Gaining Insight on an IP Assignment Contract
An IP assignment contract is a legally binding document that allows the transfer of ownership from an assignor to an assignee. An assignment contract will clearly identify the assignor and assignee along with their contact details. The contract will also specifically identify the item of intellectual property being assigned so that there can be no dispute between the parties as to what exactly is being transferred.
An IP assignment contract ensures that the assignment of IP rights complies with all current legal requirements. It particularly deals with assignments where there is an element of remuneration involved for the transfer . An IP assignment contract will also specify whether the transfer of the IP rights is to be exclusive or non-exclusive, as well as whether the assignment is of a limited scope or length.
The IP assignment contract should be signed by both parties. The law requires that the contract is signed in writing and delivered to the assignor. A properly executed IP assignment contract will generally override and take the place of the original creator of the intellectual property right (the assignor) as the legal owner of a specific intellectual property right.
Essential Features of an IP Assignment Contract
When drafting an IP assignment contract, there are several key components that must be included to ensure that the new owner understands exactly what rights they are purchasing and is afforded the full protection of the law for their IP. Most important for any contract, and especially with IP, is to make sure the parties are correctly identified. This includes the assignor (the creator of the IP), who may be an individual or business, as well as the assignee, who is the person or entity acquiring the rights. It is also good practice to list the addresses of each party in the contract. The next important step in creating an IP assignment contract is the description of the IP. Intellectual property can take many forms and may consist of a variety of creations, so it is crucial that all IP being assigned is detailed in such a way that the assignee knows exactly what they are acquiring. Any limitations in use should also be clearly defined. When in doubt, be specific and include everything; if a particular aspect is not included in the contract then nothing can be assumed or inferred from its absence. If both parties agree that a particular piece of information should remain confidential then a general statement such as "other items" or "such and such" can be used to reference IP without explicitly describing it in detail. The next item to cover is the transfer of rights from the assignor to the assignee. The language of the contract should indicate all of the rights and permissions that the assignee is being given, as well as whether or not the assignor retains any rights to the IP after it has been transferred. The assignment will pass with it all proprietary rights, including the right to sue for past infringement. In the case of copyright, if the contract does not specify a specific term, then the IP will belong to the assignee for the full term under copyright law, meaning the author would only maintain his or her moral rights. Finally, compensation for the assignment must be detailed in the contract. A fixed fee for the value of the IP may be appropriate in some cases, while other parties may want to consider an equity interest in the new business or a share of any future profits as compensation. Please note that compensation for the IP being assigned is also considered a transfer of intellectual property and may be eligible for IP tax benefits. Being specific about how the assignment will be compensated is crucial to protecting both parties from the future impacts of the transaction.
Advantages of IP Assignment Contracts
An IP assignment contract can provide legal protection for both assignors and assignees of intellectual property. For an assignor, having a contract in place delineating the ownership rights of the parties ensures that there are no future disputes as to ownership of the intellectual property and provides evidence that the assignor relinquished their rights to the assignee. For an assignee, a contract guarantees the assignor the right to use the intellectual property for purposes outlined in the agreement without fear that the assignor will try to retain or reclaim any of the assigned rights. Furthermore, when dealing with multiple co-owners of a particular piece of intellectual property, a contract can be entered into amongst all owners of a piece of intellectual property that clearly sets forth each co-owners separate rights to use assigned rights, especially relevant where one owner wishes to use the intellectual property the same time as another owner but for potentially competing endeavors. Having an IP transfer contract in place amongst the co-owners removes ambiguity as to the parties’ rights to use the intellectual property.
Typical Pitfalls When Drafting IP Assignment Contracts
The drafting of an IP assignment agreement presents a significant challenge for any business if they are to ensure that the agreement is enforceable and not open to challenge. Unfortunately, a number of difficulties lie in the drafting of such agreements, which are seen as stumbling blocks by many. However, these can be easily avoided provided you know what to look out for. One of the most common problems that needs to be addressed is the deviation of the final IP from the original concept envisaged by the parties. For instance, the concept behind an IP assignment agreement may change and evolve, resulting in the work produced covering a wider or narrower range of interests than was first intended when drawn-up. When discussing how to tackle this problem, Guy Chapman, a partner with Sheridans, who have specialist knowledge in IP assignment agreements, offers the following advice: How a project develops (and the extent to which it diverges from the original concept) is often unpredictable. In terms of contractual protection, it is therefore advisable to take a ‘belt and braces approach’ and ensure that the assignment applies both to finished products and to material that might later develop into a finished product: (i) A broad description of what is being assigned. Here, it is sufficient simply to assign ‘all Intellectual Property’ in respect of the project or ‘all Intellectual Property created or developed’ in respect of the project. (ii) In many IP assignment contracts, the assignment is coupled with a confidentiality obligation, so the description can be limited to the particular project described. (iii) An assignment that is limited to the specific venture (such as the creation of a film or television series) might be sufficient. (iv) Where draft/executed versions of an agreement are envisaged, it should be covered in the assignment. Similarly, in the case of consultations with legal advisers, these have been found to be covered by an assignment if they were made with a view to such advice being given. (v) A specific CFIA (Cinematographic Film Industry Agreement). Care should be taken to check the current provisions of the applicable contract with the relevant film or television union or guild. These agreements have been clarified since 1991 and now provide for a defined period in which ‘accrued rights’ can be assigned or transmitted where such rights are transferred outside the UK, such as to the US, Canada or France. Furthermore, where contract negotiations do not proceed as expected, and the parties do not know whether a particular aspect may fall within the scope of the assignment (because a specific non-confidential task is expected to take longer to complete than initially anticipated), Chapman advises that: … an immediate assignment of all sub-assigned copyright will cover anything that may fall within a supplementary agreement that the parties negotiate later. This will protect the parties from any unexpected future disputes. Such omissions or mistakes in any proposed IP assignment agreement can easily make the resulting contract unenforceable. To this end, when entering into an agreement of this kind, it is wise to employ the services of a recognised independent specialist in IP law to draft the content of the agreement, in order to observe the necessary legal requirements that will render it valid and enforceable.
Negotiation of IP Assignment Contract Terms
To effectively negotiate the terms of an IP assignment contract, it is essential for both parties to understand their intellectual property rights and the rights they intend to acquire or assign. The first step in negotiation is to determine the scope of the assignment. For example, does the assignor want to assign all rights to the assignee or only an exclusive license? Additionally, both parties should understand the territorial scope of the assignment. That is, do the assignor intends to assign rights on a global scale or only in a particular jurisdiction, such as on the territory of the assignor or the territory of the assignee?
It is crucial for all parties involved to be aware of potential pre-approval requirements from the relevant regulatory authority before concluding an assignment contract. Some contracts can be subject to review or approval by regulatory authorities. Hence, this should be factored into the negotiation of contract terms.
Second, the parties should ensure that they fully understand the scope of the assignment, including the type of works protected by the relevant law of the applicable jurisdiction(s) and unintended consequences of the assignment, in order to maximize its rights under the agreement and minimize potential pitfalls.
Third, the parties should negotiate a fair compensation for the transfer of rights. The value of intellectual property generally relies on future profits and the potential of the work. Certain types of intellectual property, such as engineering works and software, can be valued based on their current market price or on the prior cost invested in developing or creating the asset. In the case of IP represented by works of art , or other works where a "one off" article is created, the value may be determined based on the artist’s (the assignor’s) reputation and status.
Fourth, parties should ensure that the IP assignment contract contains certain key terms, including:
(i) Definitions. In order to avoid any misinterpretation or misunderstanding with respect to the subject matter of the assignment, all the terms should be clearly defined, particularly, the term "intellectual property" should be clearly set out, even if all the parties are familiar with it.
(ii) Permitted Actions. All acts that the assignor can engage in after the assignment should be clearly enumerated in the contract.
(iii) Non-disclosure and Confidentiality Obligations. Typically, an IP assignment contract will involve the disclosure of proprietary information of a company and its trade secrets. To protect the confidentiality of these sensitive materials, an assignment contract will generally contain two (2) types of non-disclosure clauses: (i) a general non-disclosure clause which seeks the protection of all confidential information; and (ii) a confidentiality clause intended to protect the product specifications and/or technical data that is being assigned.
Whenever feasible, parties should enumerate the categories of confidential information that should be subject to protection.
(iv) Dispute Resolution. All agreements between assignor and assignee should contain a dispute resolution clause and particularly, an arbitration clause to avoid any potential litigation. This is important particularly in contractual agreements where goodwill is at stake.
Legal Implications and Adherence
When it comes to intellectual property (IP), the law requires that ownership be established in a definitive manner. The writing requirements mostly pertain to the assignment of copyrights, where a contract assigning copyright must be in writing to be enforceable. For contracts that involve (or potentially involve) patents, the law is more ambiguous about writing requirements. The United States Patent and Trademark Office prefers that patents be assigned via a written document, but courts have held that assignments can also be oral agreements (as long as there is no other evidence of the contrary).
With trademarks, federal law requires that trademarks actually be assigned for a consideration. IP may be transferred as part of the sale of a business but would still be subject to typical contract considerations such as contracts of sale. More importantly, contracts that transfer IP rights must be in accordance with the laws of the jurisdiction that the IP is established and maintained. Jurisdictions may include regulations on compensation for creators, or may protect IP assets from wrongful assignment.
IP Assignment Contracts Compared to Licensing Agreements
In the context of IP assignment contracts, it is important to understand the difference between IP assignment contracts and licensing agreements. Creators, inventors and entrepreneurs need to understand when to use an IP assignment contract versus a licensing agreement. This is particularly so where a business has been started by more than one person, with the IP being developed by them collectively.
IP Assignment Contracts are generally suited to situations where the IP has already been developed by the parties, or has in fact been used by the parties, and the parties wish to record an ownership transfer between them.
IP licensing agreements are suited to situations where an individual, group of individuals or corporation has conceived an idea that has not been developed and has no physical manifestation. Alternatively, the idea that has been conceived is in the process of being developed.
In both IP assignment contracts and licensing agreements, the two parties must be considered. This means that consideration is something of value, such as money. The consideration for the further development of the IP can take the form of one party paying for the other party’s time and/or expenses. However, the parties should ensure that they each receive something of quantity in terms of the commercial exploitation of the IP. That is something that can be expressed as a set percentage upon net sales.
Executing an IP Assignment Contract
Executing an Intellectual Property Assignment Contract involves three main stages: due diligence, drafting and signing.
Due Diligence
Due diligence is the discovery of the ownership of the development described by the assignment. The process consists of:
- documenting and describing the assignment;
- collecting all of the evidences related thereto;
- performing a title search with respect to the recorded security interests;
- performing a search at the registry of deeds for registered real estate;
- conducting a bankruptcy/insolvency search in the territorial jurisdiction where inventor(s) and/or signatory of the assignment reside;
- completing an asset search; and
- obtaining an IP registration status report covering, among others, the following questions:
- has the assignee been granted the requested patent for the assigned patent draft?
- has the assignee been granted the requested industrial design for the assigned industrial design draft?
- has the assignee been granted the requested trademark for the assigned trademark draft?
- have any actions filings been made on behalf of the assignee?
- were any security interests recorded on the assignment?
- were any security interests recorded on the assigned trademarks?
- were any security interests recorded on the assigned patents?
- were any security interests recorded on the assigned patents in other jurisdictions?
- was the transfer of the asset recorded by the assignee?
Where there is more than one co-creator, a power of attorney may be required at the time of the execution of the assignment to legally empower the parties involved to obtain cooperation from the other co-creators to do what is necessary to secure the requested IP rights .
Drafting
The assignment contract needs to follow a particular structure that should include the following elements:
- a description that adequately identifies the invention, the industrial design or the trademark that the assignor would like to communicate to the assignee.
- the expression of the joint intention of the parties that the assignment of rights with respect to the previous properly executed is formally made by the signing of the contract.
- the expression of the intent to benefit from the registration of the IP rights in the party’s own name.
- the signature of the assignee – the assignor must be a legally competent party who is responsible for the facts identified in the title search.
The signing should be made in the presence of at least one witness who cannot be a party to the agreement. If a form is being used, it usually requires two witnesses; one on each page.
What happens when the assigned IP rights are not registered? In such case, the assignment is effective as soon as the signer has placed his/her name on the piece of paper with the intention to transfer the IP assets.