Important Elements in Intellectual Property-Related Contracts
Reporting & Insight
Contracts are used to formalize virtually all business transactions. Of course, they are appropriate instruments in situations beyond traditional buy/sell arrangements and employment agreements. Any circumstance that involves a mutual exchange of promises likely necessitates a formal, written contract. This is particularly true when there is valuable intellectual property (IP) at stake. Companies with important IP must utilize contracts to ensure that their internal staff and any external vendors or consultants with access to their IP information will act appropriately, irrespective of the timing and duration of that access. And, for employees engaged in or responsible for developing IP, it is imperative for companies to make it clear which party has the proprietary rights.
Ultimately, there are various types of contracts that companies can use to dictate IP protection, such as confidentiality and non-disclosure agreements, non-compete agreements, and property or assignment agreements, among others. Regardless of which contract is appropriate for the particular situation, the drafting of any IP-related contract must address the following:
Contractually mandating strict confidentiality is probably the most crucial aspect of any agreement that pertains to IP. As technological innovation thrives and competition increases, it is critical for companies to be extremely proactive, take extraordinary security measures, and remain vigilant to potential intrusions or misappropriation of data. Obviously, important IP may be intentionally or inadvertently leaked due to human failures, irrespective of a company’s investment in the most sophisticated security standards.
Thus, a strong contract that clearly imposes a duty to maintain confidentiality, along with significant consequences for failure to comply, will serve as a deterrent to negligent and/or malicious behavior. If employees understand the potential ramifications associated with the disclosure of a company’s information, they are far more likely to institute the requisite precautions and abide by any IP-related security policy.
Disputes over IP often arise when an employee resigns from his/her position at a firm or a company severs a relationship with external associates. In many cases, employees and consultants participate in the creation and development of IP, and thus may feel entitled to take it with them when they leave. Even if this is acceptable to a company, this must be determined from the outset to avoid the likelihood of a costly misunderstanding. In most cases, a company anticipates retaining ownership over any IP that is developed. Therefore, this proprietary intention must be made abundantly clear in any pertinent contract to circumvent confusion.
In addition to stating unambiguously which party will retain proprietary rights over the IP, a contract must identify which individuals are allowed to access that IP, when they may access it, and for how long they will have access. In some cases, a non-compete agreement may preclude an individual from working in a related field for several years subsequent to his/her departure from a company. However, there are some limitations on the scope and length of any such agreements, and a former employee may believe that s/he can still reference IP information that s/he had a hand in creating. Even if a company confers such access upon current or former employees, a contract must stipulate the manner in which that access will be allowed. For example, companies may want to ensure that information is accessed via a secure server or through a highly controlled data repository. A company’s requirements for access to IP must be fully defined and completely clear.
In order to give a contract the bite that it needs, it must spell out the repercussions for any breach of the agreement. Using vague descriptors about fines or lawsuits will not suffice. It must be clear to the individual expected to sign the agreement that the company takes the security of its IP very seriously, and that it will aggressively pursue any and all manner of recourse available under the law. There should be no uncertainty as to how things will play out in the unfortunate event that valuable IP is misappropriated.
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The Importance of Unambiguous Contract Terms: Part 1