Do you have a clear idea of who owns and controls all IP within your supply chain?

5 mins

Ownership of intellectual property (IP) within a supply chain can provide significant advantages, including negotiating power and flexibility. It is therefore important to understand who owns the key areas of IP within your supply chain in order to identify the IP risks which could leave your business vulnerable if a party were to seek to exit the commercial relationship.

Some key questions to consider may involve the following:

• Are you reliant on specific IP owned by a single supplier? For example, are they the sole manufacturer of a specific material or component essential to your business?

Overdependence on a single supplier may present a risk to your business. For example, you should consider scenarios where the supplier ceases trading, decides to substantially raise their prices, supply a competitor, or the commercial relationship breaks down.  

The best position to be in is that you own the IP yourself as you are then in control. However, if you cannot or do not own the IP then you may want to consider an exclusive licence. It can help to maintain some control over the IP by preventing the proprietor from licensing the same IP to others or exploiting it themselves. If the proprietor is reluctant to agree to an exclusive licence, consider negotiating a licence restricted by commercial field or regional territory. However, if you are reliant on licensing agreements, always take care to consider the break clauses of the agreement.

In your licensing agreement, you should also consider what would happen if your supplier went out of business. The risk to your business can be mitigated by negotiating an agreement with your supplier to place their IP rights in escrow. This means you may have access to the IP under agreed circumstances, for example such as the supplier going out of business.

These risks may also be mitigated by developing IP of your own. In particular, building up a portfolio of registered IP confers monopoly rights to exclude others from producing, using, or selling your protected IP. This can be a powerful negotiating tool in supply chains and may allow you to negotiate better terms, for example by cross licensing your IP.

• Is any of the IP in your supply chain co-owned?

It may be the case that some IP within your supply chain is co-owned as a result of collaboration between parties. However, co-ownership can be challenging to manage and should be avoided if there is an opportunity to negotiate better terms. For example, you may consider an agreement in which you own the IP and, in return, an indefinite non-exclusive licence, and/or an agreed revenue share, is granted to the third party. Similarly, you could consider restricting ownership of the IP by use in different commercial fields, or regional territories. These terms should be agreed by way of an IP agreement.

• Are you sharing sensitive IP with a third party in your supply chain?          

When working with third parties in a supply chain, you may have to share some of your IP as part of the process. The most secure way to maintain control of this IP is to obtain registered protection prior to entering into discussions with third parties. However, in cases where this is not possible, you should ensure you have a non-disclosure agreement (NDA) in place to ensure that the third party is legally bound not to make that sensitive information available to any others.  

Written by: Jessie Harrison and Andrew White