The Contract Masterclass: Assign and recline!
This week we are back with Bob, Contracts Manager at Tech It Easy Ltd. Having conducted a successful comparative advertising campaign, Tech it Easy have now attracted the attention of BigTech Ltd, who wish to purchase a piece of Tech It Easy’s self-developed algorithm software. Here, Partner and Head of Beyond Corporate’s commercial team, James Corlett and Trainee Solicitor, Jack Kimberley, offer their views on how the Intellectual Property Rights in the software can be transferred to BigTech and what Bob will need to consider.
Intellectual property is an integral part of any business, helping to protect a company’s creations by preventing the production of identical replicas, enabling the owner of the intellectual property rights (‘IPRs’) to remain competitive in the market. As such IPRs are highly valuable assets which can be commercially exploited. However, a company needs to consider whether it wants to sell its rights in the protected property or whether it may be more appropriate to license the rights instead – letting someone else use the rights but retaining overall control.
When a company such as Tech It Easy Ltd want to sell their rights in the protected property, under the agreed sale they will need to assign such rights across to the purchaser to enable them to benefit and be able to exploit the IPRs in the protected property.
If Bob is to assign the IPRs subsisting in the algorithm software to BigTech Ltd, he will need to get an assignment of intellectual property rights agreement drafted. This will include the price BigTech will pay for the IPRs and is also likely to include warranties (statements of fact) from each party in relation to such IPRs and indemnities (promises to reimburse) to cover any claims or issues following the assignment.
The assignment agreement
The warranties given by Tech It Easy (as assignor) are likely to include that they are the rightful owner of the IPRs in the protected property, that they have not licensed any IPRs to a third party and that they are unaware of any infringement or likely infringement caused to a third party by the IPRs. BigTech Ltd may also provide warranties, although these are likely to be far less extensive and would focus on having the requisite authority to enter into the transaction itself.
As far as indemnities are concerned, BigTech may require Tech It Easy to promise to reimburse them against any loss suffered if Tech It Easy are found to be in breach of any of the warranties given. From the buyer’s perspective and being dependent on the respective bargaining power of the parties, BigTech are likely to want an indemnity that Tech It Easy will be responsible for defending any third-party infringement claims made against BigTech, covering all of the costs and expenses. From the seller’s perspective, Bob is likely to try to make indemnities like these conditional upon certain factors such as prompt notification by BigTech of the infringement or that BigTech must actively mitigate against such claims and legal actions.
Once Bob has thought long and hard about the warranties Tech It Easy can give and negotiated the indemnities down to a reasonable level, the agreement can be executed. Once properly executed, Tech It Easy can walk away with a big fat sum of cash and no longer be obliged to maintain the IPRs in question…
However, is this what Tech It Easy wants? After years of work and countless hours spent on developing the software (not to mention the cost of protecting the IPRs), does Tech It Easy want to lose a key part of their developed software?
Instead, Tech It Easy may wish to grant a licence to BigTech Ltd for their use of the subsisting IPRs, whilst maintaining overall rights of ownership and fuelling expansion of their software offerings. Tech It Easy could then charge either a one-off lump sum or the more common periodic fee, which could be linked to specific performance requirements set by Tech It Easy and negotiated with BigTech.
A key consideration for Bob would be whether Tech It Easy wishes to grant an exclusive licence to BigTech Ltd, so that they can exclusively exploit the IPRs, sole (which is like exclusive but TiE retain the rights to use) or whether it will be granted as non-exclusive and can therefore be exploited by other third party licencees. Bargaining power will play a key role here, as from the buyer’s perspective if they had originally sought purchase of the IPRs and are instead convinced to take a licence, they are likely to want to exploit the IPRs without other parties having the ability to do so.
Bob therefore has the tricky decision of whether to sell the IPRs and assign them over to BigTech Ltd or instead retain ownership of the IPRs and license them out. There is no right or wrong answer here, instead commercial factors should be considered and weighed up before reaching a final decision… Bob has a big decision to make!
[This blog is intended to give general information only and is not intended to apply to specific circumstances. The contents of this blog should not be regarded as legal advice and should not be relied upon as such. Readers are advised to seek specific legal advice.]
By James Corlett and Jack Kimberley