Winds of change in IPR agreements

It comes as no surprise to our readers that, as a global trend, the value of intellectual property rights (or IPRs, as we often refer to them) and the revenue they bring in is on the rise. Neither will it be news to you that as the value of intellectual property rights grows, so do the risks related to them and so does the significance of the agreements that govern them. What you may have also noticed is the way IPR agreement terms and conditions are developing and expanding to correspond to these new risks. These are not, however, the only change we see in IPR agreements today. To add to them, new asset types and co-operation based development methods give their own flare to contract procedures.

In this article, we discuss four emerging trends in the field of IPR agreements. Although the contents of IPR agreements continues to develop, some things still remain true – a well-crafted agreement is and remains the best way to prevent disputes and ensure smooth co-operation.

A good IPR agreement is ‘just’ the implementation of an IPR strategy

The wonderful thing about intellectual property rights as an asset is how flexible they are. For example, an exclusive right achieved through a patent includes, among others, the making, offering, putting on the market and using of the product protected by the patent, and importing or possessing it for these purposes. In turn, a copyright consists of both economic and moral rights and their components. When you also take into account that these exclusive rights and their components can be transferred onward both partially and entirely, you have a broad spectrum of possibilities to choose from.

On the other hand, even the most significant IPR agreement is just a piece of the larger puzzle that makes up a company’s business. If each piece of the puzzle is crafted independently with no regard for the other pieces, piecing the puzzle together becomes impossible. In order to succeed, you need clear policies on what it is you are aiming at – in other words, you need an IPR strategy.

IPR strategies are not a new phenomenon. On the contrary, companies that manage their intellectual property diligently have had IPR strategies for quite a while now. Instead, the change we now see relates to what types of companies have decided it is time to create an IPR strategy to boost and support their business, and what such strategies aim at. If you want to know more, we recommend reading our colleagues’ articles in this Quarterly on the topic.

When implemented correctly, each IPR agreement is merely an expression of the company’s IPR strategy –a case-specific record of a more extensive policy in accordance to which the company procures, protects and utilises its intangible assets in a way that produces commercial value for the company. At best, an IPR strategy provides clear, easily understandable and implementation-ready policies according to which all IPR agreements are drafted. Whether your topic-of-the-day is data ‘sharing’, the allocation of rights, or back-to-back agreements, the answer is there, just waiting to be put into action.

When implemented correctly, each IPR agreement is merely an expression of the company's IPR strategy.

Joint development ≠ joint ownership

Joint development and different kinds of co-operation projects are becoming more and more common. Through joint development, companies are able to promote and enhance the development of technology by sharing knowhow. In practice, joint development can refer to, for example, efficiently outsourced R&D operations or a long-term partnership with another company that is striving for similar innovation. By combining their knowhow, the companies involved can achieve considerable savings in their R&D costs.

Despite its evident benefits, joint development can lead to difficult situations when it comes to the use and management of IPRs. When, for example, an invention, literary work or software is created jointly, all the parties involved tend to want their share of the rights to the fruits of their co-operation, and the opportunity to use them in their own business operations. Although, in a best-case scenario, the parties’ interests complement and support each other, at worst they can completely pull the rug from under each other’s business. For example, a licensing business envisioned by one party could directly undermine another party’s core business if that business is based on the exclusivity of the same technology that would now be made available to third parties. Thus, it is important that agreements on joint development leave no room for interpretation when it comes to the allocation of the rights, obligations and liabilities related to the results created in co-operation.

Even though co-operation can, in many cases, be the best way to develop new products, solutions and services, having joint ownership of the IPRs created through the co-operation is beneficial far less often. On the contrary, joint ownership can actually hinder the use of the created results if even the smallest decision requires the parties’ unanimity. To add to this, when it comes to jointly owned IPRs, you should remember that in addition to sharing the rights to your work, you may also share the obligations and liabilities related to it with all the other parties involved. So, take a moment to consider all the effects of your decision before you take on the joint ownership of IPRs. And if, after careful consideration, you do decided to own the IPRs jointly, ensure that you agree on your joint ownership and the management of your joint assets carefully in advance.

“One thing to keep in mind when looking at your chain of contracts is that a company cannot transfer a right it never had in the first place.”

Do you know what the weakest link in your chain of contracts is?

Regardless of how an IPR asset is developed, created or protected, transferring and/or granting a license to the right to it forms the core of almost every IPR agreement. At the same time, as contract chains become longer and longer, the significance of each and every links to that chain grows even more important. Even just one weak link, one obligations that is not agreed on back-to-back, can create unbearable restrictions or liabilities for a company and can, ultimately, even affect the company’s valuation in an exit situation.

One thing to keep in mind when looking at your chain of contracts is that a company cannot transfer a right it never had in the first place. As a result, in order for contract chains and the company’s IPR strategy to be durable, the company needs to identify and be aware of its IPRs and their limits. This is easier said than done due to the fact that acquiring the necessary IPRs often requires precise and explicit agreements to that effect. For example, a person to whom a copyright has been transferred cannot alter the work or transfer the copyright to others, unless otherwise agreed. Meaning, if you, for example, try to sell a copyright to a work created by your employees – as is the case in many M&A transactions – without first acquiring the right AND the right to re-sell that right, you are left with quite the mess.

“In a worst-case scenario, just one inappropriate or overly expansive license grant can disable a large portion of your business.”

Just like acquiring a right requires careful consideration, so does keeping it. In a worst-case scenario, just one inappropriate or overly expansive license grant can disable a large portion of your business by restricting or preventing granting a license to that right to others. This is especially true with regard to companies for which licensing is a central part of their business. Therefore, be sure to consider what type of license is necessary for, not only each agreement, but your business as a whole – and draft your IPR clauses accordingly.

Data as an asset

In addition to other intangible assets, the value of data has become a widely discussed subject in business law and the world of business in general. On its own, raw data is rather worthless as it can be copied and resold effortlessly. What people have realised, and what is, as a result, reflected in IPR agreements on an ever-growing scale, is that data that has been refined as part of a product or service (e.g. catalogued or compiled into a register) can be highly valuable. As a result, a variety of different kinds of terms related to the protection and allocation of data, and the ‘licencing’ of data have become significantly more common.

“Agreements on data should focus not only on the data in its original form, but also on any new assets created from it or using it.”

Therefore, the value of data is often dependent on the technical and contractual protection given to it. Parties should strive to define their rights and responsibilities to the transferred data and to the results achieved through it as explicitly and comprehensively as possible. To mitigate the risk of any other hitches in their business relationship, the parties should also agree in advance on the processes through which any possible problems, changes and disputes are to be solved.

Finally, it should be noted that it is not wise to amass all possible data ‘just in case’ as data can bring with it surprising new responsibilities. For example, the processing of personal data creates statutory compliance obligations for parties, and the parties should always agree on how to tackle such responsibilities before they take the data into use.

 

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