©2024. Published in Landslide, Vol. 16, No. 4, June/July 2024, by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association or the copyright holder.
July 10, 2024 Feature
Considerations in Cross-Border Intellectual Property Agreements
Adam Ruttenberg and Kimberly Nguyen
In today’s global economy, U.S. companies are increasingly leveraging the support of individuals and entities outside the United States for various business needs, including development work, technical support services, cybersecurity management, marketing and promotional activities, and tax and legal advising. A 2022 study conducted by Deloitte found that more than 75% of surveyed business and technology companies outsource information technology functions, and close to 100% of such companies use third parties for data and analysis capabilities. Engaging in cross-border transactions can provide opportunities for a company to accelerate its go-to-market timeline, expand into new markets, establish a cost-effective supply chain, manage business disruptions due to fluctuations in domestic markets, and obtain access to new and advanced technologies. As a result of these arrangements, businesses frequently enter into agreements with foreign vendors, suppliers, partners, distributors, and other individuals or entities that require licenses or transfers of intellectual property (IP agreements).
However, each country—and even jurisdictions within a country—may have approaches to contracting that differ from the federal and state legal frameworks established within the United States, including different formalities relating to contract enforceability, varying industry standards with respect to warranties and liabilities, and different legal requirements for the licensing, transfer, and ownership of IP. While courts in most countries will respect the parties’ agreement to apply a specific governing law to a contract, U.S. companies must understand the laws of the applicable jurisdiction of the counterparty when negotiating cross-border IP agreements, as those laws may still apply to certain aspects of the agreement.
This article identifies certain key considerations in negotiating cross-border transactions, focusing specifically on IP agreements.
Understand the Formalities Required to Form a Binding Agreement
Certain jurisdictions may require IP agreements to be in writing, while others require specific language to effectuate such license or transfer. In some cases, IP agreements need to be registered with a governmental entity to ensure the validity of the agreement or that the parties (or sublicensees) are able to avail themselves of certain benefits related to the agreement. Some jurisdictions require contracts, including IP agreements, to be translated into the native language of the foreign entity or individual (often in a dual-column format, with English in one column and the foreign language in the other column)—in such cases, the IP agreement should clarify that the English language version is the controlling language. Further, it is important to determine how and whether it is possible to disclaim, supersede, or otherwise ensure that certain laws do not apply to an agreement where the parties agree that certain laws or rules should not apply.
Understand Which Rights Are Protectable and Enforceable
Different countries recognize different IP rights and concepts. For example, the work-for-hire doctrine, a copyright principle under U.S. law, is not recognized by a number of countries outside the United States. Where those laws are not recognized by applicable foreign jurisdictions, the parties’ intent with respect to the transfer of IP rights must be clearly stated in the IP agreement.
Countries may even apply the same legal concept differently. For example, the concept of “moral rights” in copyright law—while recognized in European Union member countries and in the United States—is generally applied much more broadly in the European Union, where protection is provided to all copyrightable works rather than just visual works, which is the case under U.S. law. To avoid any ambiguity, the parties should specifically set forth the rights agreed to be covered by the IP agreement and whether such rights are assigned, licensed, or merely waived, as may be allowed under applicable laws. Simply relying on the inclusion of certain terminology in an IP agreement may not be adequate to memorialize the parties’ intent or may not even be legally enforceable.
The IP agreement should also establish the rules and ownership structure for any new development of IP. The way jointly owned IP is treated varies by the type of IP right and by country. For example, in France, it is not permissible to sublicense jointly owned IP without the permission of the other owners unless such consent is granted in advance. The same may be true for enforcement rights of newly developed or jointly owned IP. The IP agreement must take into account the nuances of potentially applicable local laws.
The U.S. government continues to cooperate with its trading partners to encourage the establishment of comprehensive IP protection and enforcement frameworks. While some countries have recently taken steps to improve the protection and enforcement of IP, others continue to operate under weak and outdated laws or simply do not implement the enforcement rights or obligations under those laws. As such, the enforcement laws, policies, and practices of each country in which material IP is being licensed pursuant to IP agreements must be evaluated in order to understand what protection and enforcement rights are available (or not).
Understand How to Exclude Express and Implied Warranties or Limit Liability
Not only do different statutes imply different warranties or prohibit certain warranties or liabilities to be excluded by law (despite any contractual agreement to the contrary), but the way statutes approach warranties and liability also may vary depending on whether the company is contracting with a consumer or another business. Many jurisdictions have extensive laws that apply to the way a company contracts with consumers in that jurisdiction (and may even prohibit the ability to deny a consumer the right to litigate in the consumer’s home court).
Generally, fewer or less rigid restrictions are imposed by law with respect to contracting with a foreign business as opposed to a foreign consumer. However, there still may be restrictions (such as a requirement to countersign limitations or exclusions, or a requirement to ensure such limitations or exclusions are conspicuous) or prohibitions on excluding certain types of warranties under contracts—although in certain cases, such risks can be mitigated or managed in other ways under the contract, including through the imposition of liability caps and limited remedies. Merely including certain limitations or disclaimers in an IP agreement does not ensure the enforceability of those limitations or disclaimers under applicable laws or when litigating in a court of competent jurisdiction. Similarly, certain words, such as “representation” or “warranty,” may have different meanings (and therefore legal effect) in different territories.
Understand How Different Legal Frameworks and Dispute Resolution Mechanisms Affect Rights and Liabilities
Selecting one governing law over another may have a significant impact on the ability to protect or enforce contractual rights and IP rights under an IP agreement. As mentioned previously, even if the parties agree to apply the laws of a specific jurisdiction, foreign laws may still be applicable and need to be taken into consideration.
Similarly, the dispute resolution process agreed to under an IP agreement may impact the manner in which the contract provisions—and applicable laws—are interpreted. The jurisdiction and venue selected to evaluate disputes that are submitted to a court is significant, as a court in one jurisdiction may apply certain laws, rules, or regulations differently than a court in another jurisdiction. Those choices affect not only how a dispute may be heard (some courts are more sophisticated than others or have more experience with certain types of claims) but also the costs that may be required to travel in connection with the resolution of the dispute and potentially the outcome of the case, depending on whether the court is located in a neutral location or whether one party has a “home court advantage” over the other party.
Arbitrators, who may not be bound by court rules or procedures, generally have more flexibility in interpreting relevant statutes and rendering judgments and may elect to render a judgment based on what they perceive to be equitable rather than consistency with applicable laws. While that flexibility may be desirable in certain instances, in others, including with respect to certain types of IP disputes, it may be more favorable to apply a strict interpretation of a statute and reserve the right to appeal (which is generally not available in arbitration proceedings). Moreover, the company must consider the time, costs, and resources related to any such dispute resolution process, including travel expenses; fees for local counsel, arbitrators, or expert witnesses; and the costs of filing motions or other documents. Finally, another key consideration is that arbitration proceedings are generally confidential (and should be expressly designated as such within the relevant IP agreement), while dispute resolution through courts is generally not and may not only result in the public being able to attend a hearing but also potential widespread news coverage.
Regardless of the dispute resolution process chosen—litigation through courts, arbitration, mediation, or an escalated dispute resolution process that may require good faith negotiations for a period of time followed by a combination of mediation, arbitration, and/or traditional litigation—the IP agreement must clearly set out the agreed upon process, with specificity.
Conclusion
Leveraging third parties to provide key functions within a company is beneficial to help the company grow, scale, and thrive, which is why so many U.S. businesses are electing to outsource many of their operational, administrative, and other needs. However, numerous factors must be considered before entering into a cross-border IP agreement. In addition to the factors mentioned in this article, there are several commercial considerations, such as pricing and costs, confidentiality obligations, source code escrow rights, and business continuity plans, as well as other legal considerations, such as tax, payment processing, competition and antitrust, export, privacy, and data-related issues. It is important not only to conduct thorough diligence on each service provider with which a company is planning to engage but also to understand the company’s rights and obligations within each country where a service provider is located or otherwise resides and to draft and enter into an IP agreement that protects the company’s interests and IP.