Insights into IP Agreement Contracts

What Exactly is an IP Agreement Contract?

An IP agreement contract is a legal document that lays out all the rights and responsibilities regarding the ownership, use and dissemination of a person or company’s intellectual property. Knowing what these contracts are and how to use them is essential if you’re working with other people’s creative work. Whenever someone creates a work – be it music, art, literature, or anything else that is creative in nature – there is an inherent right bestowed to that person as the creator of the work. This protects the creator from people using the work in any manner they wish without compensation. Instead, the creator may opt to license the work to other parties for a set amount of time, or sell off all rights to that particular work. Licenses and contracts come in many different forms when it comes to IP, with some covering only one or two specific uses of the work, while others cover every conceivable use of the work . For instance, writing music usually comes with two different licenses – one for the recording of the work, and one for the performance of the work. These two licenses can be purchased separately for a set amount of time by a third party should they wish to record or perform the work, or the creator may sell off all rights to the work, with a single contract granting the rights for every conceivable application. Not every creator will want to sell off all rights to their work in this way, and most are more comfortable with licensing their work to a specific individual or organization for a limited time. In any case, though, when purchasing a work of art, knowing that you have the rights to all conceivable uses of that work is important. IP agreements are about making sure that both parties know exactly what is being exchanged and the proper uses of the work.

Common Features of IP Agreement Contracts

An IP agreement contract has three basic components: (1) the IP subject matter that is being transferred to another party; (2) the current and future owners of the IP; and (3) the location and terms on how the IP may be used.
The subject matter of an IP Agreement contract normally includes copyrighted material, trademarks, patents, trade secrets or other proprietary information. Sometimes it also includes other intellectual property. The IP Agreement contract should describe in detail the scope of IP subject matter. It is important to not only describe the current IP subject matter in detail, but also to include a clear description of future IP subject matter in the IP Agreement contract.
Ownership of IP can sometimes be a real mess. Many times IP is not registered. IP may have been owned by one individual at one point in time, but is owned by another individual today. The same IP may also be owned by multiple individuals. The IP may also be owned by a corporation or a company. Given these potential problems, the IP Agreement contract should leave no doubt as to who owns what and future ownership rights to the IP. Ambiguity as to ownership is the biggest single reason for many IP Agreement contract disputes.
The IP Agreement contract should also include a clear statement as to where the IP may be used. Can the IP only be used in a specific geographic location? Can the IP only be used in a certain way? Does the use of the IP have to be for a specific purpose? Can the IP be used by future employers or employees?
The IP Agreement contract must also address issues such as when the IP risk goes from the seller to the buyer, whether the seller has any liability if the IP is eventually found to infringe on the IP rights of a third party, whether the IP may be otherwise subject to future restrictions, other requirements regarding the use of the IP, and dispute resolution provisions regarding the IP.
Simply stated, IP Agreement contracts can be complex. If you plan to enter into any IP Agreement contract, you should get good legal advice.

Different Types of IP Can be Covered by an IP Agreement

The range of intellectual property covered by IP agreements is particularly broad, as anything from product designs to methods used to execute a service can be owned and protected as an intellectual asset. The most common types of IP protected through agreements are patents, copyrights, trademarks, trade secrets and rights to exclusive brand identifiers. A patent permits the patent holder to take legal action against anyone who tries to use their invention without their permission. There are three types of patents: A copyright gives its owner the exclusive right to use and distribute their original works, including written material, computer software, musical compositions, advertising campaigns, videos, photographs and paintings. A trademark protects words, phrases, symbols or designs that identify and distinguish unique brands or services. Trademarks help consumers recognize the source and quality of products, from Apple for computers to Michael Kors for accessories. Agreements covering trade secrets safeguard confidential information, formulas, processes, recipes or other material that give companies a competitive edge in their respective industries. Non-disclosure agreements (NDAs) provide legal protection and recourse for a trade secret holder whose information is leaked to a competitor. Agreements may also cover other forms of rights and protections that are available in individual jurisdictions, including results of industrial design, plant varieties or supplementary protection certifications.

Why Businesses Need IP Agreements

The importance of entering into IP agreements cannot be understated. The failure to do so not only places a company at risk of exposing its IP assets to competitors, but also increases their exposure to potential disputes between stakeholders and individuals hired by the company.
First and foremost, IP represents a business’ most valuable assets. So much so that the most sophisticated companies will devote an extensive amount of strategy to maintaining and attempting to grow IP assets. Thus, a company’s failure to incorporate IP agreements into business or strategic plans exposes the company to threats of loss. Will competitors hire your former employee and profit from your investment in intellectual property?
Second, entering into IP agreements with stakeholders is necessary to set the terms that will govern your rights and obligations with respect to a number of issues. For example, if you enter into an agreement that requires an employee to report any invention they create within the scope of their employment to the company, then this type of IP agreement will help prevent difficulties down the line if the employee creates an invention. A court would be unlikely to give an employee credit against an employer for their invention precisely because the soon-to-be inventor did not fulfill their obligations to report. Thus, if an employee created an invention within the scope of their employment, the IP agreement will help ensure the company will control the new invention and not the employee or a competitor.
Third, having an IP agreement in place to govern relationships with contractors, employees, clients, and joint ventures makes the terms of the relationship clear and reduces the likelihood of a dispute. An IP agreement will contain provisions that will clearly establish which party does what. For example, the agreement can state that rights to seller’s inventions are vested in the seller (provided it is not created within the scope of an employment) and that the seller must assign their rights to the company upon the company’s request. The agreement can also make clear that if the seller has a license grant for the work, the license grant creates an ongoing obligation to the seller until the license fees are paid in full.
The company can also elect to store the rights created by the intellectual property agreement with a separate entity or affiliate to increase organizational accountability (e.g. an affiliated partnership).

How to Create an Effective IP Agreement Contract

When it comes to the writing of the actual agreements needed for the protection of an intellectual property item, it is always advisable to consult with a knowledgeable IP attorney. If you are an entrepreneur or small business owner, you are already pulled in so many different directions. Your focus is on finding clients and continuing to grow your business. Protecting your ideas likely takes a backseat to more pressing issues.
However, if you haven’t put any protection in place for your intellectual property, you are leaving your business very vulnerable to unscrupulous competitors who would like nothing better than to take what you have built, paying you little or nothing for your hard work and creativity. This is why it is so important to get assistance from a professional when drafting the necessary legal document(s) .
Even though you need an attorney to help you with the creation of the contracts, it is still your responsibility to provide your attorney with the background information he or she needs to draft the documents properly and to your specifications. For example, if you have been working on a software application and you have it password protected, you might be tempted to avoid going overboard with the details of the application in the contract.
However, you need to be as specific as possible to protect both yourself and the creator of the original application. What if the original programmer takes the application and adds a couple of new features not originally found in the application? He or she may be able to prove that there is no infringement since there are new features. On the other hand, if you were very specific in your descriptions of every feature, it would have negated any potential argument that the programmer could have made.

Key Challenges of IP Agreements

When drafting these contracts, business owners may fail to see problematic cross-references in conflicting contracts or incorrect names and titles of parties involved. Problems with language in other documents are usually first addressed by the other party when going over any agreement. All Gap, Inc. contracts must refer to the Gap, Inc. corporate entity. Included in the clauses must be wording such as ”the Gap" or "Gap Inc." — their legal name. This is a common mistake. Also, wording in these contracts must be coordinated with other contracts for them to be enforceable. Small wording issues can be caught with a full review of the agreements—the turnaround time for these reviews is about two business days.
For example, if there is an IP agreement for the Gap and an ND agreement for Boston Proper, but the ND agreement highlights information for Gap, Inc., there is an issue with the ND section of the contract that must be resolved.
Issues can also come up if not properly updating ND or IP agreements. If a disclosure is made to Gap, Inc., and the information has not been filed in the IP office, then those parties are protected from any of the Gap, Inc. ND agreements. If you’re working with multiple brands, all IP/IP agreements/contracts must be updated to ensure that every brand gets coverage or ownership for IP goods.

The Art of Negotiating IP Agreements

To successfully negotiate IP agreements, it is important to pay close attention to important details. Negotiating with other parties for IP agreements such as licensing and assignment contracts and consulting agreements can be challenging. It is crucial to understand what should be included in these agreements so that startups do not harm their existing interests and assets.
The following are some helpful tips for negotiating IP agreements:
• Write down all ideas and fully clarify them when presenting them in writing.
• Avoid any conversations about an idea that is not committed to writing. If necessary, it is wise to include a non-disclosure agreement in the discussion to protect the information.
• Paper documents should be carefully reviewed before signing.
• Each party’s role in the agreement should be clearly defined and laid out in writing. This may include the use of a task list or a statement of work document (SOW).
• While drafting an agreement, it is advisable to identify the parties’ expectations for the scope of services to be performed by each party.
• Avoid using verbal agreements and rely on a written agreement instead. Verbal agreements can create opportunities for loopholes that can affect both parties.
• Clearly identify what intellectual property is owned by both parties.
• Use creative means by offering a new perspective or creating new and improved products to meet the needs of the end users.
• Do not rely on standard forms that may not come from established companies.
• Include overly broad provisions in the contract to protect against the possibility that the other party will use the full amount of time allotted in the contract.
To recap, negotiating aspirationally and reasonably with the other party may not be as uncomfortable as one may think. Be flexible and willing to compromise, and try to offer something in return.

Legal Issues and Updates

As IP law continues to develop, contract and IP lawyers should be aware of recent case law and transactions that could affect their clients’ agreements. A brief discussion of five such developments follows.

• Defendant can be liable for indirect infringement even when there is no direct infringement. Hartman v. Amazon.com, Inc., 2013 U.S. Dist. LEXIS 118146 (E.D. Tex. Aug. 19, 2013), adopted by, 2013 U.S. Dist. LEXIS 118257 (E.D. Tex. Aug. 30, 2013) (direct infringement need not be established for a claim of indirect infringement so long as a reasonable inference can be drawn that direct infringement exists and that defendant induced or contributed to such infringement). This decision found that there was indirect infringement as to a website offering an e-book library subscription because the plaintiff presented sufficient evidence from which the jury could have inferred that persons who registered for the service did not have the appropriate licenses for the books offered on the website.
• Court finds that agreement clearly avoids coverage under the doctrine of exhaustion. Maranda Enterprises, Inc. v. RDM Technologies, Inc., 2013 U.S. Dist. LEXIS 112804 (D. Utah Aug. 8, 2013) (where a computer was created under an agreement between the parties that made the agreement mirror image of the patent, right to make, use, or sell future devices of the patentee was excluded). "The ‘doctrine of exhaustion’ is based on the principle that a patentee may not recapture the right to exclude its licensee from selling the patented item by imposing post-sale restrictions." Id. at *21-22. The court held that the plaintiff’s agreement with the defendant amounted to an "exhaustion of the right to patent suit" because the agreement "definitively sets out the scope of the right to future devices." Id. at *24.
• Parties agree that certain actions, such as going public, are not Intellectual Property (IP) Transactions. Genus Lifesciences, Inc. v. LM Pharma, Inc., 2013 U.S. Dist. LEXIS 108171 (D. Del. July 31, 2013) (going public is not a form of sale; same for dissolution and liquidation of the company). The parties’ contract had a provision where both parties agreed that certain actions would not be IP Transactions, and that those IP Transactions would remain the property of the seller of such IP. The court held that "dissolution" and "liquidation" did not constitute sales, nor did "going public." Id. at * 29. The court also found that, under Delaware law , dissolution and liquidation are legal processes distinct from a sale, and therefore not IP Transactions. Id. at *28. "Going public" under Delaware law also specifically does not constitute a sale. The court therefore held that taking the company public, dissolving and liquidating the company, and going private did not constitute a sale of IP Transactions.
• "Aggregate Europe" does not imply that there is a single legal framework for IP rights. Huawei Technologies Co. Ltd. v ZTE Corp, 2013 EWHC 1590 (Pat) (2013) (European Standards Institute application did not create a single legal framework of IP rules, but instead it created a framework for implementation into national law by the individual countries of the EU). Huawei filed suit against ZTE claiming patent infringement, arguing that since ZTE was a participant in a European Standards Institute working group that set the standard for wireless communications, ZTE was bound to the FRAND (fair, reasonable, and non-discriminatory) licensing agreements used in the standards process. The court held that while the European Standards Institute application process that ZTE participated in was designed to be implemented into European law, it had not yet been incorporated into national law, and was not itself a "legal framework" for implementing the licensing rules. Therefore, Huawei had not established that ZTE was obligated to offer a license on FRAND terms.
• Prior art is searched to show that claimed invention is obvious and that there is no infringing means for achieving invention. In re Maglev Inc., 2013 U.S. App. LEXIS 6143 (Fed. Cir. Mar. 15, 2013); Maglev Inc. v. Yoshinari Heavy Indus Co., 2013 U.S. App. LEXIS 6517 (Fed. Cir. Apr. 8, 2013). Before the USPTO, Maglev asserted that Yoshinari’s product practiced the asserted patent’s claimed invention. Yoshinari countered that Maglev’s invention was in public use prior to the pertinent public use date. The USPTO sided with Yoshinari, and the Federal Circuit affirmed, holding that Yoshinari "presented evidence sufficient to prove by clear and convincing evidence that a person of ordinary skill would considered the apparatus of [Yoshinari’s] patent to be equivalent to Maglev Inc.’s claimed invention." Maglev Inc. v. Yoshinari Heavy Indus Co., 2013 U.S. App. LEXIS 6517, * 5 (Apr. 8, 2013). Prior art is consulted throughout the patent examination process to determine whether the patent application has met all of the statutory requirements, such as novelty and nonobviousness.