Do you have a strategy for escrowing your intellectual property overseas?

Offshore intellectual property commercialisation transactions generally include an element of escrowing core intellectual property.

Whether an intellectual property owner is involved in a licensing, franchise, reseller, distribution, partnership, joint venture, and/or collaborative development relationship, it is inevitable that the intellectual property owner will need to manage requests/contractual requirements to have their core intellectual property escrowed for a period of time in a foreign country. The request for escrowing core intellectual property is common in the USA. Most American companies, in the role of client or business partner, have existing relationships with escrow agents and insist on escrowing as a key element to entering into a commercial transaction where “non-American” intellectual property/companies are involved.

Some intellectual property owners new to global commercialisation have been caught off guard during negotiations when their business partner or prospective client/licensee has requested that the core intellectual property be escrowed in a foreign country, by an escrow agent not selected by the intellectual property owner.

Owners of intellectual property that currently, or plan to, trade in other countries, should have a pro-active strategy for escrowing their intellectual property. Establishing your own escrow relationship offshore will allow you to manage/negotiate escrow requests as they arise with greater visibility and certainty of the legal terms and conditions around the escrow and the location of your valuable intellectual property. The existence of an escrow engagement can also be used as persuasive proof of intellectual property ownership in the context of a commercial relationship, in particular, in the event there arises a dispute between the intellectual property owner and the business partner/client over ownership, access and usage rights in relation to the intellectual property being escrowed.

An escrow agreement should have clearly defined parameters around:

• The delivery of the intellectual property, including modifications updates and new releases (and related documentation) to the escrow agent;
• The term (initial term and renewal terms) of the escrow engagement;
• Conditions to maintaining the escrow engagement;
• The role of the escrow agent;
• Who has a right of access (and applicable access procedures) to the escrowed intellectual property;
• Delivery, objection and notice procedures to manage the requests for disclosures of the escrowed intellectual property;
• Trigger events for disclosing the escrowed intellectual property;
• Escrow agents rights to, and rules around, copying the escrowed intellectual property;
• Whether representations are made around the accuracy, completeness and functionality of the escrowed intellectual property;
• Dispute resolution procedures;
• Governing law for the escrowed engagement relationship;
• Escrow fee structure and which fees are paid by the intellectual property owner and/or their business partner/client using the escrowed intellectual property;
• Status of intellectual property ownership in the escrowed intellectual property; and
• Available verification services for business partners and clients who use the escrowed intellectual property.

Most escrow engagements will support multiple transactions, so, the duration of an escrow engagement will generally extend at least for the term of commercial licensing contracts and, sometimes, beyond that period in order to service the needs of a business partner(s) or client(s) that uses the escrowed intellectual property in a contractual transition out phase of a relationship.

Escrow engagements are also called into play when there is a dispute situation between the owner of the escrowed intellectual property and the users of the escrowed intellectual property, or when the owner of the intellectual property is in a bankruptcy situation or chooses to phase out a particular line of business (or product or service) that involves legacy contractual license commitments around the escrowed intellectual property.

Without a suitable escrow engagement strategy, owners of intellectual property who are asked to escrow their intellectual property offshore will find themselves delivering their intellectual property to an escrow agent that they are not likely to have any previous dealings with, nor input into the actual escrow terms and conditions under which their intellectual property will be housed, including the location, use, access, copying, disclosure and contractual variation rights that are necessary to properly manage their intellectual property offshore and minimize any commercial risks of intellectual property infringement that comes with a global licensing transaction.