6 potential pitfalls when assigning IP Rights | For Microsoft Partners

What does it mean to assign Intellectual Property (IP) Rights?

An assignment of IP rights is the transfer of ownership of IP rights (or newly created bespoke IP) to another individual or entity. Your company’s IP is a critical asset and therefore care needs to be taken in its proper transfer.

Alarmingly, it is possible to unwittingly transfer IP by mistake so, to protect your IP, here are 6 areas to watch for in the assignment of IP rights.

1. Licensing versus Assignment

   There is a marked difference between the assignment and the licensing of an IP right.

   • Licensing

     Licensing is akin to a loan of the IP right for a certain period.

     With licensing, the owner of the IP doesn’t change and continues to hold the proprietary interest (or ownership), so they can apply conditions or limits on the use of the licence.

     The licence can even be revoked.

   • Assignment

     Assignment is the transfer of ownership of the IP right after creation.

     Critically, assignment means you have given away the ownership of that IP forever.

     It is therefore very important to distinguish whether you wish to assign or license the IP rights.

2. What is 'Background' or 'General' IP, and why does it matter?

   It is important to ringfence your own or your company’s IP which you use as a fundamental part of your business and is independent from any particular one of your customers, typically known as background or general IP. This is to ensure, where you have agreed to assign some bespoke IP to your customer, you do not inadvertently assign away your background IP rights which can be a crucial USP to your business.

   This can easily happen if you’re not familiar with contract terms, so it’s important to have an appropriate level of skill and technical knowledge when attempting ringfence your background IP. That’s what we’re here for!

   After you’ve excluded (aka protected) your background IP from an assignment, you may need to provide a limited licence to your customers to use the general IP for them to make use of your services or products.

   A licence can be non-exclusive, non-transferable, non-assignable, revocable, for a limited time period or even one that attracts a royalty fee. These are aspects which are usually heavily contested and negotiation points for the lawyers of the parties, based on each party’s commercial position and bargaining power.

3. Be clear about what rights you are assigning

   You should be clear about exactly which rights you are assigning in an agreement and make references to these.

   For example, if you’ve been engaged to design some software for a customer, the software you are creating should be clearly defined in your assignment clause either in the definitions, main body of a contract or the schedule. This way it is clear that only the IP existing in that piece of software (usually the copyright in the underlying source code) is being assigned, making it easier to ring fence your own background IP.

4. Be mindful of employment or consultancy terms

   If you are using a consultant to create any bespoke IP, or you have employees who work for you, make sure you have terms in the respective consultancy or employment contract relating to transfer of any IP created for your business or your customers.

   Generally, in law, most IP created by an employee, under a contract of employment, will automatically transfer to the employer except for non-economic rights, such as moral rights in copyright, which will not automatically transfer as they are personal to the employee.

   If you don’t have a consultancy agreement or employment contract in place, or they don’t specify who owns the IP created, make sure you document an assignment of IP rights agreement between the appropriate parties so you know who owns the IP.

   Without this clarity, a consultant might inadvertently own the IP, and it may be the case that you do not even own the IP rights you are looking to assign!

5. Warranties can leave you out of pocket

   Another hotly debated aspect of the assignment of IP rights are warranties.

   What happens when you use the customer’s product to provide a service that breaches a third party’s IP rights or where a customer uses your product which infringes a third party’s IP right? This scenario can crop up where you have created bespoke product for a customer which happens to infringe a third party’s IP rights. Example: Imagine you have been commissioned to develop some software for Joe Blogs. Unbeknown to you, Joe’s software may infringe Harry’s (a third party’s) existing IP rights, or the software which you create for Joe may make use of some IP which is already owned by Harry. In such situations, you would want to be protected as much as possible.

   Here warranties protect the innocent user of the IP but a breach of a warranty can typically be a very expensive affair falling foul to large scale liability. Therefore, it is important to have in place both commercial and prudent terms regarding warranties, including caps on liability to protect your business. If this aspect is badly negotiated, the fallout can result in immense losses for your business.

6. Beware of the paperwork

   In order to properly execute and facilitate a proper assignment of an IP right, for example, where the IP requires registration, sometimes customers may place a high threshold for you to execute all documents and complete all applications to a superior degree or to unreasonable timeframes. It is important in such circumstances to negotiate these terms properly to ensure the terms are reasonable and you are being properly reimbursed for your time and efforts in completing the steps.

   We hope this guide on the pitfalls in an assignment of IP rights has been helpful and has provided some key insight on dealing with assignment of IP rights.

   At Law 365 we have a team of dedicated lawyers with a keen eye for such matters and are always happy to be of service whether it is in respect of assignment of IP rights or any other commercial issue.

Further reading

• Find out why you should cap indemnities (law365.co).

• What Is The Point Of An Indemnity In A Contract? Law 365