10 TIPS TO PROTECT YOUR INTELLECTUAL PROPERTY FROM UNAUTHORIZED TRANSFER WITHIN YOUR IP LICENSE

Protecting your software and other intellectual property (IP) assets is very important in protecting your business. Consider implementing some important practices to increase your protections and controls. By considering these tips and including some of these provisions in your IP License Agreement (IP Licenses), you reduce the risk of your software or other IP being transferred without your consent and you will be in a stronger position in the event of a dispute.

IS YOUR BUSINESS PROTECTED AGAINST A POTENTIAL UNWANTED AND/OR UNAUTHORIZED ASSIGNMENT AND/OR TRANSFER OF YOUR INTELLECTUAL PROPERTY?

  1. Current positions and trends in the law to be aware of: The current guideline under general contract law, is that a contract that is silent on assignment and/or transfer is considered freely assignable/transferable unless adverse consequences (which are material) exist for the non-assigning party or a statue or public policy specifies otherwise (see Restatement (Second) of Contracts § 317(12) (1981), and also see UCC § 2-210 (1)(a)(2003). This differs with the transferability of IP Licenses as a Licensee’s rights are generally not assignable unless the IP License contains the express permission for its assignment or the Licensor otherwise provides such express consent (see Practical Law Company, IP Licenses: Restrictions on Assignment and Change of Control, Ziff and Deming, Practical law Publishing 2012/  https://www.skadden.com/sites/default/files/publications/Publications2679_0.pdf).The parties to the IP License need to consider clauses that are necessary to prohibit or permit the assignment/transfer of the agreement depending on various future circumstances, for example a sale or merger of a business, a reorganization, or even a mere name change for example a sale or merger of a business, a reorganization,  or even a mere name change.

DO YOU WANT TO DO BUSINESS AND GRANT INTELLECTUAL PROPERTY RIGHTS TO THE CLIENT YOU ARE DEALING WITH? HAVE YOU VETTED YOUR POTENTIAL INTELLECTUAL PROPERTY LICENSEE PROPERLY?

  1. Ensure that you are comfortable with your potential client and want to do business with this entity. Conduct an internet search, even a financial/accounting search to check out your potential clients or customers, employees and suppliers. Ensure that this client is an individual or company you want to do business with and would want to work with or even recruit. Does this client anticipate upcoming changes in its business that would affect the IP License, such as changes in control, sale, name or branding changes, acquisitions, reorganizations, that can be shared with you? If these changes are brought to your attention upfront, the IP License can contain the necessary language to allow for this as mutually agreed between the parties.

UNDERSTAND YOUR POTENTIAL INTELLECTUAL PROPERTY LICENSEE’S BUSINESS ORGANIZATION AND LICENSING NEEDS NOW AND IN THE FUTURE

  1. Document who your client is and ensure that the client provides clear and convincing evidence of any organizational changes that could affect the IP License (Need to keep the original Licensee organization intact as a whole, not sell off parts). Communication with your client(s) is key. Ensure that the client provides you with any documentation regarding a sale, acquisition, change in ownership or control, even a name change so that the proper changes to the IP License can be made documenting the changes and providing a paper trail showing who is the Licensee and therefore, who has authorized rights to use the IP in accordance with the IP License.

IS YOUR LICENSE GRANT WITHIN YOUR IP LICENSE AGREEMENT THE BEST THAT IT CAN BE?

  1. Make your license grant as clear and protective as necessary. Check and double check that you have thought of and covered for any future scenarios that could come up. Consider all present and future aspects that you want to protect with your IP and license grant and ensure that you include the words “non-transferable” and “non-assignable” as part of the license grant and as you see fit to protect your business and your IP.

DOES YOUR IP LICENSE AGREEMENT ADDRESS TRANSFER FEES IN ACCORDANCE WITH BEST INDUSTRY PRACTICES?

  1. Consider whether it makes sense to include language regarding a transfer fee upfront within your IP License. You may consider adding language within you IP License, within the license grant, that any permitted transfer would require a transfer fee to the Licensee at the time of such transfer.

HAVE YOU REVIEWED AND UPDATED YOUR ASSIGNMENT PROVISIONS WITHIN YOUR CONTRACTS AND LICENSES LATELY? ENSURE THESE ASSIGNMENT PROVISIONS ARE IN ACCORDANCE WITH BEST INDUSTRY PRACTICES AS WELL.

  1. Assignment Provision. As stated with the license grant, ensure that your assignment provision includes the exact language that you need to protect your IP and to control who your Licensee and other authorized current or future users may be. Consider a broad restriction on assignment or transfer which is prohibited without your consent and include language within this provision “even by operation of law or in the event of an assignment, sale, or merger.” This extra language could assist and strengthen your position against an unauthorized transfer or assignment of your IP in the event that a state law allows for the automatic assignments due to a sale of a business.

HAVE YOU HAD THE TERMINATION RIGHTS AND PROVISIONS REVIEWED WITHIN ALL OF YOUR BUSINESS AGREEMENTS, CONTRACTS, AND LICENSES TO ENSURE THESE ARE IN ACCORDANCE WITH CURRENT BEST PRACTICES?

  1. Termination Rights. Considering all of the factors mentioned with the potential unwanted or unauthorized transfer of IP (in Part 1 of this article), leads to the importance of including a protective termination provision within your IP License. Your termination rights should allow you to control and/or prevent transfers due to future circumstances that change your original Licensee. It may be unreasonable and difficult to have the Licensor’s right to terminate for convenience (any reason) due to the fact that the Licensee paid for the continued right to use the software to run its business provided payment was made and the use is in accordance with the IP License. The Licensor should consider inclusion of some reasonable termination rights or suspension of use rights in the event of an unauthorized and/or unapproved transfer or in the event of a change in control or sale without Licensor’s consent.

DOES YOUR INTELLECTUAL PROPERTY LICENSE GRANT YOU THE RIGHT AS THE BUSINESS OWNER TO INCREASE FEES AS COMMERCIALLY REASONABLE?

  1. Rights to Increase Fees. Another approach to consider is ensuring that your IP License and/or your maintenance or support agreement allows you, the Licensor, to increase fees upon notice for any business reasons. This could be another approach in protecting yourself in the event of an unauthorized unpaid for transfer as the Licensor could notify the Licensee of the planned increase in fee and in the event that the Licensee does not agree with the increase or does not pay, the IP License could be terminated accordingly (either by the Licensee as allowed or by the Licensor with notice and due to non-payment). This is a way of allowing you, as the Licensor, to get out of a business arrangement that is not in accordance with your original intent and could be used as a last resort to stop any unauthorized use of your IP within your contractual rights.

HAVE YOUR HAD YOUR LICENSES AND CONTRACTS REVIEWED BY AN ATTORNEY LATELY?

  1. Retain an attorney to review your contracts. Retaining an attorney to review complex contracts especially when dealing with a new client or business partner is recommended to ensure that you have considered all of the protections that you need (especially taking into consideration specific needs or technicalities of your business, your IP, or jurisdictional laws). Business owners do opt to utilize standardized contracts found online for particular transactions to save time and costs but many times the protections and technicalities and jurisdictional laws that we discussed in this memo are not taken into consideration and therefore, utilizing an attorney for initial review and on-going complex negations is a recommended practice to identify risks and strengthen your protections.

YOUR BUSINESS SHOULD CONDUCT INDUSTRY BEST PRACTICES FOR ON-BOARDING AND ON-GOING TRAINING WITH EMPLOYEES ON ALL ASPECTS OF YOUR IP AND ASSOCIATED IP PROTECTIONS!

  1. Conduct on-board and on-going training of your employees. Employees should undergo training on business practices and processes, especially customer facing employees. This is to provide the necessary guidance to your employees to ensure that they are aware of the concerns and protections required with IP Licensing and to ensure that your company is current with any compliance requirements based on the laws pertaining to your business. Businesses can save money and avoid unnecessary disputes by ensuring that all employees are aware of the risks and protections needed with your IP licenses.

Should you have any questions about business law or any other laws that may affect your business, or would like to schedule a free initial consultation, please contact Waltz, Palmer & Dawson, LLC at (847)253-8800 or contact us online.

Waltz, Palmer & Dawson, LLC is a full-service law firm with various areas of service to assist your business, including: Employment Law, Intellectual Property, Commercial Real Estate, Business Immigration, Litigation and general Business Law services. Individual services include Estate Planning, Wills and Trusts, Probate, Guardianship, Divorce and Family Law, Collaborative Divorce & Mediation.

This article constitutes attorney advertising. The material is for informational purposes only and does not constitute legal advice.

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