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Tech & Sourcing @ Morgan Lewis

TECHNOLOGY, OUTSOURCING, AND COMMERCIAL TRANSACTIONS
NEWS FOR LAWYERS AND SOURCING PROFESSIONALS

When two parties come together to discuss a new idea or potential collaboration, the parties are usually operating under the protection of a non-disclosure agreement (NDA). If the parties decide to work together, they will most likely enter into a services agreement outlining their respective rights and obligations, including intellectual property (IP) ownership and commercialization rights. Occasionally, parties operating solely under an NDA may start collaborating in a way that’s not fully covered by the NDA prior to entering into a services agreement because they’re just not at that stage of the relationship yet. Regardless of whether the parties are ready to enter into such an agreement, if there is any potential for IP to be created in connection with such a collaboration (even if it’s fairly informal), the agreement between the parties needs to address the rights of each party with respect to any such IP.

This seems more obvious when the parties have decided to work together and clearly delineate their respective rights and obligations, including IP ownership, via a services agreement. In the scenario where the parties are collaborating pre-services agreement but would like to encourage the free flow of ideas, parties often rely on the NDA, but NDAs rarely address ownership of new IP. If the potential exists for the creation of IP by the parties in connection with any such brainstorming or collaboration sessions, and it is not efficient (for any multitude of reasons) for the parties to enter into a services agreement prior to the creation of such IP, the allocation of IP rights should be addressed in the NDA or in a separate document prior to any such collaboration.

There are several different approaches parties may take when determining which IP allocation structure makes the most sense for their needs in this middle phase of the relationship.

The first, and most common, option is for each party to own its own existing (background) IP, and either one party (depending on the deal) owns all newly created IP or both parties jointly own any newly created IP.

The second approach is for each party to own its own background IP and any derivatives thereof and allocate any new IP to each party based on a certain field of use. It should be noted that if the parties agree to jointly own any newly created IP, the agreement will need to appropriately address cost allocation and other considerations depending on the circumstances, and the parties should consider the practical realities of jointly owning IP (which include the inability to prevent the other party from using it, without specific negotiated restrictions). As a result, as suggested above, some agreements contemplate separating joint ownership between the parties based on field of use, the particular field in which a party intends to use such IP, or the type of technology a party intends to use the IP for.

There are numerous different arrangements that can be utilized by the parties to best address the exact scenario, but it should be well thought out and documented prior to collaborating if there is a potential for the development of IP.