Managing Intellectual Property Rights and Contract Law

Intellectual property rights are by their nature restrictive rights. Rights owners are granted the power to prevent third parties using their intellectual property without their consent. When it comes time for materials in which IP rights subsist to be exploited, it is the law of contract that is called upon to do permit to use the materials, subject to the conditions of contract.

Contract Law

A contract is simply a legally binding agreement. Parties to contract are at liberty to agree to what may take their fancy and the terms that may please them. The law imposes limitations on what may be contracted for when the courts find that an agreement is contrary to public policy or otherwise restricted by statute. With this background, owners of intellectual property are free to agree to deal with intellectual property in any way that they see fit.

Contractual Dealings with Intellectual Property

Dealings with intellectual property take two basic forms. Firstly, intellectual property rights are personal property, which means that they may be assigned to another person, subject to very limited exceptions. An assignment of intellectual this property rights conveys the title to the rights to another person. Far more frequently however these personal rights are licensed to other businesses for a limited purpose or a limited period, in accordance with the particular terms of contract. Amongst many others, movies, music, software, architectural plans, trade marks, designs, patents may be licensed to businesses or the public at large to use them subject to specified conditions and limitations. These licenses, which are in essence permissions, allow the licensee to perform some act in respect to the intellectual property that would otherwise amount to in infringement of the owner’s intellectual property rights.

In the commercial environment contracts allow such dealings to happen.

Copyright Law

Copyright is the palladium of product of the arts, such as manuals, computer programs, commercial documents, leaflets, articles, song lyrics, sound recordings, photographs, film, sound recordings and many others. Businesses that trade using copyright works such as these are entirely reliant granting licenses to their customers on specified terms to trade using their stock in trade.

Contract law allows these companies to restrict and limit use of these copyright works to a fine degree. For instance a photograph might be licensed for use in print media for a set price and electronic media for an entirely different price, or indeed prohibit these uses in their entirety.

Patent Rights

Of all the different types of intellectual property rights, it is patent rights that provide the most extensive and complete monopoly over inventions. Products and processes which are inventive may be patented. As the monopoly rights granted are so extensive, so the bar to surpass for registration is higher than any other form of IP protection. Use of patent rights may be managed in the same way as other intellectual property rights.

Confidential Information and Know-how

A common form of license is that granted by non-disclosure agreements. Non-disclosure agreements are legally binding contracts designed to impose restrictions upon information released to another person, pursuant to the terms recorded by the agreement. In the absence of a non-disclosure agreement, the discloser of information would be left with their rights under the general law to protect the information released from unauthorised disclosure or use. The general law requires a claimant must show that the circumstances of the case justify the court finding that the information (1) retained the requisite quality of confidence, (2) was imparted in circumstances importing an obligation of confidence, and (3) that the information has been misused. Establishing such circumstances requires meticulous preparation of evidence. Thus in the vast majority of cases proving to the satisfaction of a court that trade secrets have been misused is an onerous exercise.

Contract law simplifies this. If it were the case that a contract has imposed obligations of confidence between the parties, the discloser is not simply left with his rights at general law. The non-disclosure agreement imposes separate and independent rights to the general law, and indeed when properly drafted, may far exceed the rights that a claimant would otherwise be left with under the general law. As with other types of contracts, non-disclosure agreements may be framed to allow different types of uses of the information released – what those terms are rely upon what the parties intend to achieve.

Trade Mark Rights

The law of registered trade marks and unregistered trade marks protect brands, business names, logos, slogans, packaging and shapes in many instances. In industry, service marks and collective are also able to be registered, creating a device to set a standard of service and recognition that becomes associated with a particular standard of quality. Again, use of contracts allow businesses to license use of trade marks to other businesses; it may be that a licensor wishes to impose particular restrictions on the size, colour, geographical location or even the place on a website that a trade mark will be used. Provided these requirements may be reduced to writing with sufficient clarity they may form part of the contractual relations and effectively restrict use of the trade mark. For example, franchises depend on trade marks to create a common branding, as do businesses authorising others to manufacture packaging.

Commercial Environment

When it comes time to make commercial decisions as to the types of uses and licences that will be granted in respect to intellectual property, companies would be well advised to ensure that that contract accurately reflects the commercial intentions of the business. Failures to do so may have dire commercial and indeed legal consequences. Problems may arise by a variety of different courses.

For example, a company may inadvertently accept terms and conditions of the other business printed on the back of a purchase order authorising the payment. In such cases, the licensor’s own terms of business may be found not to apply. The consequences of this are that the business contracts on unforeseen terms of contract that may well be contrary to its own intentions, and result in foreseen consequences. In one case that the author has advised on, the author of a University course inadvertently transferred the intellectual property rights to a company rather than license its use. This placed it in a position whereby it had divested itself of the assets in which had invested significant capital expenditure, that it intended to use and re-use for years to generate income. It had assigned the ownership of the course to the other party inadvertently.

A company may wish to license a company to “use” certain intellectual property rights on restrictive terms. Difficulties may arise in the contractual meaning of the word “use” when it is not defined in the contract, and thus introduces ambiguity and uncertainty in the contractual arrangements between the parties. Where a licensor asserts narrow and restrictive rights for “use” and the licensee asserts broad liberal rights to “use” the work, unless there are other material in the contract indicating what the parties intended by “use”, it is extremely difficult to ascertain what the parties actually intended to agree to. In situations such as these where intransigence sets in, litigation is required to resolve the dispute causing distraction and expenses that is otherwise perfectly avoidable.

Conclusion

Fundamentally management of intellectual property rights takes place with contracts. Licences and assignment of owners’ rights may be coupled other objectives of the parties, for instance:

research grants and consequent dealings with the fruit of such research;
funding arrangements and contractual commitments for exploitation;
clinical trials and use of consequent results of the trials;
fixing royalties for exploitation of intellectual property rights;
commercialisation of intellectual property and revenue sharing arrangements
granting of options over intellectual property
grants for licences for evaluation of relevant materials, and onward licenses
cross-licensing different intellectual property rights for mutual research or exploitation; and
software licensing.