Beware of These Pitfalls in Intellectual Property Contracts

Intellectual Property ContractsIntellectual property is everywhere in business, particularly in your contracts. This creates an opportunity to better protect your IP, but it also carries the risk of losing rights in your IP if you do it wrong. Be aware of the pitfalls so that you can take advantage of the opportunities. First, it helps to understand what kinds of intellectual property and contracts you have in your business.

Types of Intellectual Property

Trademarks are the words, names, symbols, or other devices (like sounds or colors) that you use to distinguish your goods and services from your competitors. Distinctiveness is the key: to stand out, you can’t look like everybody else in the marketplace selling the same or similar stuff. You have to be unique. So the first person to use a trademark in their geographical area gets the right to exclude all of their competitors from using the same or similar marks for as long as they continuously use the mark. You don’t have to register a trademark to own it, but registration is a really good idea.

Patents cover new and novel inventions and designs and give the patent holder the exclusive right to manufacture or sell products based on the invention or design for several years. Registration is not optional – failure to register a new invention or design will result in it falling into the public domain. If an employee invents something on the job, the employer may be the owner of the invention.

Copyrights are the bundle of rights belonging to the author or creator of an original work. These rights apply to any work of original authorship, from books to paintings to software to movies to music to photographs and more. The author controls who can publish, display, perform, distribute, transmit, or make copies of their work. If an employee creates the work as part of his or her job, the employer owns the work.

Trade secrets are just about everything else you keep as a secret in your business: the secret sauce if you will. Ideas, plans, specifications, designs, business methods, processes, recipes, customer lists, vendor contacts, employee and independent contractor names, and proprietary company documents are all examples of trade secrets. As long as you guard your trade secrets and take reasonable measures to keep them from public disclosure, they are protected under the law.

Intellectual Property Contracts

Contracts with employees, including employment agreements, non-competition agreements, non-disclosure agreements, separation agreements, even employee handbooks and policy manuals, all have implications for your intellectual property. Protect yourself by making sure that you carefully define terms – especially in defining what constitutes a trade secret.

Contracts with independent contractors (including services agreements) are especially dangerous. Make sure your agreements specify who will own the contractor’s work product when they are done. Make sure you protect your confidential, proprietary and trade secret information. And make sure you include a clause that protects you from the contractor in case the contractor infringes on someone else’s IP.

Contracts with business partners should make it clear what each partner owns if the partnership is ever dissolved. Making sure that any IP created belongs to the right party is crucial. Well-drafted intellectual property contracts can make all the difference.

Entertainment contracts always have an IP element. Always. Whether it’s the rights to music created under a band agreement or the right of a publisher to make copies of a book, copyrights tend to be at the center of the discussion. But trademarks can be overlooked (who owns the band name, for example). Make sure you address all of the possible IP issues, not just the obvious ones.

Licenses and assignments are intellectual property contracts by definition. Think of an assignment as a contract to purchase intellectual property and a license as an IP lease agreement. With an assignment, you are acquiring all of the prior owner’s rights in the IP. With a license, you are only acquiring some of their rights and only for a limited time and usually with restrictions. Make sure you know which one you are getting.

Franchise agreements or “business opportunities” are generally intellectual property contracts wrapped in a business package. You are acquiring the right for your business to use someone else’s trademarks and possibly also their inventions, copyrighted works, or trade secrets.

Protect Your Business

You should always have your own lawyer look over any contracts with IP implications. Don’t rely on the other party’s counsel to give you advice – the represent the other guy! Make sure you get your contracts reviewed. Remember also that a contract is generally construed against the party who wrote the contract, so encourage the other party to have the contract reviewed by their lawyer too.


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