What is an intellectual property clause?
How does it work in contracts?
How do contracting parties manage IP ownership rights?
In this article, we will break down the notion of the “intellectual property clause” so you know all there is to know about it!
We will look at what is an intellectual property clause, provide you with a definition, look at where you may find IP provisions, what are the key questions you should ask to protect your IP in a contract, intellectual property statement, the Copyright Clause or Patent Clause in the US Constitution, samples and example of clauses!
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What is an intellectual property clause
An intellectual property clause is a contractual provision governing the ownership, title and rights associated with intellectual property such as creations, developments, drawings, designs, documents or any other material originally developed by a person or entity.
Intellectual property assets protect what’s intangible to your business such as:
- Unique processes
- Trade secrets
Typically, intellectual property assets can be protected in different ways:
- Trade secrets
When businesses deal with one another, it is important they protect and preserve their intangible or knowledge-based assets to ensure they remain competitive in the market.
That’s when the intellectual property clause comes in.
Intellectual property clauses outline the intellectual property the parties intend to protect, state who owns what IP, who may own IP developed in the future and what will happen to IP potentially developed jointly.
Intellectual property clause definition
To understand what is an intellectual property clause, we must first define what is intellectual property.
According to Cornell Law School’s Legal Information Institute, intellectual property is defined as:
In general terms, intellectual property is any product of the human intellect that the law protects from unauthorized use by others. The ownership of intellectual property inherently creates a limited monopoly in the protected property. Intellectual property is traditionally comprised of four categories: patent, copyright, trademark, and trade secrets.
In other words, intellectual property is the creation of a material result or expression of the human intellect that is recognized by law and protected.
With this as our basis, an intellectual property clause can be defined as:
A contractual provision where the parties mutually agree on what constitutes intellectual property, who owns the intellectual property along with all associated rights and obligations associated with it such as IP registration, filings, disclosure, moral rights, transfer and assignment, waivers, royalties, warranties and other.
Where do you find IP provisions
An IP ownership clause or intellectual property rights agreements are quite common in business particularly in knowledge-based industries or industries where there are designs and creations.
Typically, you should expect to see an intellectual property clause in:
- Employment contract
- Software development contract
- Consultancy agreement
- Partnership agreement
- Joint ventures
- Professional service agreement
- MSA agreement
- Sale of business agreement
- Co-development agreement
These are just a few examples of types of contracts that you may find an ownership of intellectual property clause.
Intellectual property ownership
The general rule of law is that the copyright or IP in an original work will belong to the person or entity that authored the work or created the original content.
In other words, if you write a novel, take a photograph or write software code, you will be automatically vested with the copyright
However, there is an exception to this rule.
The work-for-hire doctrine states that when a person or entity is hired to render a service, write a book, take a photograph or develop software (for example), without an express intellectual property contract clause, the IP of the work will be owned by the client.
If the original author intends to maintain and preserve rights on the copyright interests associated with the work, a clear and express intellectual property clause, intellectual property right agreement or some form of express IP clause is required.
IP can also be jointly owned.
A joint intellectual property clause can specify that the intellectual properties created or developed by the contracting parties will be “jointly owned”.
In other words, both parties will have rights associated with the named IP.
It’s important to draft such provisions carefully so that the rights granted to the parties are clear to avoid any dispute relating to the usage of the IP rights, royalties or other commercial considerations.
Intellectual property clause in contracts
There are some types of contracts that are intended to govern intellectual property rights primarily, their use and application.
The following contracts may be entered into primarily with regards to intellectual property considerations:
- Assignment agreements
- License agreements
- Non-disclosure agreements
- Technology transfer agreements
- R&D agreements
There are other types of contracts where the primary objective is something else but contains IP clauses as it is a crucial ancillary aspect to the contract, such as:
- Joint venture agreements
- Franchise agreements
- Software development agreements
- Consortium agreements
- Employment agreements
- Sale of business agreement
Businesses are advised to ensure they evaluate the nature of the contract and determine the IP considerations to protect their intangible IP assets.
Here are some key elements to consider when evaluating intellectual property contract clauses or looking to protect your IP in a contract:
- What type of IP may be revealed to the other party?
- What are the applicable laws to the IP?
- Are there pre-existing intellectual properties to be used?
- Do parties use third-party IP?
- Are the parties authorized to use and exploit third-party IP?
- How do we protect IP?
- Should we perform an IP due diligence?
- Are the exchanges of information protected by a confidentiality clause or agreement?
- If IP is generated, can it be assigned?
- If IP is generated, how will it be transferred?
- Will the IP agreement violate competition laws?
- Should the IP be registered?
- Should the IP clause or IP agreement be recorded?
- Are there short-term agreements that need IP protection?
Intellectual property statement
An intellectual property statement is a document or statement where a party, business or entity states or declares a policy with regards to the ownership of intellectual property rights.
Typically, colleges and universities adopt intellectual property policies or provide intellectual property statements outlining their agreement, understanding or views on the creation, ownership and handling of intellectual property rights between them and their faculties.
Some colleges and universities adopt such policies unilaterally while others negotiate them with faculties or even include them in their collective bargaining agreements.
The following elements may be covered in an intellectual property statement:
- Patent rights clause
- Intellectual property assignment clause
- Preservation of preexisting IP
- Anticipated inventions
- Exclusive or non-exclusive licenses
- Joint ownership rights
- Disclosure time limits
- Patent costs
- Use of IP
The idea is to ensure that the rights and obligations associated with the important volume of intellectual property created by colleges and universities are adequately and reasonably managed to prevent litigation and internal disputes.
In the United States Constitution, you have an intellectual property clause (also known as the Patent and Copyright Clause) describing the enumerated powers granted to the US Congress.
The US Constitution Patent and Copyright Clause (Article I, Section 8, Clause 8) states:
To promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.
As per the US Constitution, the intellectual property clause grants the US Congress two enumerated powers:
- The power to grant authors an exclusive right on their work for a certain period of time
- The power to grant inventors an exclusive right to their invention for a certain period of time
These two powers have laid the foundation for the U.S. Copyright Law and the U.S. Patent Law.
Intellectual property clause example
To better understand an intellectual property clause, it’s worth looking at a few examples.
We have gathered a few intellectual property clause samples to illustrate how these provisions may appear in contracts and how they may be worded.
Example 1: Intellectual property clause granting a license
The Service Provider hereby grants to the Client or shall cause to be granted to Client and its Affiliates a perpetual, non-transferable, irrevocable, non-exclusive, royalty-free, worldwide, right under the Deliverables to use and have used the Deliverables for any purpose, make copies, prepare derivative works, adapt and translate the Deliverables, solely for use in the normal business operations of Company and/or its Affiliates.
Example 2: Intellectual property clause to protect IP
Each Party to this Agreement shall (a) preserve and maintain the subsistence and validity of the Intellectual Property necessary for the Business; (b) use commercially reasonable endeavours to prevent any infringement in any material respect of the Material IP; (c) make registrations and pay all registration fees and taxes necessary to maintain the Material IP in full force and effect and record its interest in that Material IP; (d) not use or permit the Material IP to be used in a way or take any step or omit to take any step in respect of that Material IP which may materially and adversely affect the existence or value of the Material IP or imperil the right of a Party to use such property; and (e) not discontinue the use of the Material IP.
Example 3: Intellectual property clause contractual definition
Intellectual Property means (a) any patents, trademarks, service marks, designs, business names, copyrights, database rights, design rights, domain names, moral rights, inventions, confidential information, know-how and other intellectual property rights and interests (which may now or in the future subsist), whether registered or unregistered; and (b) the benefit of all applications and rights to use such assets of the Parties.
Example 4: Intellectual property clause warranties
The Company or one of its Subsidiaries exclusively owns and possesses, free and clear of any and all Liens, or has a valid license or right under Law to use, all Intellectual Property necessary for the Company and its Subsidiaries to carry on their businesses as currently conducted. Neither the Company nor any of its Subsidiaries has received any notice or claim challenging the Company’s or such Subsidiary’s ownership or use of any of the Intellectual Property owned (in whole or in part) or used by the Company or such Subsidiary, nor to the knowledge of the Company is there a reasonable basis for any claim that the Company or such Subsidiary does not so own or have the right to use any of such Intellectual Property, as applicable.
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