Proptech: Building and managing a smarter future in a post-COVID-19 world – intellectual property considerations
19 May 2023
Time to read: 3 MIN
- Proptech: Building and managing a smarter future in a post-COVID-19 world – intellectual property considerations
It is important that businesses proposing to utilise technologies within their property or that are purchasing “smart buildings” ensure that they have sufficient contractual and intellectual property (IP) rights in respect of such technologies.
The position and approach to IP in a proptech context will depend on the type of technology (for example, whether it is software or hardware) and the property transaction. Among others, IP rights and licences may be relevant to the following types of proptech transactions:
- Contracts for sale (for example, the sale of “smart buildings”);
- Property management and maintenance agreements (for example, the operation, management and maintenance of buildings utilising technology solutions);
- Information and Communications Technology (ICT) procurement agreements (for example, a contract for the procurement of a technology solution to be implemented within a building); and
- Tenancy agreements (for example, leases of premises within "smart buildings" or "tech precincts").
In a contract for the sale of a property, the purchaser should carefully consider what, if any, IP rights are attached to any ICT systems or other technologies within the building, and whether such rights are conveyed as part of the real estate transaction (for example, copyright and any other relevant IP rights to use an ICT system and associated mobile app, such as those to control and monitor access to, or air flow within, a property).
In particular, it is important to note that, even if physical ownership of a technology product is transferred as part of a property transaction, this will not automatically vest and transfer IP ownership or the IP rights and licences to use such technologies. Such IP may be retained by the vendor, the original ICT creator or other third party.
A purchaser should also consider the period of any IP licences and whether the ICT requires any ongoing development and maintenance, and if so, whether the IP rights and licences are sufficient for this to occur.
In a contract for the procurement of an ICT solution for a property, it will be important to ensure that the technology vendor grants sufficient IP rights as are appropriate for the initial procurement, as well as the ongoing needs of the owners, occupiers and users of the property and the technology embedded within it.
Additional matters to consider:
- IP due diligence is vital. We recommend that proposed purchasers and property owners conduct sufficient enquiries and other due diligence to understand the IP rights underpinning or associated with the technology, including to determine if the technology incorporates any IP owned by a third party or may be subject to any exclusions or limitations.
- Businesses should also ensure that they have a clear understanding of the technology in use or to be implemented and any risks and costs associated with using the technology and associated IP, including whether any ongoing royalty fees are payable. The contract should make it clear whether any licence rights are royalty-free or not.
- In a proptech context, it is important that the contractual relationship between the parties clearly allocates IP rights and responsibilities. If IP ownership cannot be procured, it is important that there are sufficient IP licences in place to use the technology. In particular, it is important to ensure that there are sufficient IP rights to enable the technology to be updated, maintained and developed in the future. Therefore, before entering into any form of IP arrangement, potential purchasers and property owners should seek advice on the nature of the arrangement, including to prevent potential “vendor lock-in” (that is, where a customer is effectively forced to continue to use and rely upon one particular technology solution or technology vendor because there are not sufficient IP rights to enable the customer to easily and smoothly switch to an alternative technology solution or vendor in the future).
- Customers that intend to procure an ICT solution for a property or the spaces within it, should ensure that the technology is not at risk of infringing any IP rights. In addition to due diligence, entities should consider including warranties into the relevant agreement with the ICT vendor to ensure that the ICT vendor has all the necessary IP rights in respect of the technology to convey IP rights to the customer. As an additional risk mitigation strategy, customers procuring technology solutions for properties should consider including indemnities within the relevant vendor agreement to cover IP infringement.
If a software solution is going to be critical to a property or will be heavily relied upon by its occupants, it may be appropriate to consider a software escrow arrangement to obtain access to the software source code to ensure that the software can continue to be used and maintained if certain trigger events occur, for example, in the event of an ICT vendor’s liquidation.
- We recommend that contractual and IP positions are legally reviewed to prevent disappointment and legal or reputational risk down the line, especially for IP that forms a critical component of a property.
19/05/2023 7:00:00 AM
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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.