Intellectual Property Protection: 7 Warnings

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The Concern

A surprising number of people enter the phrase “Free Intellectual Property Agreement Template” into search engines. The thought of someone using so important an agreement acquired in this manner is a cause for concern.

Someone searching for an intellectual property agreement probably intends to accomplish one or both of the following:

  • Protecting existing intellectual property while taking part in a commercial transaction or transactions with another party; or
  • Agreeing with another party to create or share intellectual property without any other commercial arrangement.

A template downloaded from the Internet would require careful modification by someone knowledgeable about intellectual property arrangements in Circuit Boardgeneral to protect the party’s intellectual property (IP) in a commercial transaction. Using it as is, or modifying it without sufficient understanding of the issues could be very risky. Your IP may be your most valuable asset – it is not worth the risk to fly blind.

A joint development agreement or a cross license for intellectual property are outside of the scope of this article. They are very specialized arrangements requiring extensive legal counsel and the advice of someone used to negotiating such arrangements.

For commercial relationships, the intellectual property agreement should be as protective as possible while still allowing the commercial transaction to proceed smoothly.

The Intellectual Property Sections – 7 Warnings

  1. Do not download a template from the Internet and try to adapt it to your needs unless you are very knowledgeable about intellectual property and its licensing or have guidance from counsel.
  2. Be sure you know what your intellectual property is and what portion of it is really important. Often start-ups think their “secret sauce” is in their hardware design when, in fact, it is their software. As a result, they may not include the right IP protection in their agreements. A stringent software license is required.
  3. You may be selling equipment with very little software content, but be sure to draft the appropriate protection for that software anyway. Grant a (very restrictive) license in the sales contract. Again, your attorney can be sure the right terms are granted, once you determine the business aspects of the transaction. If a customer is buying the equipment, their use of the software should obviously be very limited.
  4. Remember this rule above all others: you never sell IP, especially software. You license it. While this is a legal observation, it is one that has been pounded into any business person that negotiates agreements in which intellectual property is transferred. Be certain that you do not accidentally “sell” the software, even if it is just firmware. The only exceptions are when you are selling a product line or the company. Get a good law firm involved early if either is the case.
  5. Be very careful with any IP license in your agreement. Here are some examples, learned from experience:
    1. For hardware, be sure the recipient cannot “reverse engineer” or “create derivative works” from your equipment or its embedded software. Get definitions of these terms from your attorney;
    2. Man Pointing to Flow ChartYou may have to grant your customer permission to sub-license software to its end user. Unless there are special circumstance, be sure the right to sub-license is not passed on to the end user. A special circumstance would be if you sell to an OEM that bundles your product with its product and sells the resulting “solution.” If the OEM’s customer is not an end user, but a service provider, for example, it will need the right to sub-license to its end user, which can be a complicated arrangement (you have to be able to enforce this sub-license).
    3. Make sure there is a flash screen, label or something that tells any user at any level that you created the software. The attorney will insist on this for different reasons. Here, the point is that you would be giving up a golden opportunity for brand awareness.

Even the sections of “simple” sales and marketing agreements that deal with intellectual property can be complicated and of the utmost importance. You should be certain these sections are drafted clearly and that they provide the maximum protection for what may be your “crown jewels.”

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