How to build an intellectual property clause

In this article, we have a look at some of the important aspects that must be kept in mind when drafting Personnel and Non-Solicitation clauses.

Most disputed terms WCC ranking: 

19

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16

Most negotiated terms WCC ranking: 

12

What is the purpose of an Intellectual Property clause in a services agreement?

The Intellectual Property clause determines which Party owns which intellectual property that will be used or created during the Agreement. The Intellectual Property clause may also provide for various obligations in respect the intellectual property, for example, an obligation to assist with the registration of intellectual property.

What is Background IPR

A provider may have to bring a couple of things to the table to perform the service. For example, the provider’s know-how, their systems and technology. The provider may have certain intellectual property rights in respect of the know-how, systems and technology. These rights are referred to as the Background Intellectual Property Rights (Background IPR).

What is Foreground IPR

Foreground Intellectual Property Rights (Foreground IPR), are intellectual property rights that arise due to the activity conducted under the Agreement.

Building blocks of an Intellectual Property Clause

building blocks of an intellectual property clause

What is Background IPR

The devil is in the details when it comes to definitions.

Usually, Intellectual Property Rights is defined separately from Background IPR, and you should therefore start with the definition of Intellectual Property Rights.

The Intellectual Property Rights definition may also contain various embedded defined terms. For example, Know-How, Patents etc. 

Here are examples of definitions that you may need when building your Intellectual Property clause:

Backround IPR means, by reference to a Party, all Intellectual Property Rights, excluding Foreground IPR, owned by such Party or any of its Affiliates, or licensed or made available by a third party to such Party and under which such Party is authorised to grant licenses.

Intellectual Property Rights means unpatented inventions, Patents, trademarks, service marks, trade names, domain names, copyrights (including rights in software), moral rights, rights in designs, Know-How, database rights, topography rights, mask work rights, utility models and all other intellectual property rights and forms of protection of a similar nature, licences to such rights, in each case whether registered or pending registration, and rights to apply for any such rights.

Know-How means all knowledge, drawings, specifications, samples, models, instructions, algorithms, working methods, ideas, concepts, technology, applied development engineering data, reports, notes and all other technical or commercial information, data and documents of any kind.

Patent means all patents and patent applications in any jurisdiction in the world, including any divisional, continuation, continuation-in-part, reissue, renewal, re-examination or extension thereof.

Retention of ownership

Ownership of the Background IPR will usually be retained by the respective Parties.

Some of the Background IPR (for example, Know-How), will be used to create Foreground IPR. For this reason, a licence is required in respect of the Background IPR. Who provides the licence will depend on the circumstances. Generally, both Parties will be making available Background IPR for the project, and therefore, both Parties licence their Background IPR. 

Licence in respect of Background IPR

Generally, a “project licence” is provided in terms of which each Party licences their Background IPR to the other for purposes of and to the extent required to perform their obligations under the Agreement. Without such a licence, an infringement question may arise.

It may happen that some of the Background IP will be used to create the Foreground IP. If this is the case, you want to be clear on the terms of the Background IPR licence. In other words, you want to expressly stipulate the scope of the Background IPR licence.

You will need to consider:

  • To whom is the Background IPR licenced (does it include Affiliates)?
  • What can the licensee do under the licence? Modify, distribute, sell create derivative works etc?
  • Are there any restrictions? For example, restrictions relating to territory, field of use, external use etc.
  • What about assignment and sub-licensing?

If you are acting for the customer, the typical licence you would require in this regard is a worldwide, no-charge, royalty-free, perpetual, irrevocable, exclusive, sublicensable licence.

What is Foreground IPR

Basically, anything that is created as a result of the activities conducted under the Agreement.

Here is an example definition:

Foreground IPR means all Intellectual Property Rights that arise as a result of or in the context of any activity pursuant to this Agreement.

Who owns the Foreground IPR

Most of the time the Foreground IPR will be owned by the Customer paying for the work. There are situations where the Provider would want to own the Foreground IPR. If this is the case, the Provider will need to provide a licence to the Customer to enable them to use the Foreground IPR.

 

Licence and obligations

When the Provider is providing a licence in respect of the Foreground IPR to the Customer, You will need to consider:

  • To whom is the Foreground IPR licenced (does it include Affiliates)?
  • What can the licensee do under the licence? Modify, distribute, sell create derivative works etc?
  • Are there any restrictions? For example, restrictions relating to territory, field of use, external use etc.
  • What about assignment and sub-licensing?

If you are acting for the Customer, the typical licence you would require in this regard is a worldwide, no-charge, royalty-free, perpetual, irrevocable, exclusive, sublicensable licence with scope that is as close as possible to “ownership”.

The general obligations relating to licencing must also be included, for example, that the Customer must assist with the registration of any Foreground IPR. And also, specifically, provide who needs to pay the fees and costs relating to the imposed obligations.

Non-asserts

If the Foreground IPR will be owned by the Provider, the Provider may want to make use of a non-assertation clause which will mean that the Customer cannot seek to enforce any Intellectual Property Rights it may have against the Provider in respect of the Foreground IPR.

Waiver of moral rights

Certain Intellectual Property Rights cannot be assigned and if you, as Provider, don’t want a situation where objections arise that relate to certain creative works, inserting a waiver of moral rights must be considered.

Example clauses

Customer friendly

1.           INTELLECTUAL PROPERTY

1.1         Background IPR:  Each Party retains ownership of their Background IPR and Intellectual Property developed outside the scope of this Agreement.

1.2         Background IPR Licence grant:  The Provider hereby grants to the Customer a irrevocable, non-exclusive, worldwide, no-charge, royalty-free, perpetual, sublicensable licence in respect of the Background IPR, under the following terms:

(a)         The Provider can create derivative works, display, or perform in any media and through any technology or other means of delivery, whether now known or developed in the future, distribute, sell, offer to sell, import, to make, or have made, to modify, to reproduce, to use externally, and to use internally the Background IPR for purposes of performing their obligations under this Agreement.

(b)         The Background IPR is also licenced to the Affiliates Customer.

(c)         The licence under Section 6.2 will survive termination of this Agreement.

1.3         Foreground IPR:  The Customer will exclusively own all Foreground IPR and the Provider hereby assigns all Foreground IPR to the Customer.

1.4         Obligations relating to Foreground IPR:  The Provider must:

(a)         assist in obtaining, registering, perfecting and enforcing all Foreground IPR; and

(b)         deliver all Foreground IPR.

1.5         Fees and costs:  The Customer must pay all fees and costs to register and protect the Foreground IPR.

Proivder friendly

1.           INTELLECTUAL PROPERTY

1.1         Background IPR:  Each Party retains ownership of their Background IPR and Intellectual Property developed outside the scope of this Agreement.

1.2         Background IPR Licence grant:  The Customer hereby grants to the Customer a irrevocable, non-exclusive, worldwide, no-charge, royalty-free, non-transferable, sublicensable licence in respect of their Background IPR, under the following terms:

(a)         The Provider can create derivative works, display, or perform in any media and through any technology or other means of delivery, whether now known or developed in the future, make, or have made, modify, reproduce, use externally, and use internally the Background IPR for purposes of performing their obligations under this Agreement.

(b)         The Background IPR is also licenced to the Affiliates Provider.

1.3         Ownership of Foreground IPR:  The Provider will exclusively own all Foreground IPR and the Customer hereby assigns all Foreground IPR to the Provider.

1.4         Licence:  Upon Customer’s payment of fees due under the Agreement the Provider grants the Customer an irrevocable, non-exclusive, worldwide, no-charge, royalty-free, perpetual, sublicensable licence in respect of the Foreground IPR, under the following terms:

(a)         The Customer can create derivative works, display, or perform in any media and through any technology or other means of delivery, whether now known or developed in the future, make, or have made, modify, reproduce, use externally, and use internally the Foreground IPR.

(b)         The licence in Section 1.4 will survive termination of this Agreement.

1.5         Obligations:  The Customer must:

(a)         assist in obtaining, registering, perfecting and enforcing all Foreground IPR; and

(b)         deliver all Foreground IPR.

1.6         Fees and costs:  The Provider must pay all fees and costs to register and protect the Foreground IPR.

1.7         Non-assertion and disclosure:  The Customer must not:

(a)         at any time allege the invalidity or otherwise take or permit to be taken any action affecting the validity or enforceability of any Intellectual Property Right obtained, applied for or to be applied for by the Provider; or

(b)         disclose or publish the subject matter of any inventions which may be patentable before the Provider has applied for any patent registration.

1.8         Moral rights:  To the extent permitted under the applicable laws, the Customer hereby waives all moral rights arising from or relating to Intellectual Property Rights created by or in collaboration with the Customer for the benefit of the Provider and all the Provider’s licensees and successors-in-title to the Intellectual Property Rights.

The Author

Martin Kotze is a commercial lawyer with over 10 years of experience. He specialises in transactional work within the Tech, Financial Services and Property industries. 

He is also one of the co-founders at DocNinja and regularly advises listed companies to small and medium enterprises on how to contract better with their customers. 

Martin Kotze

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