The nature and critical importance of intellectual property vary by industry and type of business. Outsourcing software development requires a high level of knowledge sharing between the organization and the supplier. Consequently, the IP rights of stakeholders are involved in one form or another. Thus, intellectual property management and data protection issues are becoming increasingly important for enterprises using outsourcing on the shelf / at sea.
Intellectual property that may be transferred to a supplier may include software, data, business and technological processes, trade secrets, inventions, know-how, as well as other confidential information and copyrights. Some of them may belong to third parties and require licensing.
Both the customer and the supplier must correctly manage their IP address and adhere to common business goals in order to effectively manage the exchange of information. The benefits of sharing IP assets should have the weight risks associated with outsourcing.
The World Intellectual Property Organization (WIPO) emphasizes two major IP-related issues in the field of offshore outsourcing: ownership of IP and “unintentional, accidental or intentional disclosure of confidential information and trade secrets” (loss of business knowledge). But in most cases, these problems can be adequately attributed to the due diligence of the IP, a thorough assessment of the supplier and the adoption of appropriate IP protection measures.
IP Due Diligence
Before entering into any outsourcing initiative, the contracting authority should conduct an audit and risk assessment of IP. As a result, the company will be able to protect its intellectual property and clearly define which functions should be stored within the company and which can be outsourced.
Proper IP verification may include the following indicative steps:
· Identify areas critical to your business.
· Carefully assess business knowledge and determine whether moving it outside the company or to an offshore location can lead to a compromise of the company's practice
· Identify and document all IP assets related to the outsourcing task
· Determine ownership rights in the identified IP address
- Carefully review the third-party or co-IP address
· Assess how the legal infrastructure in a foreign country will protect IP rights
· Definition of jurisprudence and law enforcement (applicable laws, their enforceability, dispute resolution mechanisms)
· Determine proposal for termination, expiration or withdrawal
· Identify other IP related responsibilities, if applicable: routine maintenance and IP upgrades; payment of transfer fees; product liability, IP insurance, etc.
Having formed a proper IP check, an organization can proceed to assessing a potential outsourcing partner. Results can be used in negotiating outsourcing agreements to address IP-related issues that may arise.
Practical business negotiations should begin only after satisfying the supplier’s reputation, resources, and business culture compatibility. They should focus on the steps that should be taken by both parties to ensure and ensure the proper use, sharing, licensing, development and improvement of IP during and after the relationship. It should also include any relevant third-party IP assets.
Choosing an outsourcing provider in the context of IP related issues
When outsourcing, the contracting authority should carefully examine the potential for a potential partner to protect confidential information of commercial value from misappropriation, misuse, sabotage, loss or theft.
- Ensure that the supplier has a documented and valid information security management policy.
- Familiarize yourself with the principles of data protection and the protection of IP addresses of outsourcing, as well as the processes that they have in place to protect confidential customer information.
- Check what additional security policies can be implemented to protect your sensitive data.
- Provide the supplier with only the minimum proprietary technology or data necessary to complete the project.
- Insist on clear documentation for the entire source code of your project, since it becomes the property of your company and has legal protection
- Examination of security and personnel practices, policies and procedures
- Require thorough screening of personnel, look for employee retention rates
- Find out if the company does business with your competitors; if yes, make sure there is no contact between the relevant teams
- Choose an established partner that complements your business strategy and understands how to implement the required level of security.
Intellectual property is one of the most valuable assets of a company. This is especially true for SMEs and startups, where they may be the only tangible assets. The risks associated with not protecting IP are further exacerbated when outsourcing comes into play. Therefore, client organizations should effectively address the related problems and use all types of IP protection: physical, electronic and legal.
Physical and electronic protection of intellectual property
- Treat data security as
- Limit the number of people who have access to full information.
- Make sure that the outsourcing provider has a safe secure tool (mechanical and electronic access control, intrusion detection, video surveillance, etc.).
- Check where the offshore team uses computers without removable media to reduce the risk of unauthorized access to your IP address
- Make sure internal employees understand what information can and cannot be shared.
- Use firewalls, VPNs, encryption and other measures to prevent security breaches in the electronic environment, which can lead to supply chain disruptions
- Protect sensitive information such as source code, passwords, and access codes and make sure that they are not available (both on site and at sea)
- Always keep the original copy of the source code.
- Make sure that any test data used does not reveal real information.
· Determine which country's legal system will govern and have jurisdiction over contract disputes
· Work on understanding the legal system and culture of both countries
· Find out how IP rights protection works in the provider country
· Agree on a clearly defined contract that specifically addresses business knowledge and issues related to IP and makes the supplier responsible for the actions of its employees. This will ensure adequate protection, avoid controversy and prevent litigation.
· Clearly define compliance audit procedures before engaging in an outsourcing relationship.
· Clarify licensing and ownership of the source code
· Consider open source issues.
- Ensuring personal privacy in the context of database protection obligations (if applicable)
· Identify the mechanism for the possible resolution of disputes and arbitration
