5 essential steps for protecting your intellectual property in MSA contracts

The intellectual property clause plays a vital role in an MSA contract. This clause will indicate who will own any intellectual property (IP) (such as inventions, software, designs, etc.) created or used in connection with the MSA contract.

When dealing with intellectual property in MSA contracts, it's crucial to protect your rights and establish clear guidelines. To help you when drafting or reviewing the IP clause, here are six crucial steps to consider:

1. Clearly define ownership in arising intellectual property

The most important takeaway from this blog is to ensure that you do not give away your intellectual property rights unless you intend to do so. The intellectual property clause should state who will own the intellectual property rights to any work or deliverables created during the provision of services. It should clearly set out whether the new IP will be owned by the supplier, the customer or if there will be joint ownership. This clause should leave no room for ambiguity when it comes to ownership of IP created under the MSA contract.

2. Address background IP

During the agreement process, it is important to identify any pre-existing background IP that each party brings to the table. Background IP refers to IP that has been created independently and is owned by a party before the agreement's effective date. For instance, if a supplier utilises its own database or blueprint to deliver the services, that IP would be considered the supplier's background IP.

Once you have determined the relevant background IP that will be utilised in relation to the services, it is crucial to clarify its ownership and usage rights. You should establish whether the party who owns the background IP will retain full ownership, and/or if they will grant a licence allowing the use of the background IP in connection with the provision or use of the services. This clarification will help to ensure a clear understanding of rights and responsibilities regarding background IP within the agreement.

3. Grant licences and usage rights

Will either party be using the other party’s background IP to provide or make use of the services? Or will the supplier be licensing the IP created in the provision of the services, rather than transferring ownership to the customer? If so, then you will need to ensure that your licence terms are tailored to your IP and how it must be used.

Here’s an example of licensing background IP under the MSA contract:

The supplier will be using its own proprietary software to provide the services. The supplier will therefore grant a licence to the customer to enable it to use the software as part of the services. The customer will therefore be able to access and use the software subject to the licence conditions set out in the MSA contract.

Top tip: if your creative work, innovative ideas and valuable assets will be licensed, it’s imperative to make sure the drafting of your MSA contract reflects your intentions and includes limitations on how your IP can be used. The scope of the licence should be clearly defined, e.g. if it will be limited to the term of the agreement or perpetual, exclusive or non-exclusive, world-wide or only for use within a particular territory, etc.

Carefully drafting this clause with certain conditions will help to ensure that your IP is used only as intended and doesn't fall into the wrong hands. The IP licence can safeguard against unauthorised distribution, copying or exploitation that may harm your business.

4. Indemnification for third party IP infringement claims

What if a third party claims that the use of a party’s IP under the MSA contract infringes their own IP? That’s where an indemnity for third party IP infringement claims can shift this responsibility to the party that owns the infringing IP.

What is an indemnity?

An indemnity is a contractual promise given by a party to compensate the other for losses, damages or liabilities arising from a specific event or circumstance. This contractual provision shifts the responsibility for certain risks or claims from one party to another. If the specified event is triggered (in this case, if a third party makes a claim that the use of the other party’s IP infringes its own IP), the indemnified party may seek reimbursement or compensation for the losses suffered.

Practical tips when it comes to third-party indemnities

If you're worried that utilising someone else's IP might infringe the rights of a third party, one way to address these concerns is through an indemnification obligation from the party who owns the IP. However, it's important to note that if you will be licensing your IP to the other party to the MSA contract, and that party requires you to provide an indemnity for third-party IP infringement claims, you should consider financial risk and potential implications of giving an indemnity. This means that you could be held responsible for covering legal costs, damages, or settlements resulting from such infringement claims. It's therefore crucial to thoroughly assess the potential financial impact that granting an indemnity could have on your business.

If indemnification is necessary, you should consider incorporating the indemnity within a liability cap in your MSA contract, which limits the exposure of risk on your financial liability if the indemnity is triggered. You should always ensure the liability cap is within your insurance cover limit. This ensures that you have a clearer understanding of the potential risks and can protect your business accordingly.

For a jargon-free explanation of indemnities and warranties, check out this blog.

5. Include robust confidentiality and non-disclosure terms

In addition to ring-fencing the parties’ intellectual property rights, it is also imperative to include non-disclosure terms to ensure the other party keeps any shared confidential information a secret!

By including these provisions, everyone is legally bound to keep the shared IP and sensitive information confidential throughout the business relationship, and if agreed, for a certain period of time after. This helps create a secure environment for collaboration and protects the valuable assets that drive your company’s success. You should also include any restrictions on disclosing, sharing or using the confidential information or IP without the disclosing party’s permission.

If you're looking for an MSA contract template that includes model clauses to protect your IP which can be customised to suit your business needs, check out our template here.

Why choose Docue to safeguard your IP in your MSA contract template?

Simplicity: Docue offers an intuitive and user-friendly interface, making it easy for you to a create high-quality MSA contract template that safeguards your IP without traditional lawyers’ fees.

Secure: Once you've customised the MSA contract template to fit your business needs, you can safely send it to each party for electronic signature. With Docue's robust security measures, you can rest assured that your contracts are protected throughout the signing process. Additionally, the platform provides a storage vault, ensuring quick and easy access to your agreements whenever you need them.

Organisation: With Docue, you'll never miss a contract renewal deadline again. The platform offers convenient reminders that keep you informed of upcoming deadlines, ensuring that you stay on top of your contracts.

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