Intellectual property clauses are essential to protect your assets. Such clauses are especially important if a business’ primary asset lies in the creation of intellectual property (IP). IP clauses are typically found in agreements provided by businesses:
- Offering services (often called client or services agreement); or
- Requiring services (often called contractor’s agreement).
In this article, we describe how legal contracts address IP and explore key questions to ask when creating IP.
What is Intellectual Property?
IP broadly refers to a specific property that the human mind creates. This often includes trade marks, patents or copyright. Often contracts contain a definition for IP specifying what the agreement considers as IP. When reviewing or drafting a contract in determining your rights to create and use IP, it is important to refer to the contract definition of IP.
The Legal Basis for Intellectual Property Protection
There are various protections available for intellectual property creators under the legislation, including the:
- Copyright Act 1968 (Cth);
- Circuit Layouts Act 1989 (Cth);
- Patents Act 1990 (Cth);
- Trade Marks Act 1995 (Cth);
- Designs Act 2003 (Cth) or
- Competition and Consumer Act 2010 (Cth).
Common law protections may also be available for breach of confidentiality and/ or trade secrets.
Creating Intellectual Property
Many businesses create IP. For example, consultants, writers, programmers or designers all regularly create IP within a business. If you are a service provider creating IP for your clients, you need to determine whether you will:
- transfer ownership of IP to your clients; or
- you will only allow them to use the IP that you create.
If you transfer ownership of your IP (also known as assigning your IP), you need to ensure you receive adequate payment for the transfer of the IP. After all, it is an asset you are selling to the other party. If you transfer the IP, it is important to consider whether you will be able to use the IP again in the future. For example, if you:
- Develop a web application, will you be able to use the source code again in the future to create other web applications?
- Provide copywriting or design services to a business, will you be able to use examples of such IP in your portfolio?
If you are creating IP, but only allowing your client to use the IP under specific terms (through a licence), you need to determine the purpose for the use of your IP and whether there are any restrictions. For example, you should ask yourself whether:
- You will allow the client to use the IP to develop other commercial products;
- The client will only be able to use the IP for a specific amount of time;
- You will be able to terminate the licence you provide to your client.
Answers to the above depend on the type of clients you have and your bargaining position. You should ensure that any IP clauses included in your contract are commercially reasonable so potential clients will not hesitate to accept your proposal.
Using Intellectual Property
For businesses obtaining the services of a service provider, it is important to consider what your intention is for using the IP and to ensure that the IP clauses reflect your requirements. One of the main questions is whether you will be obtaining a transfer of the IP so that it is ultimately your property or whether you are satisfied with using the IP under a licence (which may come with restrictions).
Some key questions that you should keep in mind include:
- What IP are you purchasing/ obtaining a licence for? A review of the definition of IP will be useful in this regard.
- Will you be able to sell the IP to third parties (even if it is for a commercial purpose)?
- Will you be able to modify the IP in any way? Who will be responsible for any modifications?
- Are there limitations on your use of the IP, e.g. specific purpose, area or length of time?
If the main purpose of your engagement of a service provider is to use and exploit IP, you should ensure that the IP clauses thoroughly reflect your requirements.
Tips For Reading Intellectual Property Clauses
Contracts often include IP clauses that are not always straightforward to read and understand. Below are some helpful tips when reading IP clauses to equip you with the right questions to ask the other party.
- IP clauses may refer to the infringement of third party’s IP rights. For example, if you engage a creative agency to develop a marketing campaign, you want to ensure that the creative agency has the full rights to the IP and won’t infringe the IP rights of, for example, the employees or contractors that created the IP in the first place.
- There is also, very often, references relating to indemnifying one party, from the use of the IP. An indemnity refers to an obligation of one party to pay the other party, without having to prove cause of harm or mitigate losses. For example, if you engaged the creative agency for a marketing campaign and they use the IP of a third party without permission, you should check whether the creative agency will be indemnifying you from an infringement notice from the third party.
- IP clauses often refer to royalty payments. Royalty payments apply to IP clauses where one party obtains a licence to use the IP. The royalty payment will often be the fee for using the IP. However, some clauses state that the provision of IP is royalty-free.
IP is an important asset for businesses involved in creating and/or using IP. You should take time to consider how you plan on using the IP and whether your plan on assigning or licensing the IP. Although IP clauses may not be a lengthy part of any agreement, it is important to ensure the clause is drafted to reflect your needs.
If you have any questions about IP clauses in service agreements or need assistance in drafting or reviewing an IP clause, get in touch with LegalVision’s intellectual property lawyers on 1300 544 755.
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