Project contracts and fitting IP objectives with IP rights

In this Insight, we examine how your organization can customize the intellectual property (IP) provisions of contracts for energy and other industrial projects to help achieve business goals, as well as how to fit these IP provisions to the objectives of both your organization and project. It is important for your organization to place the different deliverables and associated IP into different categories and create the right IP regime for each category. This can reduce the stress, frustration and time of negotiating IP provisions. Using a disciplined process and engaging your IP counsel early in the process can streamline your negotiations and prevent project delays.

Determining IP objectives

If your organization is embarking on a major energy or other industrial project, your organization should likely have an IP strategy based on your commercial objectives. The particulars of the IP strategy will be both organization-specific and project-specific. However, in general, your organization’s IP strategy should include a series of clearly stated IP objectives that support your organization’s project and/or business goals.

For example, an IP objective may be to obtain the IP rights necessary to construct and operate a key technology that your project relies upon. Another example may be to obtain IP rights that permit your organization to repair the technology it licenses to avoid reliance on the technology vendor. IP objectives can take many different forms and are fundamentally driven by your organization’s project and business goals.

Contracting project participants

Regardless of what your organization’s IP objectives might be, achieving them will require adopting an intentional and strategic approach to contracting with each of the project participants. This entails working to achieve a clean fit between your IP objectives and the IP provisions of your project contracts. The best way to achieve this fit depends on a number of contextual factors, and one of the roles of IP lawyers in major projects is to help your organization work this through. However, at a high level, achieving a fit between your organization’s IP objectives and the IP provisions of a given project contract involves giving due care and attention to the role of the relevant project participant and the nature of the project itself.

Considering the role of the project participant your organization is contracting with is important because the role of the project participant – and the IP it is expected to contribute to the project – has implications for the commercial reasonableness of the IP ownership and license rights your organization may seek to obtain.

For instance, when negotiating with a technology vendor that is contributing proprietary technology to the project, the vendor will likely be reluctant to grant any IP ownership or license rights that compromise the vendor’s proprietary interest in its technology. On the other hand, when negotiating with a construction contractor, the contractor may have no concerns in granting IP ownership or license rights because the contractor may not have made any material investments in developing IP for the project. There is always nuance to these IP ownership and license issues, and “commercial reasonableness” of IP ownership and license rights for a given project is heavily context specific.

Project natures

Considering the nature of the project your organization is contracting for is important because by understanding the project and its constituent parts – and designing the IP provisions of the contract to contemplate those parts – your organization may be able to create space to negotiate for IP ownership and license rights that may not otherwise be attainable.

For example, imagine your organization is negotiating IP provisions with a technology vendor. On the basis of the vendor’s investment in its existing IP, the vendor takes the position that it should own all new IP made during the project. Your organization might take exception to this, because your organization may expect to pay the technology vendor or another project participant to further develop the technology vendor’s IP for the benefit of your project. It may seem commercially unreasonable to pay to develop new IP, only to have the vendor own it.

How can this disagreement be resolved? By understanding the nature of the project, it may be possible to break down new IP into smaller categories of new IP. Through this exercise, it may become apparent that the vendor’s justification for ownership of new IP does not apply with equal strength to the different categories of new IP. This can help make room for negotiating ownership of at least some new IP that supports your organization’s IP objectives.

The Energy practice group at MLT Aikins has extensive experience and skill in assisting clients develop IP strategies and IP objectives, as well as in drafting and negotiating customized IP ownership and license terms for complex energy and industrial projects. For more information, reach out to a member of the team or to any of the authors of this Insight.

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