What You Need to Know About Transfer of IP Rights Agreements

What is a Transfer of IP Rights Agreement?

A transfer of IP rights agreement serves to facilitate the transfer of intellectual property rights from one party to another. Depending on the jurisdiction, it may also be referred to as an assignment or an assignment agreement, but generally speaking, the term transfer is preferred in the United States.
To be clear, the key term here is transfer. A transfer of IP rights does not simply mean a change in IP rights ownership, it also refers to a change in IP rights holder . A rights holder may be an individual inventor or designer who has created an intellectual property piece like a graphic design, computer program, or patentable invention. Alternatively, the rights holder may be a company that has commissioned the IP piece through an employee or independent contractor.
While a transfer of rights agreement can accompany a sale of IP for a purchase price or proceeds, it can also stand alone (as a free license or assignment) when transferring rights between the co-authors and co-developers within the family of affiliated entities that comprise a single corporate group.

Components of a Transfer of IP Rights Agreement

The IP rights transfer agreement should always include a description of the applicable IP and that such IP is the subject matter of the agreement. The description can be made with regard to the applicable IP rights (e.g., patents, trademarks), or alternatively through reference to registration numbers, or even regular non-publication or access passwords ("user id") or a catalogue of registered IP (such as in libraries, software, etc.), for example.
If the agreement applies to all current and future IP rights, it is sufficient to provide for "all existing IP rights and all future IP rights developed by the [Transferee/Transferor] in connection with [the relevant software/product/technology]." If the agreement applies to all existing and future products, a reference to the applicable product line (as a general description) is normally sufficient — e.g., "all existing IP rights and all future IP rights related to the [applicable product line]" -unless the agreement is intended to apply to more than this.
Registered IP is generally listed, and a description of trademarks is often provided as is. For patents, the agreement may include a clause relating to trade secrets, know-how, or confidential information, and should define what "trade secrets" means, which is usually aligned with the current definition under the relevant national law.
Depending on the parties’ requirements, the agreement may define the term "Trade Secret" as "any and all information that confers competitive advantage on a party by being not generally known or reasonably ascertainable by or accessible to one or more entities other than the parties to this agreement, or to third parties obtaining the information from one or more parties other than the parties to this agreement, and which is the subject of reasonable precautions to maintain its confidentiality by the party desiring to protect its confidentiality," for example.
If any particular technology developed by the parties prior to the date of the agreement or during its term is important, it is also advisable to include a definition of IP as reflecting such specific technology.
In addition, if the agreement is intended to include assigned rights, the language used in section 1 should reflect the intent of the parties (e.g., the rights and obligations of the parties regarding the assigned rights, where "assignment" is usually described as assignment of IP rights that can be registered with the relevant patent office or court).
The remaining clauses of the IP rights transfer agreement may include the details of any payments to be made for the transfer of IP, confidentiality obligations (if distinct from the ones applicable to the relevant IP or trade secrets and know-how that should be kept confidential), liability and indemnification provisions (including with regard to third parties), governing law, filing and prosecution obligations, representations and warranties, cooperation in the event of infringement actions or any other measure to prevent the infringement of IP, assignment and a relevant dispute resolution mechanism.

What Types of IP Can Be Assigned or Transferred?

Types of Intellectual Property Transferred by Transfer Of IP Rights Agreements
Transfer of intellectual property rights can include the assignment of copyrights, patents, trademarks, trade secrets, and other forms of intellectual property. A transfer of a copyright involves the conveyance, by the owner of copyright, of any or all of its exclusive rights in the copyrighted work. The most common transfers of copyright are licensing agreements. Copyright license agreements may be exclusive, requiring the copyright owner to refrain from licensing the same right under the work to other parties, or non-exclusive, permitting the copyright owner to issue licenses for the same right under the work to other parties as well. They also may be exclusive as to a specific geographic territory, time period, or to a particular purpose, such as allowing a publisher to print and distribute a book in exchange for a royalty. An exclusive license transfers all the rights held by the licensor, but a non-exclusive license only provides the right to use the work without any exclusivity. In addition to copyrights in the software, a license may be granted by an owner of copyrights in electronically or digitally encoded images. Any such license which requires payment of royalties by the person using such images should be in writing, since some courts, in accordance with the Statute of Frauds, may refuse to enforce an agreement made on commission to pay royalties unless in writing. Patents, including applications for patent and all continuations, divisions, reissues, reissues, re-examinations, extensions or supplemental protection certificates, may be transferred by assignment. When assignment is coupled with an assignment of the exclusive license, the assignee of the patent may be the exclusive licensee under the assigned license agreement. A trademark application, or trademark registration, may be assigned, but the person from whom the trademark is assigned cannot "retain any rights" to the mark that has not been transferred in the assignment. Assignment of a trademark application or trademark registration must be in writing. Trademarks can also be licensed like other forms of intellectual property. A license to use a mark is typically limited to a specific geographic area, time period, and/or to a particular subject matter or purpose; however, if a trademark license is silent on these restrictions, it is considered to be an unrestricted license. Trade secrets and information protected as confidential business information may include business methods, processes, systems, strategies, practices, research and development efforts, and other proprietary know-how. Unauthorized use or disclosure of trade secrets is sufficient to support a claim of breach of contract or conversion. Since trade secrets can be destroyed if they are generally disclosed, each person to whom a trade secret is disclosed should be required to sign a confidentiality agreement before the trade secret is disclosed to that person. Computer software can be protected by copyrights, patents, trade secrets, and/or trademarks, depending on the nature of the software. Generally, rights in source code are afforded the same rights as protected for other forms of literature by copyright. Provided that it meets the requirements for patentability, and if the requisite filing and formalities are satisfied, computer software may also be protected by a utility patent. Certain aspects of computer software, such as the structure, sequence and organization of a particular system architecture, may be protected by a design patent. In addition, trademarks may protect names, logos, symbols, and other commercial indicia used in connection with computer hardware and software.

Legal Issues and Considerations

The legal landscape surrounding intellectual property transfer agreements requires careful consideration by all parties involved. Different jurisdictions may impose varying legal standards and requirements with respect to the validity and enforceability of IP rights. The parties must consider applicable contract laws, statutory limitations, and specific regulatory requirements in their jurisdictions to ensure compliance and validity of the transfer agreement.
Contract law – Contract law governs the validity of transfer agreements in many jurisdictions. At its core, an agreement to transfer IP rights is a contract, and therefore the legal principles of contracts apply equally. Among other things, contracts must generally be supported by legal consideration, and the parties usually must have the capacity to enter into binding contracts in order to make the agreement enforceable. Further, transfer contracts should identify all IP rights being transferred, and contain all necessary details regarding the use, commercialization, and further licensing of those rights. The law of the jurisdiction would preside over the ultimate interpretation and scope of the terms of the agreement, and the applicable contract law would govern issues of remedy, breach, and cancellation for the agreement. Accordingly, parties must engage in good faith negotiations to reach a mutually acceptable transfer contract. Parties also may seek remedies, such as reformation and rescission, for breach of contract.
Statutory limitations – Applicable statutes, especially local laws, may impose limitations on the transfer of certain types of IP rights. For example, any licensing of industrial design in a given jurisdiction should comply with any mandatory statutory requirements imposed by that jurisdiction. There also may be limitations on commercial exploitation of certain IP rights licensed under other laws, such as the approval requirement under the FDA for the commercial sale of new drugs composed of newly discovered chemical compounds.
Regulatory requirements – Certain regulatory agencies may impose restrictions or additional requirements on the transfer of certain IP rights to protect public interests. For example, under Canadian laws, the Intellectual Property Office (formerly known as the Canadian Intellectual Property Office or CIPO) in the Department of Industry Canada has requirement that expressions of interest and assignment of copyright with respect to Canadian copyrights that are sold as a whole must be filed with the Office. As another example, as discussed in the previous section, assignment of industrial designs in Canada must be registered at the Office.

Common Issues with IP Rights Transfers

The transfer of IP rights is seldom free from obstacles. Constantly changing laws, evolving technologies, global practices, and a myriad of ownership issues will most certainly dog even the most sophisticated participants. A few of the most common challenges regarding IP rights transfer are discussed below.
Valuation Conflicts
For the almost lawyer-free startup, the valuation of a company’s IP rights can be crucial to the funding process (and the survival of such venture). Oftentimes the founders are also the inventors of such IP rights. However, in their keenness to bring the company to life, founders may be unable to accurately value their creations, whether it is for purposes of equity compensation or the establishment of a buyer-seller relationship. Also, small companies or research institutions may not have an appreciation of the value of their IP rights in the global market. Recognizing or ascribing value to an IP right is typically a contested issue in itself, and under this circumstance even the simplest of agreements will be clouded with conflicting valuations or countervaluations.
Insufficient or Unclear IP Ownership
However, it is not only the creator who may be caught by the challenge presented above. Third parties may also become embroiled in valuation battles on the basis of uncertain or unclear ownership. Any transfer of IP rights must begin by establishing the correct ownership of those very same rights. However, it is often the case that a person will file an application for registration of a copyright, patent, trademark, or industrial design with his name as owner of the right . This is not necessarily wrong; in some cases such author or inventor may be the only owner of the IP right—as an employee, for example. However, where such creator has effectively transferred the IP rights to another person, and that person has participated in the application process without ensuring that he or she is the owner of record, a conflict may arise between the parties. Indeed, if the original owner refuses to record the assignment in the relevant government office, making it impossible to establish the chain of title, the registration will remain incomplete. In this situation, a third party seeking to obtain IP rights in respect of the very same work may find it difficult to proceed with the transaction, much to its chagrin.
Ownership Disputes/Misappropriation
IP rights are vulnerable to misappropriation. Therefore, it is prudent for parties to a transfer agreement to ensure that the transferor owns the IP rights in question. The assignment clause is one provision that is often overlooked or hastily done by both the assignor and the assignee. Parties may have forgotten to include such a vital clause or the clause may be so poorly drafted or incomplete that it does not achieve its objective. In either situation, the assignee may be left with unsettled or incomplete rights. Moreover, a disgruntled employee, who was hired after the completion of an invention but is still a named inventor in the patent application, could claim that he or she has an undivided one third interest in the IP rights. A strange scenario? Unfortunately, it is not uncommon and is most certainly an unwelcome addition to the attempt by the founder to get the company off the ground.

Tips for Transfer of IP Rights

When considering a transfer of IP rights in any capacity, the following actionable tips and best practices are helpful when crafting an effective and enforceable IP rights transfer agreement:

The agreement should be in writing to be enforceable. This seems obvious, but agreements can be created on an impromptu basis, verbally, or through a simple asset transfer, and all too often a written agreement is not created and enforced. Having the agreement in writing also allows for both parties to have a record of the terms of the agreement to refer back to in the future.
Detailed description of IP rights to be transferred. As many IP rights stem from a singular idea that becomes a longer more developed idea over time, depending on the context of the relationship between the parties entering into the agreement, it may be better to have a broad assignment of IP rights. For example, the agreement could include an affirmative duty of the transferring party to disclose additional updates and developments of the assigned IP rights to the receiving party to be included in the overall scope of the deal. A narrow assignment of IP rights with limited additional updates may appear beneficial, but if the scope of the agreement only encapsulates the IP rights in their current form without any obligation to keep the receiving party up to date on further developments, then the assignee may find themselves at a disadvantage if the transferor decides to exploit the newly developed IP rights without sharing with the assignee.
Negotiate the terms. Do not enter into an agreement without negotiating the terms. These terms can be discussed and revised through interactions between both parties until an agreement is mutually reached.
Clear language. Use clear language when discussing the agreement with the other party. Avoid using legalese and be cognizant of the possibility that the other party may be unfamiliar with legal jargon. If either party has trouble understanding the terms, consider obtaining legal counsel to translate and/or provide assistance in drafting the agreement.
Obtain legal counsel. IP Issues can be extremely nuanced and complex, depending on the IP laws in the specific country or territory, and obtaining the guidance of an IP attorney may be helpful to reaching an agreement with minimal conflicts.

IP Transfers: Case Studies

To illustrate the strengths of the transfer of IP rights legal framework discussed above, a few real-world examples of successful transfer of IP rights transactions are examined below.
Example 1
Mason, Inc. is a large automotive parts manufacturer that routinely develops its own proprietary designs for the parts that it manufactures. Upon the completion of the design and engineering process, Mason then creates a steel rule die used in the press forming process for creating parts which incorporates the design it created. The design incorporated into Mason’s steel rule die is protected by a patent, but Mason also has other proprietary elements integrated into its die not protected by a patent. It also has its proprietary "know-how" or proprietary information, such as trade secrets, that developed during the design process. In some cases, Mason would like to sell licenses to its proprietary designs and its proprietary information, but usually it prefers to obtain a lump sum payment from the purchaser of the die at the same time that it sells the die.
Thus, when negotiating the sale of a die, Mason, Inc. generally will indicate to the purchaser that it may be willing to sell the die for a lump sum payment if a license to use its proprietary information is also purchased. Meanwhile, the purchaser may be interested in obtaining a royalty-bearing license for the die. In either case, Mason, Inc. and the purchaser will agree to a (1) license agreement (or an amended chamber of commerce model license agreement) outlining the validity of the license, scope of use of licensed materials and financial consideration for the license, whether it be royalty or lump-sum based, and (2) an assignment agreement providing that all of the assignor’s IP rights in the assigned materials, including the assigned material copyright, are transferred to the purchaser, along with the original or a copy of the steel rule die.
Unless Mason, Inc. is transferring the die without a license grant to the purchaser, the parties need only ensure that the license agreement and assignment agreement sufficiently identify the materials being assigned or licensed. When the die is sold without a license agreement, the agreement can simply state that the die is being sold "as is" and that the purchaser will have no rights to the proprietary information used in the die.
In any event, it is important to ensure that the agreements where appropriate also include a non-competition agreement, a provision for non-disclosure of confidential information, and an additional assignment to allow for assignment of the assignment (and this is perhaps redundant). It is also critical that the purchaser perform due diligence prior to closing. The due diligence should, at a minimum, include a review of the license provisions and the terms of judgment with respect to the use of the licensed material; the security of the seller’s IP rights; and the terms of any monitoring requirements for IP protection. Any bad debts should also be reviewed. For example, a large consumer products company might acquire a well-known generic industrial product company business, only to discover that the margin levels for its generic items are relatively low.
Any successful buyer or seller would be well advised to work for a successful buyer or seller to develop a short and useful reference list of negotiable issues to present to potential buyers or sellers. The issues should include but are not limited to (1) assignment of the trade secrets to buyers; (2) natural resources such as mineral and water rights; (3) cash; (4) accounts receivable; (5) property; (6) land; (7) service contracts; (8) goodwill; (9) customer lists; (10) work in progress; (11) advertising slogans; (12) vendor discounts and rebates; (13) production quotas; (14) warranties; (15) price protection; and (16) intellectual property.

Conclusion and Future Developments

The transfer of rights in IP is a complex and rapidly evolving area of the law. The breadth of this subject renders the treatment of it in one article difficult. Throughout this article, many issues and questions have been raised. Some issues are still developing and there is a range of different answers to some of the questions. There are several coming trends and issues of which we are following closely.
One hot issue is the continued rise of businesses based solely on the production of IP. Start-ups often bring novel products to the market that need to be protected. The transactional issues surrounding this will need to be carefully treated so as to appropriately allocate rights in ways that allow for the proper business operation .
It is again hard to overstate the effect of technology on IP transferability. As technology is developing and implementing itself in all industries, similar issues arise as in the entertainment industry, where the portability of IP across different digital formats presents hard questions of rights transferability, circulation, and licensing in an ever-expanding environment.
As digital mediums expand in culture, so will the need for well-crafted IP-transfer agreements, as they will be more necessary than ever to prevent misallocation of rights which could lead to both misappropriation of the IP, and litigation.