Protecting Your Intellectual Property In Commercial Contracts

In today’s interconnected business world, your intellectual property (IP)—including trademarks, patents, and copyrights—is a critical source of competitive advantage. IP is a valuable asset, often more important than physical property. When you collaborate with other businesses, license your IP, or assign its ownership, it is essential to manage and protect it through clearly defined legal agreements.

What are the Major Types of IP Contracts in the UAE?

The major types of IP contracts and agreements where IP provisions play a key role include:

1. IP Licensing Agreements in the UAE

IP licensing agreements entitle the owner (Licensor) of IP assets such as patents, trademarks, or other IP rights for the manufacture and/or distribution of a product, to permit a third party (licensee) to use or exploit such Intellectual Property rights, generally for a specific purpose and duration. The agreement shall be on specific terms and conditions, usually effected in return for a payment. In the UAE, three major types of licensing agreements can be identified:

• Exclusive license – In exclusive license agreements, the IP owner or the licensor renounces to exploit the IP rights and thereby transfers such rights to an exclusive licensee under specific terms and conditions. The exclusive licensee can be a single entity or an individual.
• Non-exclusive agreements – In these agreements, the licensor, while reserving the right to use and exploit their IP rights themselves, also transfers such rights to several licensees under specific terms and conditions. Therefore, a non-exclusive license can have multiple entities using respective IP rights simultaneously.
• Sole license – Here, the licensor, while reserving the right to use and exploit their IP rights themselves, transfers such rights only to an exclusive and unique licensee under specific terms and conditions.

2. IP Assignment Agreement

IP assignment agreements are contracts through which an IP owner can transfer all exclusive rights, including ownership of their IP, to another person or legal entity. As a result, an assignment effectively constitutes the sale of an IP asset. These agreements between a company and the original IP owner, who may be an employee of such company, consultant, or inventor, are common wherein it, enable the transfer of ownership of IP created during their employment or engagement with the company. IP assignment agreements ensure that the company retains ownership even after employees leave. They remain effective even if the employees were not directly involved in creating the IP, thereby reducing the risk of future claims of ownership by employees. Consequently, assignment agreements are vital for preventing ambiguities or future disputes that could hinder the commercialisation of IP.

3. Non-Disclosure Agreements (NDA)

NDAs in general are agreements whereby two or more parties agree not to share confidential, sensitive or proprietary information with others, thereby preventing unauthorised disclosures. Often, elements like trade secrets, innovative strategies, business and financial information, technology and software systems, etc., of a business form a significant part of its assets. To protect these sensitive IP elements that provide the business with a competitive advantage, their protection from third-party interference and usage can be secured through effecting IP NDAs with precise legal clauses establishing stringent confidentiality obligations.  

Depending on the background, IP NDAs can be executed by a business with a wide range of parties, including third-party manufacturers, IT providers, consultants, employees or contractors involved in the company’s R&D or having access to sensitive IP, as well as business partners, collaborators, investors, freelancers, and others. NDAs can also form a significant part of employment contracts. In addition to IP assignment agreements, explicit Non-Disclosure Agreements (NDAs) may also be executed to ensure that employees are legally barred from claiming any patent or other IP rights over innovations developed during their employment or engagement with the firm.

A party to an NDA shall hence be obliged not to disclose the confidential agreement and thereby preserve the confidentiality of the information received and use such information solely for the authorised and agreed purposes.

4. Joint Venture and Franchise Agreements

A joint venture is an arrangement wherein two or more entities combine to share profits, returns, risks and governance, thereby benefiting from a wider market, and efficiencies of combined assets and operations. Both entities in the joint venture will have their respective intellectual property, making it crucial to establish a clear contractual IP clauses outlining such existing and newly developed IP’s ownership rights, its usage and exploitation.

In franchising, a business entity (franchisor) allows another party (franchisee) to market their products or services and use such business’s trademarks, brand value and proprietary knowledge for a specific period, wherein the franchisee pays a fee to the franchisor. Since in such arrangements the use and exploitation of IP rights are involved, laying clear and strong clauses on the usage, its extent and limitations, confidentiality etc, becomes significant.

What are the Key IP Clauses to be included in commercial contracts?

Agreements on IP licensing, IP assignment, NDAs on IP, joint ventures, franchising, employment contracts and all other agreements involving IP require well-drafted and precise clauses on such IP management for enabling efficient protection of the respective IP rights involved. Some of the key IP clauses include:

• Parties – Any agreement dealing with IP rights shall clearly define parties to the agreement, and parties who have access to the IP.
• IP definition clauses – In case of IP NDAs, precise and specific definition of what qualifies as confidential information, including the IP, its scope and purpose, enables their smooth enforcement. Information excluded from confidential information can also be defined in the NDA. In other commercial agreements, the term intellectual property shall be defined broadly and expressly, enabling the parties to have a common understanding of what it means and shall include.
• Ownership and usage clauses – Agreements shall have clear provisions on whom the IP ownership shall be vested, and how it shall be managed. The agreement shall also outline how the parties may use and exploit such IP, through clauses distinguishing dos and don’ts.
• Reservations and Restrictions – In cases of IP licenses, the owner may reserve certain rights with themselves. These reservations and restrictions to be placed on the other party shall be precisely reflected in the agreement. These clauses may also include geographical coverage, granting or restricting the jurisdictional extent for the IP usage.
• Obligations – The obligations of the receiving party, wherein the agreement shall also outline the appropriate and inappropriate uses of the confidential information or the IP, specific liabilities etc.
• Duration and termination – The agreement shall also specify the term and duration, and events that can result in the termination of the agreement. In certain cases of NDAs, they may even last indefinitely.
• Clauses to invoke in case of breach – It is of utmost importance to establish enforcement procedures and remedies to be followed in cases of breach by a party.
• Confidentiality – In cases where specific NDAs are not effected, confidentiality shall be secured by incorporating strong clauses in IP agreements.
• Commercial terms – In exchange for the use of the licensor’s or the owner’s IP, royalties or payments are usually made. It is important to incorporate clauses on how these fees, royalties and other payments related to IP shall be carried out. This shall include the royalty structure, payment schedule, and penalties for non-payment.

IP Indemnities and Warranties in Commercial Contracts

Indemnities and warranties play a crucial role in managing IP risks in commercial contracts.

By indemnity, one party promises another party to a contract to compensate the other in the event of a specific loss, effecting a contractual remedy. Understanding the ever-increasing importance of IP to businesses, companies may now promise their users, licensees, or assignees to indemnify them, especially in the event of an IP infringement.

Indemnity provisions, usually incorporated in license agreements, shall define the scope of indemnity, including the legal costs that shall be covered, damages, settlements, exclusions if any, and procedures for indemnification claims.

Warranties are typically assurances provided by a licensor to a licensee or a buyer of the IP that the transferred IP is legally valid, authorised, thereby reinstating that the party granting the rights is the sole legal owner of the IP, and such IP is free from any encumbrances and that the use of such IP shall not infringe upon a third party’s rights.

IP, with its evolution into a corporate asset, forms a significant part of any business. Hence, incorporating IP clauses in commercial contracts demands careful and vigilant steps, mitigating any scope of infringement risks. Seeking the assistance of an experienced IP legal expert in drafting these commercial contracts can help your business by creating the most effective contracts with clear, structured, and properly defined clauses that commercialise your IP aligning with your business strategies and objectives.