Drafting vendor agreements that protect IP

| Apr 15, 2020 | IP Agreements And Transactions, Trade Secret Protection |

Vendors play a crucial role in all kinds of business projects. In the globalized economy, they can help maintain strong relationships, improve cost efficiency and expand a company’s reach in a fast-growing and competitive market.

While using vendors comes with benefits, there are also many risks involved. Vendors are typically small to mid-sized businesses that don’t have the same type of data and IP security as a large company. Moreover, this and other factors could put company information at risk. Luckily, there are ways businesses can mitigate potential damage by having vendors enter a contract. This can help companies protect their intellectual property while still getting the best use out of their vendors.

But to make a contract enforceable, companies must implement the right provisions.

Establishing a contract that works for everyone

Here are a couple of things companies should include in contracts:

  • Clear statement of ownership of company trade secrets: In some cases, businesses can lose their intellectual property rights with vendors if the work contract does not clearly explain who owns the work product. For instance, a business may need to have vendors assist them and provide access to confidential procedures. But by clearly establishing ownership of any system or process the company uses or invents, they can shield the vendor from using those trade secrets with a competitor.
  • List of consequences for disclosing classified information: On top of procedures and processes, vendors can also gain access to confidential company information through interactions with business employees or email documents. In most cases, businesses will want to recover damages if vendors disclose sensitive information. But to do so, they must clearly state what information is and is not confidential. Companies should also list specific consequences the vendor could face if they breach their contractual obligations.

Before companies enter any of these agreements, they should avoid disclosing anything they deem confidential until the vendor signs the contract. Businesses may also want to place patents on anything they consider valuable. If they don’t have protections in place before entering into a contract, companies risk the right to establish IP protections if a vendor breaches the contract.

Protecting IP is a never-ending process

Vendors may come and go as things change over time, and while these business relationships are often essential for companies to meet productivity goals, it’s impossible to know how things will transpire with each relationship and vendor interaction. Because of this, companies must draft their vendor contracts in a way that’s secure but adaptable.