Contracts Basics Series #7: Dealing with Intellectual Property - DAC Beachcroft

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Contracts Basics Series #7: Dealing with Intellectual Property

Published On: 1 December 2015

What is “intellectual property” or “IP”? 

The World Intellectual Property Organisation describes intellectual property as referring to “creations of the mind” such as inventions, literary and artistic works, designs, and symbols, names and images used in commerce. Most organisations produce IP on an on-going basis, typically as part of the work output from their everyday operations, or it might be created by commissioning work from someone else. It doesn't just include obviously valuable developments such as innovative drugs or specialist medical devices. Reports, diagrams, training manuals, books and journal articles, working methodologies, brand names and software are all types of work output which may constitute intellectual property.

IP is generally protected in law by affording certain rights to the owners of the creations (patent rights, copyright, trademark rights (registered and unregistered), design rights (registered and unregistered), database rights – the list goes on) which enable them to prevent others from unfairly benefiting from those works.  

For many businesses, copyright is the most common form of intellectual property right available for these purposes.

Copyright – it does what it says!

Copyright automatically arises on the creation of a qualifying work and grants exclusive rights of use and distribution so that (subject to limited exceptions) no-one else is then able to use, distribute, copy or adapt it without permission. 

To qualify for copyright protection, the work must be the result of some sort of creative effort (but note the bar here is quite low!), be original and expressed in some form of tangible medium.

Who owns the copyright?

This is where the importance of addressing intellectual property rights ownership in your contracts really comes into its own.

Unlike the position regarding the work output of employees (where ownership of the copyright in their work is deemed to automatically belong to the employer and not the actual creator of the work i.e. the employee), the intellectual property rights in work which is commissioned from a third party will automatically belong to the actual creator of the work i.e. the third party. However, this may not be at all what the commissioner was expecting, particularly where, for example (i) the work is being done by an individual self-employed contractor in a relationship considered akin to employment, or (ii) where large sums of money are changing hands for the work, or where the commissioner is (iii) providing intellectual input into the work, or (iv) guiding the development of the work in some way.

Happily, it is possible to agree a position with the third party which will override the default position and ensure that copyright belongs to the commissioner instead but, to avoid any ambiguity on the point, it is vitally important that any agreed arrangement of that nature is fully and accurately reflected in the contract.

Intellectual property rights indemnities

Assuming there is no direct fault on the part of a user of intellectual property which has been provided to that user by someone else, any intellectual property rights infringement claims by third parties will almost always be borne out of the activities of the provider (for example, in circumstances where it wasn’t actually entitled to provide the IP to the user or had itself  copied the IP from someone else). As it is the provider which has created that risk it is, therefore, perfectly reasonable for a user to insist on an indemnity being included in the contract between them. As IP infringement claims are notorious for being very expensive to resolve, a user should never shy away from negotiating appropriate IP indemnity clauses in their contracts with providers.

In Summary

IP is too important to be left to chance! Always ensure your contracts specifically and unambiguously address the question of IP ownership and always protect against possible future claims of IP infringement by including a specific indemnity against them. 

If you require advice on how to deal with intellectual property rights issues in your contracts, please do not hesitate to contact us!