IT.Can 5th Annual Spring Training Program
May10, 2005
Protecting Ownership:
Representations, Warranties and
Indemnities in IT Transactions
Lisa K. Abe
Ownership of Intellectual Property
•
•
•
•
•
Warranty vs. indemnity
Scope of IT
Definition of IP
Common ownership warranties
New concerns with ownership warranties and
indemnities
• New approaches - limitations and qualifiers
• Issues arising under specific agreements
Warranty vs. indemnity
• A statement of a fact, which if wrong, could give
rise to a cause of action for breach of warranty
and claim for damages
vs.
• A promise to make good a loss which the other
party has suffered in consequence of certain acts
or defaults – a contractual remedy of payment
Scope of IT
•
•
•
•
•
•
•
base code
modifications/customizations
related data, databases and documentation
layouts, interfaces
inventions, processes, methods
future works
third party code, open source
Defining Intellectual Property Rights
• “Copyright” means: all* copyrights and all
registrations, pending applications for registration
and rights to file copyright applications for the IT.
*May
want to refer to specific/applicable copyrights.
• “Moral Rights” means all moral rights and [,
where the Vendor is not the author,] the benefits
[of the Vendor] in all waivers of moral rights in
the IT.
Defining Intellectual Property Rights
• “Patent Rights” means all* patents [list specific
numbers], pending patent applications and rights
to file applications for the inventions, in the IT,
including all rights of priority and rights in
continuations, continuations-in-part, divisions,
reexaminations, reissues and other derivative
applications and patents.
*May want to refer to specific/applicable patent rights.
Defining Intellectual Property Rights
• “Design Rights” means all design patents, design
registrations, pending patent and design applications and
rights to file applications for the designs in the IT,
including all rights of priority and rights in continuations,
continuations-in-part, divisions, reexaminations, reissues
and other derivative applications and patents.
• “Trade-Mark Rights” means all common law rights and
registrations, pending applications for registration and
rights to file applications for the Trade-marks, including
all rights of priority.
• “Domain Name Rights” means all rights in the
registrations of the Domain Names.
Defining Intellectual Property Rights
• “Topography Rights” means all registrations,
pending applications for registration, and rights to
file applications for the IC Topographies.
• “Enforcement Rights” means all rights to enforce
rights and obtain remedies, including without
limitation compensation for violation, in the
foregoing [insert reference to IP rights sections]
against third parties.
Common ownership warranties
•
•
•
•
Listing of all the IT and IP rights (in a schedule)
Authors and inventors listing; original works of authorship
Sole and exclusive owner of all/certain IP Rights in the IT
US “work made for hire”; problem in Canada if no
assignment of copyright and waiver of moral rights
• Right to assign or license
• Authors waived their moral rights in the IT in favour of
the owner/licensor and its successors, assigns and
licensees; and agreed to keep IT confidential
• No infringement: of others; by others (subject to
limitations, discussed below)
Common ownership warranties (cont.)
•
•
•
•
•
Continuous trade-mark use
Application timeliness
Prosecution
No prior art
Availability, validity, enforceability and
maintenance of rights
• Scope of rights, right to exploit
New concerns with ownership warranties
and indemnities
• Third party code – toolkits, program modules, applets,
java beans
• Open source
• Extent of developer’s use – flow-through to
employee/subcontractor level
• Different kinds with different licenses
• Affects ownership of, and freedom to license, base product and
modified product containing open source code
• Future IT – no copyright in what does not yet exist
• Need covenants and indemnities as opposed to reps and warranties
New concerns with ownership warranties
and indemnities
• Common pitfalls:
• Party owns all rights, title and interest in its own developed IT, as
opposed to its deliverables
• Subject to third party rights, party owns or has right to license IT
• Licensor/transferor has right to use the IT, as opposed to
licensee/transferee
• Licensed IT, as opposed to licensee’s use of IT, is non-infringing
• Licensor/transferor has taken steps to protect IT deemed by it to
require protection, as opposed to what would be commercially
reasonable
New approaches - limitations and qualifiers
• On ownership and non-infringement reps and warranties
• knowledge, with or without searches
• jurisdiction/territory
• subject matter, scope, unmodified, kept current, not from a
combination
• exclude other party’s or third party’s material or if based on their
requirements
• applicable timing and duration
• registered, valid
• materiality, dollar limits (common to exclude breach of ownership
warranty and corresponding indemnities from caps on liability)
• specified exceptions
New approaches - limitations and qualifiers
• On ownership and non-infringement indemnities
• Who gets benefit of indemnity?
•
•
•
•
Contracting parties, directors, officers, agents
Affiliates
Subcontractors
End users, sub-licensees
New approaches - limitations and qualifiers
• On ownership indemnities (cont.)
• Amount?
• Claims, damages awarded, arbitration, settlement, final
• Losses and internal damages, costs, expenses (note indirect
damage exclusions)
• Fines, penalties, interest
• Dollar limits
New approaches - limitations and qualifiers
• On ownership indemnities (cont.)
• Subject matter?
•
•
•
•
•
•
actual or alleged infringement
IT assets, provided authorized use, no breach
services
other party’s or third party material
modifications, not authorized by supplied
specific IP, e.g. copyright, trade secrets (misappropriation),
registered patents
• jurisdiction where used
New approaches - limitations and qualifiers
• On ownership indemnities (cont.)
• Triggers and options?
•
•
•
•
•
•
•
•
Adequate notice, time limits
Ability to control settlement or defence
Assistance from indemnitee
Modification, workaround or replacement of of infringing material
Obtain third party rights
Cease use or terminate agreement
Payment of liquidated damages
Sole and exclusive remedy?
Issues arising under specific agreements
•
•
•
•
•
•
License Agreements
Development Agreements
System Procurement (Acquisition)
System Integration
Other Services
Outsourcing
• Consider what each party is supplying and respective
ownership reps, warranties, covenants and indemnities.
• Survival of ownership reps, warranties and indemnities
License Agreements
• Right to license
• Proposed use is within scope of rights licensed and not
infringing
• No exclusive licenses granted
• If modifications permitted by licensee (e.g. to source
code), need to know what components are third party
and open source
Development Agreements
• Right to develop/modify (translate, create derivative
works, make, use)
• If work product to be owned by customer, need right to assign
(see acquisition, below)
• Novelty, unobviousness and originality
• Covenants re: ownership and non-infringement of future
works
• Non-infringement of work as delivered, unmodified
• Non-infringing services
• Indemnity for third party claims
System Procurement (Acquisition)
•
Want IT assets with good title, no liens or encumbrances
• Ownership applications, registrations, diligent prosecution,
protection, enforcement and maintenance of IP
• Previous licenses granted – no exclusive ones
• No other assignments, options, interests
• Extent of disclosure of source code, trade secrets
• No knowledge of invalidity or prior art
• No challenges, expungement, enforcement issues
• Searches and opinions
• Indemnities for breach of foregoing warranties and third party IP
infringement claims
• Issue of survival
System Integration
• Have all necessary IP rights, including from third parties
• Each party’s supplied material and performance of
obligations – non-infringement
• May not be able to warrant or indemnify for combined
results
• Understand joint works/collective works can be
problematic - receive different treatment by property,
jurisdiction and activity
Joint ownership of copyright
Canada
Equal shares as
Ownership of
Joint Interest
tenants in
common
Transfer of Joint
Yes, without
Interest
consent
License of Rights Not without
consent
Yes, without
Right to Use
consent
Yes, without
Right to Enforce
Copyright
consent
Right of Author to Yes, without
Waive or Enforce consent
Moral Rights
Need to Account
No, unless activity
to Joint Owner
requires consent
United States
Equal shares as
tenants in common
United Kingdom
Equal shares as tenants in common
Yes, without consent Yes, without consent
Yes, without consent Not without consent
Yes, without consent Not without consent
Yes, without consent Yes, without consent
Yes, without consent Yes, without consent
Yes, for use, licensing or enforcement,
Yes, for use,
but only entitled to pro rata share of
licensing or
enforcement, but not damages
for assignment
Joint ownership of patent rights
Common Law
Canada
Ownership of
Joint Interest
Equal shares as
tenants in
common
Transfer of Joint Yes, without
Interest
consent
License of Rights Not without
consent
Right to Use
Yes, without
consent
Right to Enforce Yes, without
consent, but must
join other owners
Need to Account
to Joint Owner
Only entitled to
pro rata damages
or profits
Quebec
United States
United Kingdom
Equal shares
Equal shares as
tenants in common
Equal undivided shares
Not without
consent
Not without
consent
Yes, without
consent
Yes, without
consent, but
must join other
owners
Likely not
Yes, without
consent
Yes, without
consent
Yes, without
consent
Not without other
owners
Not without consent
No need
May only be entitled to pro
rata damages or profits
Not without consent
Yes, without consent
Yes, without consent, but
must join other owners
Other Services
• Maintenance and support – right to modify, assign ownership or
license. Need to capture developed/future works. Non-infringing
services. Requirement on customer to keep current (n-1).
• Hosting – If neither party is the owner, which party will obtain
rights from software owner, e.g. to run, copy, store, modify the
software. If sublicense required to host, need to ensure party
giving sublicense has that right. Need to ensure have necessary
licenses licensee and no breach of confidentiality in disclosure of
software to either party.
Outsourcing
• Complex transactions that may involve multiple crossparty IT transfers/assignments, licenses, sub-licenses,
licenses back, services
• Asset transfer/license and use of services – noninfringement
• Take-over of existing contracts which may or may not
contain adequate ownership protection – may need to
amend
• Must distinguish between prior existing vs. newly
developed/acquired IT or results of the services
• Joint ownership problems
Outsourcing
• Usually both sides, customer and outsourcer provide
ownership reps, warranties, covenants and indemnities
• Other terms may indirectly warrant ownership, e.g. no
conflicts, breach of third party contracts, required
consents, breach of confidence, no violation of applicable
laws, etc.
• Need to consider implications of further subcontracting,
expanded scope of users, affiliates, future development
and implications of termination/transitioning-back
Lisa K. Abe
labe@tor.fasken.com
Tel: 416.868.3358
http://www.fasken.com