Caution Business Owners: Do you own or have a right to use the intellectual property that is important to your business?
Every business considers some intellectual property ("IP") to be of value to their business. Such IP usually takes the form of a trademark (for example, a logo, business name or product name), copyright (for example, the software code, an instruction manual or website content), or a trade secret or patent (for example, a novel and useful invention or recipe). As a business owner, you have likely invested in the creation of such IP.
However, your business does not necessarily own that IP, may not even have a right to use it or may have a limited right to use that IP.
The default is that an independent contractor owns any copyright or inventions and intellectual property that it has created. For example, unless there is an agreement stating otherwise, whenever a business hires a photographer to take photographs, the photographer retains ownership of the photographs that he or she captured and the business may only have very limited rights to use the photographs. IP assignments and licences either can be standalone agreements or can be included in many types of agreements, including service agreements.
What is an IP Assignment?
Usually, the best-case scenario for a business hiring an independent contractor to create IP is that the independent contractor assigns that IP to the business. An IP assignment is a permanent transfer of ownership of all of the IP rights to the assignee in exchange for payment. It is a sale and transfer of the rights in the same way you would sell physical property and the seller retains no rights (unless a licence-back provision is included in the assignment).
It is important to have legal counsel in the relevant jurisdiction review any IP assignments to ensure that no IP rights are retained by the assignor as there are some specific rights, like moral rights to copyright, that cannot be assigned in certain jurisdictions and must be specifically assigned in other jurisdictions.
What is an IP Licence?
An IP licence includes a grant clause that allows the author or inventor to retain ownership of the IP and gives the business owner limited permission to use the IP in exchange for a one-time fee or an ongoing fee (royalty). The permission can be limited by a certain amount of time or for specific purposes. An IP licence should have a confidentiality clause, a termination clause and clauses that set out the consequences of termination – including return or destruction of the IP at the end of the term.
The 3 most common types of licences are as follows:
- Non-exclusive Licence. A non-exclusive licence allows the licensor to retain the right to use the IP and the right to grant unlimited licences to third parties.
- Sole Licence. A sole licence allows the licensor to retain the right to use the IP but cannot grant licences to any third parties.
- Exclusive Licence. An exclusive licence means that the licensor cannot use the IP and it cannot grant licences to any third parties.
An IP licence can limit IP rights based on geography. For example, you may have an exclusive licence in Canada but non-exclusive in all other countries. Further, you may only have the right to use the IP for certain limited purposes. For example, a marketing research company may have only granted you the rights to use the research results for internal purposes and any other use would be a breach of contract.
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.