Intellectual Property Licensing and Confidentiality Agreements, an Overview Jan 24, 2019 A critical component to any company’s business plan is to develop and sustain intellectual property. Intellectual property can range from having a copyright on a company brochure to patent protection for technology that defines the company. The ability to create intellectual property first and then add value to that property offers a means to establish and secure a market position for a company. In addition, having intellectual property adds value to the company, creates a foothold for establishing a market share, and guides investors as they determine the company’s value. This article focuses on frequently asked questions associated with the creation of intellectual property, whether it involves copyrights, trademarks, or patents, and discusses important provisions associated with certain agreements involving intellectual property. Why does the government need to protect intellectual property? The well-being of society depends upon its capacity to be creative in technology and culture. Legal protection encourages further expenditure that drives further innovation. Protecting intellectual property spurs economic growth and creates new jobs and industries which, in turn, enhances the quality of life. For example, rewarding creativity by providing copyright protection to the film, recording, publishing, and software industries brings their products to millions of people. Trademark protection allows consumers to buy confidently. Patent protection rewards researchers and inventors to encourage them to improve products for consumers. What is a patent? A patent is an agreement between the inventor/owner and the government that gives the inventor/owner a 20-year monopoly on the technology in exchange for the public disclosure of the invention. This monopoly or right to an invention gives the owner the right to exclude others from making, using, selling, importing, exporting, or distributing the patented technology. Patented technology can be a new method of use, a composition of matter, or a new type of process or manufacture. The inventor/owner of a patent decides who may or may not have access to the invention through a mutually agreed license or assignment. What is a trademark? A trademark is an exclusive right to use or allow others to use a mark identifying goods or services. A trademark is a distinctive sign that identifies goods or services as being produced by a specific person or entity. In this way, it helps consumers identify a product or service. Generally, trademarks are registered as either a standard mark or a stylized mark. Individual or combinations of words, letters or numerals are considered standard marks while drawings, symbols, signs, shapes, packaging of goods, audible/vocal sounds, fragrances, colors are considered stylized marks. While most marks identify a commercial source of goods or services, other marks are used to identify a level of quality or workmanship or a certification mark for compliance with defined standards. Individual owners of a trademark must police their own marks so it is important to obtain a federal registration of a trademark. Federal registration shows constructive use and notice of the mark, allows a suit to be brought in Federal Court, gives the owner the right to register in a foreign country, and can be recorded with customs to stop the importation of infringing marks. What is a copyright? Any type of work that is an expression of an idea and not the idea itself would be eligible for copyright protection. However, this work must be an original work that has some quantum of originality. The idea must be expressed in a fixed, tangible medium where it can be perceived, reproduced, or communicated for some period of time. Typical works include novels, poems, plays, reference works, newspapers, computer programs, databases, films, musical compositions, paintings, drawings, photographs, or sculptures. The author of the work is the person who created the work by transforming an idea into a tangible expression. Registration of the copyright gives the owner an exclusive right to use this work, prohibit reproduction, and authorize its use or adaptation in public. How do you establish ownership of intellectual property? In general, intellectual property rights may be assigned or licensed, either exclusively or non-exclusively, in part or in whole. For a patent, the rights begin with the inventor, trademarks begin with the entity or individual associated with the mark or brand while copyrights begin with the author of the work. What are some provisions to consider in the transfer of Intellectual property? Ownership of intellectual property is licensed or sold under mutually agreed terms, generally encompassed in a written agreement. These agreements are similar to most other agreements but include certain provisions to effect the specific type of transfer desired by the parties. The parties, such as a buyer/seller, assignor/assignee, or licensor/licensee, should have an explicit understanding of the payments, royalties, and milestone payments which should also include the level of effort in developing and commercializing the technology (i.e., commercially reasonable or best effort). There should be an understanding between the parties with respect to access by the party acquiring rights to obtain certain technical assistance and other know-how outside the granted rights, such as trade secrets, formulations, or techniques that would enable sufficient utilization and enjoyment of these rights. Any type of transfer should include indemnification provisions. Also, the agreement should include terms addressing warranties and representations by the parties, the term of the agreement with termination provisions, and governing law. Optionally, the parties should consider bankruptcy and insolvency contingencies and arbitration clauses to minimize potential legal costs. While it is important to incorporate these provisions in the agreement, the following terms are critical to establishing a mutual understanding in the transfer of intellectual property. A. The Grant The scope of the grant should establish the permissible use, defining parameters for the field of use. For new technology, the field may be defined by the application of the technology such as in diagnostics or the use of an antibody in a specific immunoassay. The grantor should consider keeping the scope as narrow as possible while still giving the grantee the ability to exploit the technology as agreed upon. The grant should also state the permitted regional use, whether in the USA or worldwide. Each of the terms in the grant should be expressed either affirmatively or negatively so as to create an explicit understanding of the parameters. B. New Intellectual Property Generally all intellectual property brought into an agreement and not subject to the grant will belong to the party bringing the intellectual property into the relationship. However for new intellectual property, ownership should be agreed upon upfront. As a general guide when new intellectual property is invented or created solely by one party to the agreement, then that party will own the new intellectual property, subject to certain uses related to the grant itself. When intellectual property is jointly developed, most agreements create a placeholder by having both parties as joint owners with no further terms. However, this leaves open questions regarding the further development the new intellectual property, royalty payments to the other party, or who will make prosecution decisions and incur related costs. The cost and control of prosecution is generally the responsibility of the party willing to exploit and develop the new intellectual property. It should be noted that apportionment of new intellectual property is case-by-case with the guidelines present here to be used as a starting point. C. Infringement Provisions Third party infringement of intellectual property can be one of the highest costs in prosecuting, maintaining, and policing intellectual property. Therefore, it is important to have an understanding between the parties as to the costs and level of involvement in any third party lawsuit that incorporates intellectual property under the agreement. Each party must assure the other of their intent to either enforce the technology or support the other party in their effort to enforce. All parties must be made aware of known or potential infringer by the other party. If one party is determined to have the right to bring an infringement suit, the other party must support the effort as appropriate. Any recovery is generally divided in the following order: reimbursement for all costs to the party bringing the action, then repayment of damages suffered by the infringing party, and then dividing any remaining balance among the parties. D. Confidentiality Provisions Arguably one of the most critical aspects in any agreement involving technology and intellectual property is the use, or non-use, of any confidential information exchanged between the parties. Exchange of this type of information is inevitable when building a relationship with another party and therefore confidentiality should be extended to include the party receiving this information. Confidentiality provisions, along with confidentiality agreements, establish and protect a company’s trade secrets and other information that are generally not available to the public. The terms should be limited to the purpose for the agreement. In a simple confidentiality agreement, the purpose may be to explore a potential business arrangement and should be limited to topics under discussion. Within the document, it is important to define what is, or is not, confidential information. This would include labeling all appropriate documents provided by the disclosing party as “CONFIDENTIAL” or when exchanging confidential information verbally, provide a follow-up email stating the confidential nature of the discussions. Any confidential provision in an agreement should include conditions for excluding information from confidentiality. This would include information that was made available to the general public other than by the receiving party; information obtained by the receiving party from a third party who is rightfully in possession; information received by the receiving party prior to disclosure by the other party; and information independently developed by the receiving party without use of confidential information provided by the disclosing party. In each situation, the exclusion should be supported by verifiable documentary evidence. Further in any situation involving a Court Order or regulatory authority that requires disclosure of confidential information, the disclosing party should be given the ability to respond to the order or have to opportunity to defend its confidential information. The disclosing party should also be able to ask for injunctive relief in the event of a breach or unauthorized public disclosure by the receiving party. E. Some typical agreement that may incorporate intellectual property and confidentiality provisions a. Confidentiality Agreements. Agreements limited to confidentiality terms only and are used to begin discussion surrounding a potential business relationship. b. License or Assignment Agreements. Agreements used to establish the framework for the use or transfer of intellectual property of one party to another party. c. Collaborative Research Agreements. Agreements used to establish a structured research arrangement between two parties. d. Research, Supply and Development Agreements. Agreements used to create a structured relationship that will take new technology from early development and research stages to the marketing and commercialization of a related product. e. Material Transfer Agreements. Agreements that contain mutually agreed upon terms for the use of one party’s material (i.e. antibodies) by a second party. f. Consulting Agreements. Agreements that allows one party to incorporate the expertise of another party such as in a fee-for-service arrangement. g. Employee Agreements. Agreements between individual hires and a company, especially where there exists the potential for creating new intellectual property for the company.