Intellectual Property RightsEssentials of Intellectual Property Rights Transfer Agreement

INTRODUCTION

In the recent times, intellectual property (IP) has taken over the business world. To put it simply, when a country goes from developing to developed, more and more people start creating entities and products which are a direct result of their intellectual minds. Therefore, whatever property, process, design, etc. we create as a result of our intellect is termed as IP. IP enables the owner to profit from their invention by transferring or assigning the rights to a third party in exchange for royalties and consideration.

Patents, trademarks, and copyrights are the most common types of IPR, following which, there are also trade secrets, designs, integrated circuits, etc. These IP safeguard and facilitate the expansion of knowledge-based enterprises, as well as international IP, commerce, investment, and technology transfer.

An IP Rights Transfer Agreement is one of the most significant agreements controlling the rights and obligations of IP owners. Whether one is looking to commercialize their own IP or acquire third-party IP, it is critical that one’s agreement is drafted and executed properly to safeguard the rights of both the transferor and the transferee.

INTELLECTUAL PROPERTY RIGHTS TRANSFER AGREEMENT

In the present era, it is quite common to witness the IP rights commercialization wherein the IP owner transfers the rights to a third party vide an IP Rights Transfer Agreement.  IP rights can be transferred in the following ways:

Assignment

In assignment of IP rights, the ownership, engagement, and claim on the IP rights that are transferred, are surrendered in return for a predetermined fee under an assignment agreement.

License

On the other hand, in a licensing agreement, the owner retains ownership and the party to whom the license is granted uses all or most of the IP rights for a certain period of time in exchange for a price or royalty.

Whether the property is transferred in the form of a permanent transfer by assignment or through license in the way of a temporary transfer, both the parties perform a certain level of due diligence before concluding which kind of transfer will be most appropriate for the reason for which the rights are transferred.

IMPORTANT CLAUSES

While drafting an IP Rights Transfer Agreement, it is imperative to keep certain facets in mind, in order to form a beneficial and successful agreement.

It is critical to establish the subject matter of the agreement in an IP Rights Transfer Agreement, such as whether the subject matter is patent, trademark, or copyright. It is pertinent to note that utmost precision is necessary for the transfer of rights.  The IP and its respective ownership rights must be distinctly described in the IP Rights Transfer Agreement’s defining clause in order to prevent any potential or additional disputes.

A few of the fundamental clauses and prerequisites necessary while drafting an IP Rights Transfer Agreement are as follows:

Competitive analysis: There are certain characteristics that are to be analyzed carefully to enable an effective negotiation for example, proper review about the technology, goodwill & reputation, future profits, market shares, etc.

Confidentiality: The contracting parties should take all the necessary means to protect the confidentiality of the IP which is the subject matter of the IP Rights Transfer Agreement. The transferee should ensure such confidential information’s confidentiality and seclusion, as well as implement measures to avoid its unlawful use or disclosure., and the same should be distinctly stipulated in the agreement.

Consideration: For the transfer, there should be an exchange of value. It could either be a certain amount of money or royalty, service, investment, etc. One such example of consideration is cross licensing where as a consideration, one technology is transferred to and from another.

Representation and Warranties: The parties’ liabilities are usually laid down in the representation and warranties clause. Both the parties need to adhere to the liabilities enlisted in the clause and the same helps to streamline the liabilities and representations of the respective parties.

Termination clause: The agreement should evidently mention the time period for which the rights are transferred, or the term of the agreement. In case of renewal, a provision about the same must be added to the termination clause.

The termination clause further enumerates those conditions where one can terminate a contract before the expiration period under certain situations. A violation by one party that goes unresolved for a set amount of time, typically known as the ‘cure period/remedy period’, might result in termination for breach of the terms of the agreement.

Dispute Resolution: In order to resolve future disputes between the parties, there should be a mutually agreed dispute resolution method. In such a situation, , the parties usually prefer to resort to alternate dispute resolution mechanisms like arbitration or mediation. The dispute resolution clause specifies the number of arbitrators, the jurisdiction, ,  seat and venue of the arbitration, and other such fundamental details pertaining to arbitration.

LEGAL FRAMEWORK GOVERNING TRANSFER OF IP RIGHTS

Transfer of Copyright

The Copyright Act, 1957 (Copyright Act) identifies both the modes of transfer of copyright, i.e., through licensing and assignment.

• License

Section 30 of the Copyright Act states that by the way of a license, the copyright owner of any current work, or the potential owner of any future work can give any third party the interest in the proprietary rights. However, one must keep in mind that in the event of future work, the license will only become effective after the work has been completed.

• Assignment

Section 18 of the Copyright Act discusses assignment of copyright. The owner of a work’s copyright is entitled  to assign his copyright to a third party. This assignment will lead to the assignee gaining all the rights related to the copyright of the assigned work. He will then be treated as the owner of the copyright with respect to those rights.

Furthermore, Section 19 of the Copyright Act states that the assignment of the copyright must be in writing and duly signed by the owner or his appointed agent, after which, the assignment shall be considered to be as valid.

Transfer of Patent

• License

Section 84 of the Patents Act, 1970 (Patent Act) stipulates that a request for obtaining compulsory license of a patent can be made to the Controller by an interested party, or the license holder of the patent after three years since the patent has been granted under the Patent Act. The conditions mentioned below must be adhered to:

1. That the public’s legitimate needs for the patented innovation have not been met,
2. That the patented invention is not being used in the Indian territory.
3. That the patented invention isn’t available to the public at a fair price.

• Assignment

As per Section 68 of the Patent Act, an assignment of a patent or a share in a patent, a mortgage, a license, or the creation of any other interest in a patent is not legal unless it is in writing, and the agreement amongst the parties is converted into a form of a document containing all the terms and conditions, governing their rights and obligations, and the same is duly executed.

Transfer of Trademark

• License

Section 49 of the Trademarks Act, 1999 (Trademarks Act) states that the proprietor has the option of allowing any third party to use his or her trademark, and of registering the licensee as a registered user of the trademark. Even though the said Section does not explicitly provide for the licensing of a trademark, it enumerates the registration of a third party as a registered user.

• Assignment

Sections 37 and 38 of the Trademarks Act governs the assignment of trademark. A registered trademark owner i.e. the proprietor of the trademark can assign his rights to any person against a certain amount of consideration.  The assignee will be allowed to utilize the products and services covered by the registration and the respective commodities and services might be transferred with or without the goodwill.

Transfer of Design Rights

For the transfer of design rights, no specific rules are laid down in the Designs Act, 2000 (Designs Act). Nevertheless, Section 30(3) of the Designs Act does mention that both; the assignment and the license agreement should be in writing specifying time period and geographical scope. It must be registered with the appropriate legal authority and there should be a record of it in the Register of Designs.

AMLEGALS REMARKS

The technological advancement in business has led to people becoming more conscious of their IP rights. There are number of applications being filed all over the world for copyrights, patent, trademarks, designs, etc. Some people, for marketable gains and commercial purposes, transfer their IP rights to third parties.

Therefore, for the aforementioned purpose, the parties need appropriate and adequate legal documentation in order to monetize the IP profitability, and provide any advantages to the IP owner.

Since any invention lacking proper protections is a gold mine for violators, disrupting the legitimate rights of the lawful IP owner and creating economic loss, the transferor should ensure due diligence and an exhaustive IP Rights Transfer Agreement. A well-drafted agreement safeguards the transferor’s rights, and determines the scope of the responsibilities and duties of both the parties.

– Team AMLEGALS, assisted by Ms. Ayasha Khatri (Intern)