PROTECTING INNOVATION IN NIGERIAN TECH CONTRACTS: COMMON PITFALLS AND SOLUTIONS
BY ADERONKE ALEX-ADEDIPE AND ENIOLA SOGBESAN
Introduction
In the current global digital economy, businesses enjoy significant competitive advantage from intangible assets such as intellectual property, confidential data and proprietary processes. In Nigeria, given that many businesses rely heavily on innovation and technology services, effective intellectual property is critical to long-term enterprise value and commercial sustainability.
In Nigeria, the intellectual property terrain is regulated by the provisions of the Copyright Act, Trademarks Act & Patents and Designs Act. However, while the provisions of these laws are robust, they do not sufficiently prevent disputes between parties. In practice, the allocation, licensing, transfer and enforcement of intellectual property rights are determined by the terms of contract. Notwithstanding, most intellectual property disputes usually arise because IP clauses are wrongly drafted, silent on risk allocation and misaligned with commercial objectives.
In this article, we examine the importance of IP clauses in technology agreements, identify loopholes that may give rise to disputes and proffer strategies for mitigating risks with regard to Nigerian and cross-border transactions.
The Role of IP Clauses in Tech Agreements
IP clauses are essential features of a modern technology agreement. They help determine who owns these intangible assets, the terms on which they may be used and any applicable restrictions. IP clauses are critical in agreements such as licensing and distribution agreements, joint ventures & mergers and acquisitions. In granting any IP rights under any of these agreements, parties should ensure that the IP clauses are detailed enough to protect the interest of the grantor while specifying whether the rights are granted on an exclusive or non-exclusive basis.
Common IP Clause Dispute Triggers
- Unclear ownership provisions – Uncertainty and lack of clarity on IP ownership in technology contracts is the basis of most IP clause disputes. This ambiguity becomes visible when there is a breakdown in the business relationship between the parties or there is an increase in the value of the asset. Where IP ownership provisions are not clearly drafted, it gives room for statutory and judicial interpretation.
For example, under the Nigerian Copyright Act 2022, copyright is vested in the author of a work subject to certain exceptions including employment relationships and commissioned works. This therefore suggests that in the absence of clear assignment of the IP in such works, the author may retain ownership of the software or creative materials produced for a client.
- Inadequate licensing terms – Similarly, poorly drafted licensing terms can also give rise to IP-related disputes, particularly because IP licensing determines the extent of the economic value that can be derived from an intellectual property asset. Where there is ambiguity regarding the scope, duration, territory, or exclusivity of a license, such uncertainty may lead to overreach, misuse, or infringement disputes.
At a minimum, licensing terms should highlight the scope, territorial limits, sublicensing rights (if applicable) and post-termination rights and obligations. Any failure to clearly define these terms, may enable a licensee to assume broader commercial rights than was intended, while the licensor may restrict its ability to explore the IP in other jurisdictions.
- Confidentiality Breaches– Trade secrets which constitute an IP asset class protects commercially valuable information. These are not registered but merely derive their value from its confidential nature, therefore confidentiality clauses are an essential protective mechanism in technology agreements. Important elements that should be included in a confidentiality clause include; definition of what constitutes confidential information, duration of the confidentiality obligations, exceptions and remedies in case of a breach.
- Inadequate Enforcement Provisions – While parties do not intend to engage in IP disputes at the onset of the business relationship, a well drafted IP clause should anticipate this possibility. In many technology agreements, the failure to specify the obligations of each party in relation to the ownership and use of the IP results in inconsistent enforcement strategies and disputes between the contracting parties themselves.
This inadequacy extends to creating uncertainty as to who bears responsibility for monitoring infringement and initiating legal action. Without this clarity, enforcement actions against infringers may be protracted and weaken the commercial value of the IP.
- Post Termination Obligations – While IP disputes arise at the end of contractual relationships, the termination of a contract does not automatically extinguish all IP rights unless otherwise provided. In the absence of clearly defined post termination obligations, former licensees may continue using such IP assets thereby exposing both parties to legal and commercial risks. A well drafted post termination clause should address reversion rights, return or destruction of materials and any other ongoing license restrictions.
Practical Fixes & Risk Mitigation Strategies.
- Precise definitions and clear ownership of IP assets should be set out in the agreement.
- Legal due diligence and contract audits should be undertaken prior to executing the contract as it will help identify and mitigate potential risk factors associated with the IP asset.
- There should be a periodic review of the contract and update of IP clauses as the underlying technology evolves.
- To provide an additional layer of security, all IP assignments should be executed and properly registered with the relevant government agencies.
Conclusion
IP clauses are designed to protect the value of the underlying IP asset and provide commercial value to the holder. However, where they are ambiguous or misaligned with operational and commercial objectives, they become sources of disputes. Moreover, in a global economy which is increasingly driven by innovation and creativity, effective IP drafting, especially in technology agreements, is a core requirement that should consider the applicable legal framework, transaction structure and the commercial objectives of the parties.
Therefore, businesses and practitioners should engage IP contractual frameworks with the perspective of risk management and value protection which will further strengthen the value and commercial returns on the underlying IP asset.