Chile: Mining Services Contracts – The Importance Of IP Clauses

Last Updated: 16 January 2018
Article by Cody Mcfarlane

Harris Gomez Group has been working with Mining Equipment, Technology and Services (METS) businesses in Latin America for 16 years. We have experienced it first hand over the years, the mining industry is going through a transformation, and the solutions and technology being commercialized are increasingly more complex than they were in the past.

Digital technologies, data analytics, automation, robotics, process re-engineering, modular and mobile equipment/infrastructure, and sensors are all examples. METS companies are investing large amounts of money and know-how into helping miners become more efficient and target more elusive deposits.

These same companies are often exporting their technology to Latin America and knowing how to protect these investments are critical. When drafting and/or reviewing a mining services contract, the focus will mainly be the goods or services, their price, and the commercial schedules. It is common to find that IP is merely a secondary consideration, though it should be an essential part of the contract.

Many of the foreign companies that invest or wish to set up in Chile are mining providers whose main services relate to mining technology improvements which involve methods, information, and inventions that are within the realm of Intellectual property.

What can we understand to be within the realm of Intellectual property?

Intellectual property, in general, is often defined in a contract to include a broad range of rights, whether registered or not, such as designs, patents, innovation patents, copyright, and trademarks. This definition commonly expands to include matters such as confidential information, trade secrets, know-how, business names, and domain names.

In relation to mining services and contracts, this should include data, software, inventions, reports, guidelines, procedures, business methods, know-how and designs that have been developed for or are part of computer software, business, and operational methods, specialized know-how, geological information, proprietary tools.

Protecting your Intellectual property

In Chile, it is very important to protect your Intellectual property and to do it correctly since common-law rights do not apply. Consequently, it is of great importance the methods used to protect your IP rights when entering into agreements.

It is highly recommendable to put in place security systems and procedures, but also it is of utmost importance proceeding with registrations, contractual mechanisms, and legal action. No security system is impervious and therefore both methods of protecting IP should be used. Further, both means of protecting IP should be specified in the relevant contract. Insufficient attention to the need for protection of IP in a contract can leave you exposed to future disputes and leave the door open to IP infringement.

What is the impact if an IP clause is not well-drafted?

The civil remedies available through legal action can compensate for some or all of the loss suffered as a result of IP infringements, however, it is time-consuming and definitely not cost effective. This is why it is best to spend time and effort on well-drafted IP clauses that may:

  1. Make compliance simpler and interpretation easier.
  2. Reduce the likelihood of misunderstandings arising between the parties.
  3. Make any future legal action to protect IP more likely to succeed as the IP clauses clearly define the IP and the limits of how the parties may use and handle it.
  4. Deter those trying to misuse IP.
  5. Clarify and determine which rights pertain to who.

In addition, IP clauses should be drafted in a way that protects IP when the contract end. These clauses should include restrictions on use, and destruction or return of IP to the provider of the IP.

For the supplier, an IP clause that is not robust in a legal sense may result in a considerable financial loss if the IP is a key part of their business. The supplier may also be exposed to litigation if IP belonging to a third party is inadvertently or deliberately allowed to be used without the permission of the owner of the IP.

The client may be exposed if the client's Background or Project IP is taken by a supplier and used or given to a competitor. As for the supplier, the client may also be exposed to litigation if IP belonging to a third party is inadvertently or deliberately allowed to be used without the permission of the owner of the IP.

What are the types of IP that should be identified in a mining services contract?

There are three main types of IP:

  1. Background IP – is IP that is owned by one of the parties to the contract and that already exists prior to the contract, or comes into existence during or after the contract's term, but is developed independently of the contract.
  2. Third Party IP – IP that may be provided by one of the parties to a contract and/or is owned by another person/company who is not a party to the contract.
  3. Project IP – IP that is developed during the contract by one or more parties to the contract.

Background IP: The key issues with protecting background IP are:

  • identifying the IP before the start of the contract.
  • proving who the IP belongs to.
  • agreeing on the scope of any license of the IP.
  • agreeing on how the background IP will be protected and maintained.

Third party IP: All third-party IP should be clearly identified, appropriately licensed or sub-licensed, and conditions for use clearly stated in the contract.

Project IP: Ownership of Project IP or a license of Project IP on favorable terms can enhance the competitive position of the supplier, although the client will be cautious of any arrangement that ultimately also benefit its competitors.

At a minimum, a supplier will need to obtain a license for the Project IP for the purposes of performing its obligations under the contract. It may also want to obtain rights to use the Project IP to:

  1. Share in or generate its own revenues from licensing or future exploitation.
  2. Add to its tools of trade.
  3. Improve work methods and documentation.
  4. conduct training and internal reviews.

There are many other ways in which these rights can and should be defined, such as by geographical area, time, exclusivity, and any rights to transfer or encumber. The terms of any license will depend on the interests and bargaining power of the parties.

A customer will need to ensure it gains all necessary rights for the proposed commercial exploitation of the relevant Project IP. Ancillary matters such as transition support and the format of deliverables support the primary Project IP clauses.

How to include your IP clauses in the mining services contract?

The IP may be the main subject of the contract, in which case it is of great importance that it be clearly and specifically regulated or one can include it as an ancillary to the contract – in both cases, the contract's IP clause should be carefully considered.

IP ownership, the complexity of Project IP

It is of vital importance that the Intellectual property clauses determine and regulate the project IP. Who 'created' and who owns IP can be complex. When one or more persons create the Project IP, then the Project IP will sometimes be jointly owned, though, the terms of the contract can alter this or regulate who finally ends up as the owner of the project IP.

Conclusion:

Foreign mining technology and service providers often bring valuable IP to Latin America. This IP is often the reason why they were successful in their home countries and the reason why they have opportunities in Latin America.

While the immediate focus for a business seeking to enter into a mining services contract may be securing or being awarded the work, IP-related issues can be business-critical in both the short and long term. Well-drafted IP clauses are an essential part of the contract and should be carefully considered. As is often the case, a little front end work will go a long way to ensure that your most valuable asset is protected.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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