Service providers often deal with confidential and proprietary customer information. Depending on the type of services being offered, the ability to maintain the confidence of customers is essential to a service provider’s competitive advantage and reputation.
It is also important to ensure information security and confidentiality to prevent breach of contract that could result in litigation procedures from customers.
Service providers need to ensure that contracts or service agreements clearly specify these 8 key aspects:
1. Security measures to protect customer’s private and proprietary information.
For example, service providers must work and store all private customer information in a secure online site.
2. Licence agreements for third-party intellectual property being used by the service provider and the limitations of those agreements for customers.
For example, if a service provider has a licence to use Microsoft or Adobe applications to provide their service, it must be sure what the conditions of those agreements are, especially if the applications are accessed by customers.
3. Licence agreements with third-party intellectual property being used by customers and the limitation of those agreements with service providers.
For example, service providers must be aware of the agreements that customers have with any other service providers to ensure they are legally allowed to access and use any programs their customers use.
4. Allowable use of licensed intellectual property and the number of licences permitted (e.g. software programs) over the lifetime of the contract.
For service providers using proprietary applications, it is important to stipulate what the customers or licensees are allowed to use the applications for, how many can use the application at any given time, and for how long.
5. Copyright ownership over material produced by the service provider for the customer.
This could include statistics, data and any information that has been produced based on proprietary information. For example, a consultant may produce a report for a customer that is copyright protected and owned by the customer, or an educational consultant might provide workbooks for a course that are property of, and copyright protected by, the service provider.
6. Copyright ownership over material produced collaboratively as an outcome of the service contract with the customer and the service provider.
This is especially important to stipulate in contracts where research, development and testing services are being provided. The share of ownership needs to be negotiated when there are potentially profitable outcomes.
7. Share of patent protection for processes or materials produced collaboratively as an outcome of the service contract with the customer and the service provider.
This is generally negotiated in advance where there are potentially profitable outcomes.
8. Sales and territorial restrictions for service licensees.
Licensing agreements can differ depending on market conditions in other jurisdictions and potential licensees. These agreements are important to mitigate conflict between licence holders.
Whether a service provider patents their service, or plans to operate under the open source philosophy, it is necessary to have a complete understanding of their service, the mode of delivery, their target markets, their competition, the regulatory environment and their intellectual assets in order to make decisions about how to best protect intellectual assets and customers in target markets.