Intellectual Property (“IP”) is generally defined to mean “creations of the mind” – these include inventions, literary and artistic works, and symbols/names/images used in commerce. IP can be protected by different tools under the law, such as patents, trademarks, copyrights, to name a few.
These tools confer “intellectual property rights” (“IPR”) that provide creators/owners with certain exclusive rights in relation to their IP (e.g. to use their IP, to distribute their IP etc). Such exclusive rights enable creators/owners to earn recognition or financial benefits from their IP.
Depending on the nature of the business, IP may prove to be extremely valuable and crucial to a start-up’s operations. In this regard, it is not uncommon for businesses to assign some or all of their IPR to third parties on specific terms set out in an IP assignment agreement, for a variety of reasons.
In this article, we examine why start-ups may need an IP assignment agreement.
Reason 1: Monetise IP
Given that IP could prove extremely valuable, businesses may choose to assign some of their IPR to third parties, in exchange for a receiving fee from such third parties. Such activities could prove to be a substantial source of revenue.
For example, the assignment of IPR forms a substantial source of revenue for many franchisors. Under a franchise arrangement, the franchisor provides the franchisee with the right to operate its business under its system and marks, in exchange for a franchise fee. In order to enable the franchisee to carry out such business activities, the franchisor may have to assign certain IPR to the franchisee.
A well-drafted IP assignment agreement facilitates such monetisation, as it would set out terms such as the assignment fee and the IPR being assigned.
Reason 2: Ensure good title to IP
Corporate entities (e.g. private company limited by shares) remain the preferred vehicle for commerce – in other words, entrepreneurs would prefer to conduct business activities through a corporate entity as opposed to doing so on a personal basis.
The reasons for such a preference are manifold, the chief one being that doing business through a corporate entity generally limits an entrepreneur’s liability for the business.
Practically speaking, such a preference means that the entrepreneur’s IP ought to be vested in the corporate entity, in order to facilitate business activities. After all, business partners would certainly prefer a party that has ownership rights in the IP.
A well-drafted IP assignment agreement allows entrepreneurs to assign their ownership rights in their IP to their corporate entities, and this provides the corporate entities with good title in the IP needed to do business.
Reason 3: Obtain representations and warranties (R/W)
Where parties engage in discussions over IP, the holder of the IP licensor is likely to make certain assertions with respect to the IP to the assignee.
Where the IP in question is crucial, the assignee may wish to consider requesting the holder to undertake certain R/Ws with respect to these assertions.
R/Ws are a form of performance assurance. The effect of undertaking an R/W is that where such assertions are found to be untrue, the assignee would be entitled to a wider range of remedies.
A breach of a representation would generally entitle the innocent party to rescind the contract. A breach of a warranty would entitle the innocent party to monetary damages. Accordingly, where a R/W is breached, the assignee may have the option to claim monetary damages or to terminate (even rescind) the contract.
A well-drafted IP assignment agreement may set out certain R/Ws with respect to the IP in question. Matters in relation to which a assignee would typically require a R/W include:
● The use of the licensed IP rights does not infringe any third party’s IP rights.
● There have been no third party claims that have been made against the licensed IP rights.
Reason 4: Compliance with applicable laws
Various jurisdictions may require certain requirements to be fulfilled, in order for the assignment of IP to be valid.
These requirements may include:
● A requirement for there to be a written IP assignment agreement, and for such assignment agreement to comply with a certain form.
● A requirement for such assignment to be recorded in a specific register.
In this regard, a well-drafted IP assignment agreement may not only be useful in delineating parties’ obligations for ensuring compliance with applicable laws, but may also in and of itself be a necessity for compliance.
Reason 5: Protect Exclusivity
A well-drafted IP assignment agreement also helps to protect the holder’s exclusive rights in its IP.
Often, the value of IP lies not only in its originality/innovativeness, but also its exclusivity. After all, a business may lose its competitive advantage if its IP can be exploited by anyone under the sun at little or no cost. Third parties may also be unwilling to pay for rights in IP if they can readily exploit such rights.
A party may rely on well-drafted IP assignment agreement to protect its exclusive rights in relation to its IP.
When examining an exclusivity clause in an IP licence agreement, it would be prudent to pay attention to the following matters:
● Are there any exceptions to exclusivity?
● What are the consequences if the counterparty infringes on such exclusivity rights?
We hope that this article has been helpful to you as a start-up trying to make headway in the business world.
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Needless to say, our solution comes with a 24/7/365 helpline whereby one of our legal professionals can assist you with any queries that you may have.
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*The above content does not constitute, nor is it offered as, legal advice of any kind. GLS Solutions Pte Ltd is not a law firm and any support provided pursuant to this entity is not regulated legal advice or legal opinion.