Defining an IP Transfer Agreement
An IP Transfer Agreement is a legal document that stipulates the terms and conditions under which an intellectual property (IP) owner – be it a person or a corporation – transfers the ownership rights of that IP to another entity, often referred to as the transferee. A transfer may be total, whereby all rights in the IP are transferred, or in certain cases, it can be partial (a co-ownership), but usually the new owner/sub-licensee/assignee will assume all rights to the IP. The IP Transfer Agreement may also address the eventual transfer of the rights back to the individual or group of individuals who created the IP, at the expiry of a specified time period, should the IP not be commercialized .
An IP Transfer Agreement typically is required where the IP is to be transferred in whole or in part, between the inventor(s) and the assignor or assignee. A Party considering to license or assign their IP may desire to protect their rights in such a circumstance.
Intellectual Property Transfer Agreements can be used in various situations. For example, an IP Transfer Agreement would be used when an inventor wishes to sell their IP to a manufacturing company, who will then manufacture a product using the IP. A researcher may use an IP Transfer Agreement if they were doing research for a company, at the specific request of the company. It would also be used when a research project is made up of various inventors from different institutions in Canada and/or the United States of America.
Essential Features of an IP Transfer Agreement
When structuring an appropriate IP transfer agreement, it must be within the remits of the relevant law and must be carefully drafted to meet the parties’ requirements. A poor or incomplete transfer agreement can have negative implications for the value and transfer of the IP. An IP transfer agreement should generally contain the following key components:
• Definition of Intellectual Property: The IP transfer agreement must define precisely the IP that is being transferred. This is of particular importance for the transfer of registered IP (e.g. patents, trademarks, designs, etc.), whose excerpts from IP registers could serve as prima facie evidence of the validity of the registered IP and/or registration of a transferee as the new holder of the IP. Any ambiguity in the transferor’s ownership of the IP could make it more difficult for a transferee to enforce the IP against a third party.
• Parties: The parties must be clearly and correctly identified in the IP transfer agreement. It is critical that the transferor is the legal holder of the IP being transferred and/or able to transfer the de facto right or interest to the IP. Ideally, the agreement should also be executed by an authorized representative of any company which is a party to it (e.g. a corporate shareholder with authority to bind the transferring company).
• Scope of Transfer: The scope of what is being transferred (e.g. full title or only part of the IP) should be defined within the IP transfer agreement. The transfer must also expressly exclude any licences granted, outstanding obligations, etc. from its term.
• Exclusions and Limitations: If there are any limitations on the rights of the transferor and transferee to exercise their rights in the IP, these must be explicit in the IP transfer agreement.
The Importance of IP Transfer Agreements
IP Transfer Agreements are crucial in protecting intellectual property rights and ensuring the transition of ownership is clear in the event of a business transaction or transfer. Factors such as patents, technical know-how, and trademarks are not simply intangible business assets but are valuable in their own right. This is because they can be monetized, assigned to co-founders or re-assigned to new owners, at or after the time of transfer. It is important to distinguish the IP value from a company’s value in the event of a sale, since the two can differ. For example, some companies with significant IP portfolios have been sold for very little, as they might have been in distress or have been less than financially sound. It is also important to distinguish the IP from other value delivered in a transaction, such as the personnel and technical know-how of exiting employees and management. Even if rights are clear prior to signing an agreement, vagueness on individual rights later can lead to complex litigation. It is therefore advisable to include an explanation of all rights clearly in any agreement.
Ownership is also very important in the context of patent rights. If a company consists of joint-venture LLCs or organizations, it’s important to ensure that the rights are clear on IP transferred within the group. There may also be problems where company files or records are not up-to-date. If these are not communicated to the purchasing company, and the purchasing company then engages in patent litigation claiming ownership of the patents, this may leave them vulnerable to a counterstrike from the selling company, whereby they claim they actually own the patents and it is the purchasing company that overstepped its bounds. This may result in complicated litigation that needs to be resolved. A sizable portion of information on IP rights can be shared between entities, so the processes for exchange of information can be problematic in these situations.
Transfer of ownership can impact the individual owners on a personal level. In many cases, co-founders or employees use their own private resources to create patentable inventions for the company during their employment. To ensure that the university or co-founders or employees cannot make a later claim, provisions should be made that clearly define the company as the owners of any IP developed during the employment period.
Common Issues and Errors in IP Transfer Transactions
Companies and individuals frequently encounter challenges and make mistakes when transferring IP, sometimes with disastrous results. Perhaps the most common mistake is ownership issues. Parties often think that an assignment or IP transfer agreement is unnecessary if the person or entity transferring the IP is the sole owner. Not so—in addition to the obvious—the transferring party is typically agreeing to representations, warranties, and indemnities regarding ownership and non-infringement that do not have to be made if the company or individual is the sole owner. For example, an individual would not have to make indemnities regarding third-party ownership if the individual is the sole owner of the IP. Similarly, it is common to have contractual obligations to protect, defend, and assume responsibility for infringement of the IP, even after the transfer, and this should be a critical consideration before proceeding with an IP transaction.
Another common issue is an incomplete assignment. The terms "copyrights" and "trademarks" are used in sweeping fashion, so it is important to be specific about which rights are being transferred. For example, a patent application may have multiple inventors. A proper assignment must reflect that fact and must identify all inventors. Transferring IP ownership when there are multiple owners or co-owners can also create unintentional, but significant, ownership issues under the laws of certain states (i.e., Massachusetts). Although this article is limited to the basic contractual concepts for protecting IP in connection with an IP assignment, any party receiving IP should also consider registering the transfer with the U.S. Patent and Trademark Office for patents and the U.S. Copyright Office for copyrights.
Legal Factors to Consider in IP Transfer Agreements
Legal considerations in drafting and executing an IP Transfer Agreement
In the case of an IP Transfer Agreement, a lawyer often has to ensure that the deal is properly executed and meets the requirements of any applicable laws. In the process of drafting the IP Transfer Agreement, a lawyer has to request information from a client that it may be uncomfortable disclosing to its lawyer.
A lawyer also has to consider compliance with antitrust laws in the IP Transfer Agreement where there is an exchange of IP rights. For example, if certain patents are being licensed-in or licenced-out as part of the transaction, depending on the circumstances, this can be perceived or actual anti-competitive behaviour which can give rise to an investigation by the national competition authority.
An IP Transfer Agreement can also be subject to an application for approval to the Competition Authority under the India’s FDI Policy in case of transfer of shares of foreign investee company or change in ownership of the foreign entity as prescribed under the FDI policy. An IP Transfer Agreement , depending on its context, can also be subject to rules governing technology transfer under the FDI Policy.
A lawyer also needs to consider compliance with FCRA (Foreign Contribution (Regulation) Act 2010) because of Intellectual Property right (IPR) transfers having foreign components or involvement. FCRA is applicable to all persons, including corporates, who intend to acquire foreign currency, foreign securities, disinvestment proceeds/ sale proceeds of assets located in India out of sale of shares or, for that matter, sale proceeds of assets or funds or foreign securities held by an eligible person outside India and related to investment made in India.
In case any of the Foreign Direct Investment is in a Telecom services sector, a legal lawsuit may be filed and an injunction may be obtained on the basis of a current monopoly on a particular type of revenue.
How to Create a Strong IP Transfer Agreement
When entering into an agreement to transfer a registered IP right or an unregistered, but protected, IP right, it is imperative to ensure that the agreement is carefully drafted and comprehensive. There are a number of practical tips and best practices to consider: Be clear on the type of transfer being taken place. The seller/assignor must understand if they are assigning their IP rights or licensing them – there is a big difference between the two. Depending on the circumstances, it may be more commercially advisable for the seller/assignor to license the rights instead of assigning them. For example, if the owner of the IP has secured third-party funding for the development of the IP, generally the IP should be licensed to prevent the assignee having to pay back to the third party funders amounts paid by way of grant or loan in respect of the development of the IP. Be clear on the scope of the IP. If the subject matter of the transfer or licence is not clearly identified, then the buyer/assignee runs the risk of having a claim on the indefeasibility or validity of ownership to the IP if the correct party does not own the registration or rights. If the subject matter of the IP is not specifically identified and attached as a schedule or appendices or otherwise clearly identified in the body of the agreement, the seller/assignor runs the risk of not being able to enforce its rights against a third party; and the buyer/assignee runs the risk of being able to enforce the rights of the in-competent owner against the buyer/assignee. In addition to the scope of the transfer, it is important to identify the purpose of the transfer and the relevant territory in which the IP rights can be enforced. Be clear on the warranties and the indemnities. It is important for both parties to the transaction to be aware of the scope and extent of the warranties and indemnities provided by the other party. This is particularly important if the transfer involves the transfer of a new technology or development – it would be prudent to obtain an express warranty from the seller/licensor that the IP exists and is capable of being transferred, and is free from security or encumbrances. It is not unusual, when negotiating commercial transactions, for the parties to caveat the warranties with respect to materiality and knowledge. This can have unintended consequences depending on the nature of the transaction. For example, if the buyer of the IP are depends on the indemnities provided by the assignee/licensor, it would be advisable not to limit the indemnities in respect of materiality and knowledge.
Legal Practitioners and IP Transfers
The critical role of legal professionals in the IP transfer process must not be ignored. Change in ownership is a complex and potentially hazardous situation where the document that evidences the transfer of ownership, typically an IP assignment agreement, is subject to scrutiny under corporate law and is technically complex as it may reflect many subtle deals between parties that remain hidden in the IP assignment agreement and related documents.
Lawyers and IP specialists are the experts in the area of drafting such agreements. A lawyer has extensive expertise in commercial contracts and business law, including knowledge of the legal requirements of a valid assignment, the rights and obligations created by a transfer, and the remedies that can arise from a breach of the agreement or a dispute between the parties. An IP specialist may also have extensive knowledge of the relevant technical subject matter and the industry practice of the particular field of technology that is the subject of the transfer. Such knowledge results in the IP specialist being familiar with how the subject matter can be used and with the commercial and financial issues surrounding the use of the subject matter, but with potentially less familiarity with the legal requirements for validity and enforcement of the IP assignment agreement.
Knowledge and experience of the relevant industry allows lawyers and IP specialists to prepare assignments that deal with the typical issues that arise in their field of specialisation, such as formalities typically required by the relevant IP office, and other transfer issues of importance in the relevant industry.
A specialist lawyer will play a significant role in the negotiation of the terms of the IP transfer so as to maximise the commercial benefit to the client. The terms of transfer may involve the transfer of IP rights on a basis that is contingent on the occurrence of some event, or may apply to IP rights subsisting as at the date of the IP transfer and IP rights coming into existence after the date of the IP transfer. A lawyer will be instrumental in drafting the IP assignment agreement so as to give effect to the intended legal consequences of the transaction and can advise on considerations such as the consequences for the owner if the assignee subsequently wishes to sell the IP rights.
Examples of Successful IP Transfer Agreements
The right IP Transfer Agreement can create immense value for the parties involved. Consider the following examples of some of the most successful IP Transfer Agreements and how they came to be.
Zynga Inc. v. Matt Wegner, Zynga Chief Technology Officer Zynga is a social game company with several different social websites. The company develops all its online computer games in-house, so it owns the intellectual property in them. In May 2011, it hired Matt Wegner to improve its game development process. Prior to his employment, Wegner was the founder of Floodgate Entertainment, a consulting firm assisting start-up games companies.
Wegner quickly began introducing existing development technologies into Zynga’s workflow. He introduced those technologies during formal meetings, which were recorded. During those meetings, Wegner made the software he was demonstrating available to the team, as well.
Zynga’s legal department was not informed of these meetings, and had no opportunity to document the activities occurring there. When Zynga’s general counsel learned about the meetings, they determined they needed an IP Transfer Agreement to ensure Zynga owned all the technology Wegner created.
As shown above, the IP Transfer Agreement Zynga used with Wegner clearly indicated that it owned all the technology: "anything you do or make, inspired by the materials." Wegner also signed over any rights he might have had to the intellectual property. As a result, the company now owns the rights to all technology, even technology not created specifically for Zynga. The company can also hire outside developers to help test and develop new technology, test it on its sites, and later bring it in-house.
Coca-Cola v. Faisal Ahmed In May 2013, Faisal Ahmed started Claim 85, a blog intended to be a whistleblower news platform. He then ferociously wrote about Coca Cola’s alleged harmful products and labor practices. Ahmed decided to take his actions to the next level and wrote an open letter to the corporation asking Coke to do better and not harm anyone while doing business.
The company replied by sending a letter to Ahmed demanding that he cease using their logos and trademarked materials in his blog . He was also told that he would be held liable if he did not stop using their likeness. He complied with the requests of the company, but continued seeking recourse through other means. Most notably, he filed for a trademark application of his own for the phrase "Coca Cola is harming Pakistan."
Amidst the flurry of letters, the two sides came to an agreed-upon conclusion. They recognized that there are times when they can work together for the good of the industry. In May of 2014, the company and Ahmed signed an Intellectual Property Transfer Agreement neutralizing any claims Ahmed made against the corporation. The company also pledged to donate a certain amount of money to build water wells free of charge in Pakistan communities.
Both sides benefited from the agreement. Ahmed gained recognition for being someone who will stand up for the workers of Pakistan, and Coke gained a favorable reputation for the donation it made.
Fortress Investment Group and Credit Suisse First Boston Credit Suisse and Fortress Investment Group were involved in private equity funds. Fortress had no way of knowing whether CSFB was making any investments behind Fortress’ back in agencies not working for Fortress. To figure out what was going on, Fortress needed to monitor other private equity funds that include their assets.
The company hired Deloitte to perform a forensic analysis of the fund. The job could only be done by having access to CSFB’s database. A preliminary agreement to allow the then-ongoing analysis to be conducted was signed between the principals. CSFB had to dedicate substantial resources to defend itself during the initial forensic analysis, as the investors and news media grew concerned with the status of Fortress’ investment funds. In the IP Transfer Agreement, CSFB and Fortress agreed to share any costs related to the matter.
At the end of the forensic analysis, Fortress was found to have gotten very little from CSFB. The agreement remained between the two groups for three years as Fortress continued to receive returns from its investment and kept CSFB as its bank.