Sophisticated innovative technologies have now become a key aspect of resources companies' success. Whether they cooperate with others or develop their technology in-house, businesses need to give careful consideration to their IP strategy, to ensure they obtain the rights they need, at the right cost.
Companies operating in the resources sectors are seeing their businesses and operations transform with the opportunities presented by new technologies such as advanced robotics, automated vehicles, artificial intelligence and the Internet of Things, to name a few. Rio Tinto's Mine of the Future programme is just one example of the implementation of innovative technologies to increase productivity and improve safety, with Rio Tinto announcing in October the first fully autonomous freight train run over 100km. In the clean energy space, and particularly in relation to wind farms, Vestas and Siemens have been using Big Data analytics to perform diagnostic calculations. Big Data insights have led to forecasts, selection of strategic sites and improvements to manufacture, maintenance and decision-making.
Companies can choose to bring new technology on board in many ways, such as via acquisition or investment, technology licensing, in-house development, collaborative research arrangements, strategic partnerships, or via outsourcing (which might be anything from a specific commission to a hackathon).
Having a robust IP framework in place in your business is a vital step towards securing the rights you will need for the ongoing and secure use of the technology.
Here are five key points for consideration to help you navigate the rapidly changing landscape.
1. Acquisitions: IP due diligence is key
In any acquisition, IP due diligence is essential. In the start-up space, in particular, caution must be exercised. For all their enthusiasm, start-ups may not have a well-developed or comprehensive IP strategy in place, and any prospective purchaser should therefore consider carefully:
- What IP rights attach to the technology: Registered rights - patents, designs, trade marks - are easy to track, although given the costs associated with the registration process, a start-up's strategy may have been restricted by financial considerations. It is also important to assess the geographical scope of protection and the quality of any protection that might have been achieved. Unregistered rights – copyright and confidential information – are far more difficult to identify and assess. These are rights that are being increasingly asserted as people move out of large organisations to set up their own ventures, taking with them a wealth of know-how and, in some cases, documentation and software code.
- Who created the technology and who owns the IP: It is wise to ask a target start-up company to produce some sort of record of all contributors to the technology, together with any associated contracts and/or assignments (if they exist). It is not unusual for start-up companies to have sought input from a number of people, both internal and external, and both before and after the existence of proper corporate structures and documentation. This makes establishing IP ownership difficult, and does present ongoing risk to a prospective purchaser.
- Are there existing licences in place with third parties: The start-up company may have impliedly or expressly authorised third parties to use its technology. Any licensing terms need to be scrutinised: a prior grant of an exclusive licence might mean a purchaser has no right to use that technology. If open source software has been used (which is common), purchasers need to establish the licensing terms and their implications.
- Has the start-up used third party technology: It is important to investigate whether the technology at stake infringes any third party intellectual property as this may be a bar to future use of such technology. It is often the case that a start-up has not undertaken its own comprehensive due diligence, but has avoided difficulty as a result of their small size. An acquisition by a larger entity will increase visibility, and with the scale-up of technology, a freedom to operate assessment is essential.
2. Licensing technology in
Many businesses do not have the in-house capabilities to develop all the technology they need to improve their methods of production and so choose to license-in technology. Some of the key issues to consider in licensing arrangements are:
- Does the licensed technology include updates to the technology products: Technologies are constantly improved and licensees should negotiate the right to use the latest releases and latest versions of the licensed technology. Businesses who fail to acquire the right to future developments and updates run the risk of losing the value of their investment and seeing their technological product becoming rapidly obsolete. Tied with the right to use new versions of the technology, is the negotiation of royalties for new releases. It is less risky for businesses to agree royalties (or at least a framework for royalty calculations) at the time the contract is signed. Businesses should avoid being held hostage by a technology provider who will have the upper hand at the negotiation table if the technology has become crucial to the resources company's operations.
- Improvements developed by licensee/technological product : If IP is created by the licensee, using the licensed technology, who will the owner be? What about technology which has been self-developed by the technological product, using licensee data? Whether or not resources companies manage to negotiate ownership of such IP, at the very least, businesses should negotiate to obtain a right to use such IP.
- Customer support: More often than not, technology licensees will require the technology provider's support to set up and maintain the licensed technological products. Licensees should consider the level of assistance they require: will off-site remote support be sufficient? Will seconded staff be needed? What processes should be agreed to deal with emergencies and technological failures?
- Confidentiality: Most licences will contain confidentiality terms. Technology licensors may gain insight into the licensees' plans and business strategies, so it is essential to set up adequate safeguards to prevent leaks which may damage the competitiveness of a business.
3. Collaborative research
A feature of the new technology landscape within the resources sector is increased collaborations, including collaborations between resources companies and tech companies (both big and small).
There are various structures that can be used to formalise collaboration, including through joint venture companies, partnerships or co-operation agreements. Whatever the structure, clearly defining the IP that each entity is bringing into the arrangement, and what will happen to IP generated as a result of the arrangement is essential.
If, for example, a joint venture company (JVC) is formed, such JVC will need to secure the rights to the contributors' technological IP, which it will typically do by way of assignment or licence (although an assignment may be risky if the joint venture fails). Such IP will subsequently need to be licensed (or sub-licensed) to the businesses which set up the JVC and the licensing considerations set out above in point 2 will apply.
Parties to the joint venture will need to decide who owns the IP in any technology developed by the joint venture (or whether it is owned jointly), what their responsibilities are for protecting such IP, whether each party will be free to exploit any such project IP and whether it must be exploited jointly. Parties should also decide from the outset what will happen to the IP rights, upon termination of the joint venture.
4. Employees – who owns the IP?
Many businesses are continuing to innovate in-house. However, one feature of the new innovation landscape, at least within some businesses, is the encouragement of anyone within the business to innovate. The traditional model of innovation coming only from a defined R&D or engineering team is no longer the case.
This means that employers should be wary of relying on the traditional position that anything an employee develops while they are in employment is owned by the employer. If an employee outside the R&D or engineering space develops a particularly innovative idea, it does not go without saying that the IP rights vest in the employer – can it really be said that their innovation was developed "in the course of their employment"? It is more likely that the terms of their employment contracts will be critical in determining who owns what.
5. Going public – things to consider
Perhaps more a feature of other sectors, such as in the fintech space, the hackathon and crowd sourcing have nevertheless become new ways of fostering fast paced and cutting edge innovation.
Many a great idea has been developed this way. However, there are also many an IP consideration, not least the following:
- What IP actually subsists in the new product / idea – is there any? How readily can it be protected?
- Who owns that IP?
- What third party IP has been incorporated (consciously or otherwise) into the product / idea?
- Does this fabulous new product / idea infringe anyone else's IP?
The contents of this publication are for reference purposes only and may not be current as at the date of accessing this publication. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action based on this publication.
© Herbert Smith Freehills 2021