Outsourcing is not new - it has been variously called data processing management, facilities management and service bureau processing.
Regardless of what it is called, as most people in the business know, it usually involves a customer giving responsibility to an outsourcer for the operation and maintenance of all or part of the customer's IT operations or the operation of a business unit. The outsourcer may take over all or a part of the computer systems, premises and staff of the customer in the business unit in question. In effect, for the part of the business outsourced, the outsourcer steps into the shoes of the customer.
Because of the scope of what is involved, the deals themselves can become very complex, necessitating careful due diligence and the negotiation of some tricky IP issues.
Some of the major stumbling blocks in the negotiation of an outsourcing transaction can arise around the use, licensing, sharing, upgrading and return of intellectual property. The problem arises simply because the customer has a suite of software, databases, trade secrets, trade-marks, processes, patents and know-how (all of it referred to here as IP) that it has used in its business for many years - and the outsourcer needs access to all this in order to run the outsourced business.
What complicates things is that although some of the IP may belong to the customer, some of it may belong to a third party licensor or the outsourcer and some will be contributed by the customer and the outsourcer over the life of the contract - which can span several years.
IP LAYERS
There are many layers of IP in any company that can be roughly grouped as follows:
- IP developed and owned by the customer that the outsourcer needs to use.
- IP licensed to the customer by a third party that the outsourcer needs to use.
- IP previously developed and owned by the outsourcer and used to run the outsourced business.
- IP previously licensed to the outsourcer by a third party and used to run the outsourced business.
- Confidential information, including trade secrets, owned by the customer or belonging to a third party and in the control of the customer. This could also include personal information.
- New or add-on IP developed by the outsourcer paid for by the customer.
- New or add-on IP developed by the outsourcer primarily for use in the outsourced business but that may have applications for its other customers.
- New or add-on IP developed by the customer during the term of the agreement and provided to the outsourcer to run the outsourced business.
- New, upgraded or add-on IP licensed by the outsourcer specifically for use in the customer's business.
- New, upgraded or add-on IP licensed by the customer and provided to the outsourcer for use in the customer's business.
- identify the component parts of the IP;
- sort out who owns what;
- determine what can and cannot be transferred to the outsourcer and who pays any transfer fees;
- determine who is responsible for ongoing maintenance management and upgrades;
- decide who owns any new IP;
- decide what use each party can make of the IP during the term - for example, can the outsourcer leverage this IP for other clients; and
- decide what use each party can make of the IP after termination.
The parties must not only deal with what gets transferred to the outsourcer at the start of the relationship. They must think ahead to the ongoing operation, maintenance and upgrading of the systems and databases involved and the challenges that will arise from the inevitable overlapping of the IP rights of the customer and the outsourcer, as their businesses become entwined.
Perhaps even more importantly, the parties need to agree on what happens when the relationship ends and the customer wants everything back - including the IP developed by the outsourcer.
A critical point to remember is that each party brings valuable IP in some form to the relationship and each party will continue to create new IP during the term of the agreement.
The process of working all this out can be time-consuming and a bit tedious, but it is imperative that it be done before anything gets moved to the outsourcer or the parties get committed to any future relationship.
Contact Amy-Lynne Williams for additional information on outsourcing.Disclaimer: This Newsletter is intended to provide readers with general information on legal developments in the areas of e-commerce, information technology and intellectual property. It is not intended to be a complete statement of the law, nor is it intended to provide legal advice. No person should act or rely upon the information contained in this newsletter without seeking legal advice.
E-TIPS is a registered trade-mark of Deeth Williams Wall LLP.
