Tips on Avoiding Intellectual Property Theft in Outsourcing

September 27, 2019
#Outsourcing #Tips

What Is Intellectual Property?

Intellectual property (IP) is a type of intangible property that is created by the human mind that is used in commerce. There are two categories of IP: industrial (patents, trademarks, business processes) and copyright (art, works of fiction, design). For many industries, it can be even more valuable than the physical product.

Types of Intellectual Property

There are different types of IP:

  • Patents. The rights of an individual to create and sell the patented invention.
  • Trademarks. A design, logo, name, or any other symbol that identifies the product from others.
  • Trade secrets. Formulas, source codes, processes, and other private information that is used to gain an advantage over competitors.
  • Copyrights. Original works and the rights to copy, modify and distribute it.

However, there is another valuable intangible aspect that often gets stolen or reappropriated. It’s the ideas. They are not universally considered to be intellectual property yet and, as a result, they are harder to protect. But you shouldn’t undervalue their significance.

types of intellectual property

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Why is IP Important

Let’s look at an example. A client comes to a developer firm and shares an idea for a project. A deal isn’t struck and they go their separate ways. However, after some time the team releases an app with the same concept the client had in mind. As a result, the client has to perfect the idea and release a better version or lose a potential source of income completely. 

But that’s just the ideas. Loss of more crucial intellectual property could be disastrous. Loss of personal data of your customers forever tarnishes your brand as untrustworthy. Loss of trade secrets may even make your entire business obsolete. 

To mitigate the risk of this happening make sure to sign a non-disclosure agreement (NDA) before sharing anything sensitive. Keep in mind that it should be composed in a way that makes it enforceable in case of a breach. But this is not the only way to protect your IP.

How to Keep Your IP Safe

The first thing you should do to ensure its security is to assess the IP you already own in all departments and how vulnerable it is. Know what value and priority it has, where it is stored and who has access to it. You can also request an audit that will evaluate the security of your intellectual property.

Document all of this information. Always keep an encrypted copy of your databases, source codes, and other trade secrets on your servers.

Always do a background check on your outsourcing partner. Thankfully there are plenty of ways to do this. Check their social media, look through their reviews and testimonials. You can even contact some of the previous clients and ask for references. This practice will ensure that not only is your IP safe, but also that the provider has a proven track record and experience.

But don’t stop at the company. Familiarize yourself with the court system of the country you’re planning to work with. Sometimes the reputation is not unfounded.

Perhaps the most vital takeaway — don’t sign any contracts prematurely. First, make sure they are strong and aren’t skewed to benefit one party. It should explicitly state which governing law and jurisdiction is applicable. Some companies even hire local lawyers to further protect the interests of the company.

There are four approaches when it comes to intellectual property in outsourcing:

  • The client has all IP rights, the provider has a license
  • The provider has all IP rights, the client has a license
  • Apportion of different rights to both parties
  • Joint ownership between two parties

Usually, the joint ownership option is regarded as the most unsafe option out of the four. Try to negotiate if you are presented with it.

The agreement should also define the exit strategies and repercussions in the case of a breach or infringement. Dispute resolution clauses such as insurance coverage and disaster recovery plans are common practice for legitimate outsourcing providers. Also, never forget the NDAs. 

intellectual property theft statistics

What to Do If Your IP Is Stolen

Unfortunately, no matter how careful you are, there is still a chance that your partner will turn out to be untrustworthy. These situations are never easy to deal with. A lot of the time you can’t do anything. 

However, it is not as hopeless as it may initially seem. If you had made the necessary preparations beforehand it is possible to seek legal action. It may take a long time, but if this clause was covered in a valid contract the fraudulent company may be held accountable.

To learn more about how to deal with outsourcing fraud make sure to read our article covering this topic.

Dealing with IP theft is often laborious and disheartening. However, it can be avoided by taking the necessary precautions. Remember the value your IP holds and treat it accordingly. That way the chance of losing it decreases significantly.