In this continuing series on risk management, we have considered the basics of products liability and shifting that risk through either an indemnification agreement or insurance. But products liability is not your only risk. How can you protect against (or seek compensation for) other risks, such as the loss or misuse of your intellectual property?
The first step is to make sure that you have taken the necessary steps to claim the intellectual property as your own. That could include applying for and obtaining a patent from all applicable jurisdictions, registering copyrighted material, registering a trademark or trade dress, or implementing steps to protect trade secrets. You may also need to work with customs or border control.
You also must be vigilant. Keep track of all supplies used and products produced. Is your manufacturer using more material than seems right or that has a higher defect/rejection rate than seems reasonable? If so, your manufacturer may be siphoning off some supplies or product for sale through unauthorized channels.
Do you monitor online sites, retailer promotional materials, product launches and the like? This simple (albeit potentially time-consuming) step can lead to early detection of infringing product in the marketplace or the use of a confusingly similar or dilutive trademark.
When it is necessary to permit others to use or sell your intellectual property, make sure that you have a written license agreement that spells out not just the economic terms but also who bears the responsibility of protecting the intellectual property from unauthorized dissemination or use. Include provisions such as:
• You own the licensed property;
• The licensee may not oppose or seek to cancel or challenge any application or registration of the licensed property;
• All goodwill associated with the licensed property belongs to you;
• The licensee will assist as necessary in protecting and enforcing your intellectual property rights in the licensed property;
• Any original designs, artwork or other compilations are “compilations” or “supplementary works” for purposes of copyright ownership;
• You will provide approved designs and/or guidance for all labels, containers, packages, tags and displays, print and online advertisements and promotional materials, and the licensee must regularly, prominently and consistently use all trademarks or trade dress;
• Any design changes must be pre-approved in writing;
• The licensee must provide a sample of each product to you for review, for testing or for other purposes prior to manufacture, use, distribution or sale;
• You have the right to audit all records;
• The licensee must correct all defects within a defined time period and, if necessary, recall or remediate a defective product;
• The licensee must promptly report any complaint, claim, demand or the like;
• The licensee must keep trade secrets, know-how and other business information confidential;
• The license may be terminated immediately for a breach of any of the licensee’s duties, and you are entitled to non-monetary relief, such as specific performance or injunction;
• Indemnification and insurance; and
• Disposal of inventory at the end of the license period.
Do not, however, fall into the trap of thinking you are protected simply because you carefully crafted a license agreement. Continue to monitor and enforce your rights, vis-à-vis both your licensee and others.
Kristi Davidson is a shareholder in the New York City office of Buchanan Ingersoll & Rooney. She can be reached at email@example.com.
Editor’s Note: The comments are those of the author and are not necessarily views shared by HFN or Macfadden Communications.