supplier, for instance – using the logo for its own benefit.
3. Confidentiality Provisions
Valuable or sensitive IP is often confidential information. Therefore, there is significant potential for damage if such IP gets into the wrong hands or someone leaks it into the public domain. Your contract can include robust confidentiality provisions to prevent such risk. For instance, you can include provisions that define the purposes for which the other party can use confidential information and stipulate which third parties can access the confidential information.
4. Intellectual Property Indemnity Clauses against Misuse
You are open to risk as a customer relying on a supplier’s IP. For instance, where you rely on a manufacturer to produce products for you. Or where you seek a software licence from a third-party software supplier. In such cases, your business will need assurance that any IP rights assigned or licenced to you will not infringe the rights of a third party.
Contractual indemnities offer essential protection in such cases. For example, you can include IP indemnification clauses in your contracts to protect against the risk of any third-party IP infringement claims your business suffers where the supplier is at fault. An indemnity is a compensation obligation requiring the supplier to compensate your business on a pound-for-pound basis for any losses you suffer due to certain trigger events. Including IP indemnities can deter a supplier from misusing or infringing IP to avoid having to compensate your business for large sums of money.
5. Intellectual Property Warranties
A warranty is a statement confirming a state of affairs is correct. These can be particularly valuable regarding IP rights. A breach of warranty gives rise to various legal remedies.
IP warranties could encompass a range of issues, such as confirmation that a supplier’s services to your business will not infringe on the IP rights of any third parties. As such, warranties are useful clauses in a commercial agreement involving IP use.
Download this free Supplier Contracts Checklist to ensure your contracts will meet your business’ needs.
In summary, IP clauses in a contract are crucial for protection and risk allocation. The types of IP clauses your contract should contain are not a one-size-fits-all approach for every business. The types of IP clauses your contract should include will depend on the type of the project, how IP plays a role and what risks you could face.
You should seek legal advice before signing a contract if you need help protecting your IP. An IP solicitor can advise you on the relevant risks you could face and which terms you should negotiate to safeguard against such risks.
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Key Takeaways
IP assets can be precious and, therefore, require watertight legal protection. When you enter commercial projects and ventures involving IP, your IP can face exposure to the risk of misuse. As such, you should enter into robust contractual agreements to safeguard against this risk. There are various clauses that your contract can cover to protect your IP — for instance, ownership rights clauses, IP warranties, indemnities, and licence provisions. You should seek legal advice if you require knowledge of which IP clauses your contract should include to protect your business IP assets from misuse.
If you need advice on contractual protection, LegalVision’s experienced commercial contract lawyers can assist as part of our LegalVision membership. 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.
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