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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High-Tech Nondisclosure Agreements

High-Tech nondisclosure agreements present unique difficulties to the high-tech enterprise. Its intellectual property rights are its greatest asset. Consider:

1. Some large companies will place language in the nondisclosure agreement (NDA) that claims ownership of any intellectual property produced by the smaller company during the term of the agreement. This is rare, but I have seen it. Executing the nondisclosure is a questionable business decision. Should management take the risk or find a less rapacious customer/partner?

2. The nondisclosure agreement has a term (the time that it is in effect), but also has a clause that protects each parties confidential information for “x” years after termination of the agreement itself. This is a two edged sword. A longer period of confidentiality works for you, but it also extends the time you must be careful with the other party’s confidential information. This can prove burdensome. If your technology will be out-of-date in three years because of the development cycle in your industry, three years of confidentiality after termination will do.

3. In the Nondisclosure agreement, there is always a list of items that are not considered confidential. For example, information that turns up in the public domain, but not because of anything either of the parties did. There is one exclusion that is not always included that should be: if the receiving party develops something that is contained in the disclosing party’s confidential information without reference to that confidential information. You do not want to discontinue a project or otherwise hobble your development team because the disclosing party has developed something first, as long as you are honest. If you circulate the disclosing party’s confidential information to your development team with instructions to duplicate the intellectual property (IP) in question, you face may face problems your low ethical standards deserve.

(Be careful if the exception is for something developed by people that did not have access to the other party’s IP. If you are a small company, you may not have a large enough development group to create a “Chinese Wall” between projects.)

All NDAs are important. High-tech companies’ nondisclosure agreements may be just a little more difficult to negotiate and finalize. Effective Agreements can help.

Intellectual Property Agreement Template: Problems and 4 Warnings

The use of a search phrase that brought up my website worried me. The search phrase was “Intellectual Property Agreement Template”.

My assumption is that whoever typed that had to want to accomplish one of three things with the Agreement:

  • Protecting existing intellectual property while taking part in some endeavor;
  • Agreeing with another party to create intellectual property; or
  • Allowing another party access to its intellectual property (IP) while maintaining some Pen-and-Signature-Blocklevel of control.

No one agreement can serve as a template for all three activities and, without a lot of work by someone knowledgeable it is unlikely that a template will accomplish any of them well. Here are four particular things to look out for:

  1. Please 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. Your IP is probably your most valuable asset – don’t risk it;
  2. Be sure you know what your intellectual property is and what portion of it is really important. For example, I have seen a start-up fail to get venture capital funding because the management team insisted its IP was a mechanical device, when it was really the underlying software. They tried to sell the former when they should have been licensing the latter;
  3. You may be selling equipment, but be sure to determine if there is software included in the sale. If so, grant a (very restrictive) license in the sales contract. Be certain that you do not accidentally “sell” the software, even if it is just firmware;
  4. Once you determine what makes up your key IP remember this rule (even if you forget everything else): you never sell IP, especially software. You license it. The only exception is when you are selling a product line or the company. Get a good law firm involved early if either is the case.

Intellectual Property agreement templates need to be carefully constructed, not downloaded from the Internet. Putting your most valuable asset at risk is not worth the small cost savings you would realize.

Intellectual Property Agreement – Many Disguises

There are cases when the exchange of intellectual property can be included in another type of contract, and be missed.

A more detailed discussion of intellectual property and development agreements is available.

Some agreements deal primarily with intellectual property (IP) issues:

  • Software Licenses
  • Development Agreements
  • Co-Development Agreements
  • IP Purchase Agreement

The agreements listed above are more “pure” IP agreements as they specifically involve a transfer of intellectual property or its development and the terms of the intellectual property creation or transfer are clearly set out with great emphasis.

Intellectual-Property-arning -Danger-Thin-Ice SignOther types of contracts contain aspects of the intellectual property agreement, but their main focus is not the IP. It is important to recognize when contracts have IP implications and to assure its protection. Consider the following:

  1. The Master Services Agreement. The buyer should be sure that it obtains ownership of any IP relating to a deliverable it receives. The service provider must protect its own intellectual property that it used to create the deliverable and that it uses in project after project.
  2. The Original Equipment Manufacturer (OEM) agreement. Here, a company (“Seller”, for convenience) is providing product to a second company (Buyer, same reason) for sale to the end user customer, usually as part of the Buyer’s broader “solution”. There is IP that must be protected on both sides. The Seller has the most to lose, and must carefully craft a license for the intellectual property contained in its product. This is especially true when Seller must share detailed technical information with Buyer so the final combined widget will work.
  3. The Non Disclosure Agreement. Both sides need to make sure that the definition of “Confidential Information” clearly covers all of their IP. Each party must beware of the other party making a blatant grab for all of the first party’s IP through specific language designed to do just that. (I have seen this in Nondisclosure Agreements.)

Caution is needed to be sure that various types of agreements do not have significant and unintended IP implications. The intellectual property portions are difficult, but not enough to seriously disrupt the negotiation.