When businesses conduct reviews of their template commercial contracts, one of the key areas to focus on is intellectual property (IP) clauses. The value of intellectual property in today’s digital era cannot be overstated. Understanding how to secure your IP is crucial, whether you’re a freelancer, a small business owner, or part of a larger enterprise. One of the most effective ways to do this is by including a robust intellectual property clause in your contracts.
Intellectual property frequently becomes a point of negotiation in commercial contracts, making it essential to evaluate template IP positions during any contract review. A well-crafted IP clause not only reduces negotiation time but also minimizes the likelihood of disputes or issues arising later.
What is Intellectual Property (IP)?
Intellectual property refers to creations of the mind, which can include:
- Inventions
- Literary and artistic works
- Designs
- Symbols
- Slogans
IP is protected in law through:
- Patents
- Copyright
- Designs
- Trademarks
These protections ensure recognition and provide financial benefits from your invention or creation.
When reviewing contracts or templates, it is essential to ensure that the agreement clearly defines and specifies the ownership and use of intellectual property. This clarity prevents future misunderstandings and helps protect the value of your business’s IP.
Pre-existing material
You should consider whether both your business and the other party to the intellectual property agreement have pre-existing IP which may be used in this arrangement. If so, the contract should define any pre-existing IP held by either or both parties.
Often, parties to an agreement do not intend for all material provided, used or created during the course of an engagement to be dealt with in the same way under the contract. Material that pre-exists the engagement (for example, the agency’s briefing documents, or a contractor’s trade mark) is often intended to remain the IP of the providing party. Typically, agencies do not require broad-reaching rights to a contractor’s trademark or other pre-existing IP material. A more limited licence to use that material is usually appropriate.
New material
On the other hand, it could be important that an agency obtain the IP rights to material created under a contract. There is often a commercial logic to obtaining the rights (or a very broad licence) to the IP in new material – where for example, a customer agency has paid for the material being created and needs to be able to use that material to pursue its lawful purposes.
Third party IP/moral rights
A further category of IP material that could be used as part of the engagement is third party material and moral rights. There is an ever-present risk when engaging contractors to perform services or provide goods that they will do so using or incorporating third party IP without the appropriate licenses and consents. A strong template IP clause will deal with third party IP and moral rights, and ensure that the risk of a contractor infringing third party IP or moral rights is allocated to the contractor (typically via a warranty).
Liability cap exclusion
If a contractor breaches your agency’s IP rights, or provides third party IP or moral rights without appropriate permissions in place, this could have significant and costly consequences for your agency. Where template commercial contracts include liability caps, we suggest considering whether infringements of IP or moral rights should be excluded from that cap.
Artificial intelligence
AI poses a unique set of IP risks for customer agencies. Given the diversity in AI products, services and supply chains, and ambiguities in the application of intellectual property laws to specific AI processes, it may be difficult to develop template IP clauses that deal with all AI-related IP risks. However, there are steps that organisations can consider taking to reduce some of the risk. For example, it may be beneficial for an agency to require a warranty from contractors that any materials forming part of a deliverable provided to the organisation have a human author, and to require specific indemnities from contractors regarding AI outputs used in performing the agreement.
What to include in an IP clause protecting your assets
Any intellectual property clause should have protection as its primary objective. But what specifically should you add to guarantee that your assets are properly protected? Here are some suggestions to think about.
- Non-Disclosure Agreement (NDA): If your project includes exchanging sensitive information, an NDA might be a useful addition to your intellectual property clause. It establishes the guidelines for secrecy and lists the penalties for violations.
- Terms of Licensing: Make sure to include the license terms in your agreement if it entails granting a third party a license to use your intellectual property. This may include anything from use limitations to royalties.
- Termination Provisions : In rare circumstances, you may need to end the contract because the intellectual property clause was broken. Indicate the circumstances under which the contract may be cancelled and what would happen to the IP assets in such a case.
- Resolution of Disputes: Legal disputes may be costly and time-consuming. A dispute resolution procedure that is included in your intellectual property clause might promote more amicable conflict settlement. This might be a particular legal procedure, arbitration, or mediation.
- Updates and Modifications: Intellectual property is typically dynamic, with regular new developments and modifications. Include a clause that allows for the revision or amendment of the Intellectual Property Clause to reflect such developments.
How NB Commercial Law can help?
Our experienced commercial lawyers can assist with reviewing your commercial agreements, of any nature, to ensure that your intellectual property rights are protected. Please contact us on (07) 3876 5111 or email [email protected] for further information.