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

Knowledge sharing has long been an important element of academic research. And now collective sharing and governance of data assets throughout the scientific community, including for-profit participants, is gaining momentum. During their webinar, Out in the Open: The Knowledge Commons Framework, Emily Lowe, Ben Klaber, and Professor Michael J. Madison, faculty director at PittLaw, will discuss issues related to knowledge commons. Topics will include the following:

  • A fundamental overview of knowledge commons, including the framework’s strengths and weaknesses
  • Standard requirements regarding data contribution, access, use, sharing, protection, and attribution
  • How to decide if a knowledge commons framework is right for your business, and if so, how to implement it successfully

Morgan Lewis partner Barbara Melby, the leader of our technology, outsourcing, and commercial transactions practice, has been invited to present at an upcoming Practising Law Institute (PLI) event, Outsourcing 2018: ITO, BPO and Cloud, in New York City. Barbara’s one-hour presentation will take place Friday, November 2, at 11:15 am. She will discuss intellectual property issues in outsourcing, including the following topics:

  • Recognizing and avoiding common IP pitfalls
  • Copyright, patent, and trade secret issues from vendors’ and customers’ perspectives
  • IP representations, warranties, and indemnities in outsourcing transactions
  • Open-source considerations
  • IP issues in cloud deals

The presentation is part of a two-day PLI outsourcing event November 1–2 at the PLI New York Center, 1177 Avenue of the Americas (2nd floor), New York. You can also access the event via webcast and various groupcast locations.

To register, visit the Outsourcing 2018: ITO, BPO, and Cloud event page.

Website terms of use are often copied and pasted from other sites, and viewed as “standard” or “boilerplate” terms to protect site operators and set forth the basic rules governing the relationship between the site operator and the user. It’s important for a site operator to make sure these terms give it the protections it needs, are enforceable, and comply with laws, so from time to time the terms should be reviewed and updated to align with the business practices of the site operator and applicable law.

A frequent point of contention between parties negotiating the allocation of risk related to intellectual property rights in connection with the acquisition of intellectual property is the interplay between the warranty and indemnification sections. Below we break down what to look for in these sections and how minor changes in the language can significantly change the rights a party is granting or receiving.

Intellectual Property Warranties

An intellectual property warranty generally provides that the intellectual property rights being licensed or assigned constitute all intellectual property rights owned or controlled by a party prior to the effective date of the transaction, and that those rights are all the rights necessary for the conduct of the business (as it is currently conducted) after the effective date of the transaction. A warranty may also go on to say such intellectual property does not infringe third-party intellectual property rights. The following versions of this clause demonstrate how this clause can be worded to strengthen or weaken the warranty.

In Part 1 of this two-part series, we discussed issues related to the defense and indemnification aspects of intellectual property indemnification. In this second part, we will review the exceptions, remedies, and liability limitation related to this common provision.

Exceptions

As described in Part 1, both technology providers and users will want providers to be responsible for claims that the technology infringes the intellectual property rights of a third party. However, providers will want to limit such obligations where actions by users or other third parties cause infringement. Providers will frequently attempt to carve out of IP indemnification clauses infringement claims based upon

  • use of the technology in combination with other hardware, software, or data;
  • unauthorized use;
  • modifications to the technology; or
  • failure to incorporate the latest updates or upgrades.

As a follow-up to last month’s posts regarding contract provisions impacting intellectual property ownership, in this month’s Contract Corner we review issues regarding intellectual property indemnification, a provision in practically every agreement involving intellectual property or technology.

Background

IP indemnification clauses are the most common indemnification provisions in contracts because typically, both parties need the provision. Users of technology licensed or otherwise received from another party will demand that technology providers take care of any third party IP claims that would prevent (or increase the cost of) use of the technology. On the other side of the transaction, IP owners will want to control any IP litigation against their technology and avoid users settling such claims and giving up valuable IP rights (and it is likely the owner is already facing such IP claims directly).

As blockchain technologies grow from an academic novelty to hubs of commerce, state and federal regulators are taking notice. Understanding what actions are regulated and by whom—and how to comply with those regulations—is essential to keep a company focused on innovation rather than litigation. As part of its First Cup of Coffee Briefing Series, Andrew J. Gray IV, a partner in our Palo Alto office, is hosting an interactive event on issues and best practices for regulatory compliance in the blockchain space.

Speakers at the event include Morgan Lewis partner Nathan J. Hochman and associate Jacob J.O. Minne, along with Dean Nicolls and Frank Marques from JUMIO, an online mobile payment and identity verification company.

Part 1 of this three-part series discusses intellectual property ownership rights in the absence of another agreement. Part 2 addresses some of the common ways that parties can allocate the ownership of intellectual property in a contract. This third part covers a few best practices that will help ensure that a company owns its intellectual property.

Discussions with third parties about future business relationships and hiring of employees and consultants are routine business activities that can have detrimental effects on a company’s intellectual property if not managed properly. Appropriate non-disclosure agreements, employee confidential/proprietary information and invention assignment agreements, and consulting agreements are an important part of a company’s business operations.

Non-Disclosure Agreements

Before providing any confidential information to a potential business partner, companies should enter into a written non-disclosure agreement (NDA). An NDA will define the bounds of what is considered confidential information and provide limitations on what each party can do with the confidential information of the other party. The essence of the definition of “Confidential Information” is that it is the non-public information of a company. Under a typical mutual NDA, the party that receives the information is generally only allowed to use the disclosing party’s confidential information for purposes of evaluating a further potential business relationship between the parties. In addition to providing for a potential remedy against unauthorized disclosure of confidential information, NDAs are an important means of showing that a company is using reasonable efforts to protect its trade secrets.

In Part 1 of this three-part series, we discussed how intellectual property ownership is determined in the U.S. if no agreement is in place. In this second part, we discuss the typical ways that parties can use contracts to determine intellectual property ownership.

In the context of negotiating an agreement where intellectual property rights are addressed, most parties will readily agree that those intellectual property rights owned by a party before the effective date of the agreement or developed outside of the agreement (commonly referred to as background rights) should be owned by that party.

Foreground Intellectual Property Rights

Unlike background rights, ownership of intellectual property developed under the agreement (commonly referred to as foreground rights) are often highly negotiated. When negotiating the ownership of foreground intellectual property rights, some questions the parties should consider are as follows:

  • Does the party that developed the intellectual property own it?
  • What happens if the other party is paying?
  • What if the intellectual property developed by one party is an improvement to the intellectual property owned by the other party?
  • What if both parties develop the intellectual property jointly?

Protecting intellectual property rights is a critical component to the success of a technology company. In order for a tech company to determine how to protect its intellectual property, the company should understand how the key intellectual property rights work. In this Part 1 of a three-part series, we discuss how patent, copyright, and trade secret ownership works in the United States if there is no agreement in place to allocate these rights.

Patents

Patents are a right to exclude others from using a technology for a limited period of time. In exchange for these rights, the patent holder must disclose the invention in the patent. Without an agreement in place to state the ownership of an invention that is patented, the following applies:

  • Sole Ownership. In general, the inventor owns the right to patent the invention, regardless of the type of technology. This is the case even when the inventor is an employee who created an invention within the scope of employment
  • Joint Ownership. Occurs when there is more than one inventor (employee from Company A and employee from Company B, for example) or rights have been assigned to more than one person or entity. Even a small percentage ownership or minor contribution results in joint ownership right in the patent. Any owner may exploit a patent either by licensing to a third party or practicing the patent without permission of or accounting of profits to any other owner
  • Enforcement. All owners must participate in an enforcement claim. Therefore, if a company jointly owns a patent and wants to file an infringement claim against a third party, all other owners must also agree to file the claim