This contract tip is about reviewing the intellectual property provisions to make sure the vendor is assigning IP rights to you, the customer, or granting a license to rights not assigned. You check the box that the IP terms are good.
Or are they?
If there's an assignment of IP in a contract, you always need to ask the next question. Does the assigning party need to exercise any statutory rights related to that IP during the agreement term? In other words, will the assigning party need to exercise rights reserved to the IP owner?
If yes, you may need to include a grant-back license.
A grant-back license is what it sounds like. The party to the contract that received intellectual property rights from the other party grants some rights back.
We need these provisions when the assigning party continues to use the IP even after the assignment.
Let’s say a customer hires a vendor to develop technology that will be owned by the customer. The contract would say that the vendor assigns its ownership to any IP rights in the technology to the customer.
But think about where that leaves the vendor. The vendor has already assigned and no longer owns the IP rights in the technology. If the vendor uses that technology without permission, the vendor technically is infringing the customer’s IP rights.
We add a grant-back license to prevent that situation.
Now, if there is no grant-back license, the vendor is not completely at risk. It has a strong argument that it has an equitable right to use the IP rights to perform its obligations under the agreement. But that equitable license is limited and unclear.
The vendor may also need more than just the right to perform under the Agreement. In some cases, the vendor receives rights that it can transfer and sublicense.
The best practice is to include a clear grant-back license if a party needs to use IP rights after its assignment.
Do you see contracts that leave out the whole grant-back license concept? I used to see that happen a lot.
