Receiving an order from a new customer or distributor for your innovative product or service can be an exciting and rewarding event, particularly for SMEs trying to crack an interstate or overseas market. Oftentimes though, in the eagerness to cement this new supply channel, businesses can overlook the importance of setting ground rules when it comes to how their innovations, trademarks and other valuable intellectual property (IP) will be used by the new trading partner.
Whilst the investment in a formal supply agreement can sometimes be difficult to justify at early stages, ensuring there is some form of mutually agreed terms in place which deal with protection of IP can be prudent – even if they are merely incorporated into your standard terms of trade. Such provisions can include:
- An appropriate acknowledgement by the other party of ownership of your IP assets and (if relevant) deal with the issue of moral rights and attribution of authorship.
- A stipulation that any required restrictions in terms of how your trademarks are to be used (and perhaps include a requirement for pre-approval of any marketing material which will be published bearing your IP).
- A prohibition on (overseas) registration by the other party of your IP in their home jurisdiction.
- Dealing with what happens at the end of termination of the contract/relationship. Will the other party be required to deliver up or destroy any items containing your IP in its physical possession?
- Appropriate confidentiality obligations (which also extend to IP which you have provided to the distributer).
- Restraint/non-compete obligations. These can apply during the term of the contract and for a period afterwards (subject to enforceability).
- Indemnities from the distributor for any breach of their IP obligations in your agreed terms.
Also, if you are collaborating to mutually develop certain IP (such as a local brand, manufacturing process etc) provisions can be included to deal with who will own that jointly developed IP and in what proportions.
As an additional safeguard, where your IP is in registrable form (for example via a patent or registered trademark) then it may be wise to consider obtaining international registrations for your IP which are enforceable in the new market which you will be entering.
Making the investment early on to protect your IP can pay dividends down the track and also avoid the distraction, cost and inconvenience of needing to enforce your IP rights in a foreign jurisdiction.
Considered legal advice which takes into account your business’ unique IP and circumstance can be extraordinarily useful in formulating an IP protection strategy and is recommended when formulating new supply relationships.
If you would like assistance in preparing a supply agreement or terms of trade which incorporates appropriate IP protections, get in touch for some practical, commercial legal guidance.