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Intellectual Property Risks in outsourcing

  • Companies pose the risks of exposing data, confidential information, and mismanagement of technology and other IP assets during outsourcing their project development

Manage Intellectual Property Risks When Outsourcing

The Importance and ethics of intellectual property vary across industries and types of companies.  Software development outsourcing requires a great deal of sharing of knowledge between customers, organizations, and vendors. Therefore, the IP rights of stakeholders are included in one form or another. Thus intellectual property risk management and data protection issues have become increasingly vital for companies utilizing offshore outsourcing. 

Companies nowadays are more frequent in turning to third-party subject matter experts to outsource their most pressing business needs. It also lets them outsource critical processes that allow them to cut infrastructure costs, focus on the core abilities, and obtain new, enhanced technologies. Although these relationships present opportunities for businesses to enhance product and service quality and leverage economies of scale to compete better in their respective markets. They also come with the risks of exposing potential data and classified information and mismanagement of technology and other IP assets. 

Intellectual property protection remains one of the critical factors that direct outsourcing clients’ choices when conducting their businesses offshore. The risks involved with intellectual property ownership are further magnified in an outsourcing contract where the client’s IP is shared with its provider. The elevated risks associated with preserving the IP involve concrete and careful risk assessment plans by the outsourcing client. How can you make sure that your outsourcing providers don’t violate your IP rights? We’ll explain how to effectively transfer and protect your intellectual property to a software outsourcing company.

What are Intellectual Property Risks? 

The IP (Intellectual property) of a company may include data, software, business processes, inventions, trade secrets, employee details, and all the other forms of classified information. Intellectual property risks are the possible threats or vulnerabilities that a company or individual business needs to plan for when protecting their IP. These are some possible risks associated with keeping and transferring intellectual property to an outsourcing partner: 

  • The legal costs related to defending an IP infringement case
  • A decrease in revenue or share prices if the IP was proved to be invalid
  • The damage and settlement costs that came  from the legal findings
  • IP violations can cause a big impact on the trust between client and vendor.
  • The costs when intellectual property loses its value or is no longer seen as an asset due to challenges, inconsistency, non-infringement to its ownership 

How to manage Intellectual Property Risks? 

Patents, copyrights, trademarks, trade secrets or confidentiality agreements, your company’s intellectual property is just as, if not more valuable than your physical assets. When outsourcing software development, you may need excellent knowledge sharing between the software client and the vendor. As a result of this activity, it will include the protection of the stakeholder’s IP rights. It has been becoming more vital for businesses to implement robust data protection and IP management when employing offshore outsourcing. These are ways you can ensure the protection of your intellectual property while Outsourcing Software Development.

Ways To Protect Intellectual Property While Software Outsourcing 

It is very much possible to harmlessly outsource software development to the offshore team without fear of losing your intellectual property. You just need to do some work up front to make sure you are picking the right partner, and put some standards in place that will protect you and your ideas. You start with getting a better grasp of what intellectual property is in the first place.

 

1. Know what does IP include when software is concerned

Intellectual property encompasses inventions, artwork, designs, symbols, trade secrets, and images. It can be protected by the law in the form of patents, copyright, and trademarks. For instance, when businesses are at the point of outsourcing web development projects, they mostly don’t have any sort of protection like a patent for the web app they are working on. 

Many end-product apps don’t end up qualifying for the patent. In 2019, the United States Patent and Trademark Office revised their patent-eligibility guidance in a way that only some apps can even qualify for a patent.  The question here is, without using copyrights, trademarks, and patents, how can you be convinced that your intellectual property is secure in the hands of your outsourcing partner? 

 

2. Get Familiar with the Options for What and How Much to Outsource

Just because you want to outsource software development does not certainly mean you have to hand all of your plans and data over to one firm. There are several ways you can keep specific information private. By choosing exactly what you share and with whom, you can protect your most sensitive information.

Everything but the Secret Ingredient
It is completely possible to outsource software development without sharing the main "secret ingredient" element of your product by just having parts of the project outsourced.  The more classified part can be kept in-house. Once the outsourced part is complete, the in-house team can merge the outsourced and "secret ingredients".

Outsource to Multiple Groups

Another alternative is to outsource to different companies, thus reducing the number of vendors or people who have access to the complete project. For instance,  you could outsource the mobile app development to one form, API to another, admin portal, QA, and testing to a different firm. The parts can be integrated in-house once all components are done. In this way, the entire project is not able to be compromised.

You may also read: Advantages of IT Outsourcing to India

 

3. Examine the Methods of Potential Partners

You must conduct your due diligence when evaluating potential outsourcing firms. Asking the right questions about what processes they have in place for protecting IP is crucial. Here are some questions that are a great place to start.

  • Do they use the proper online tools for project management?
  • Do they give out any of their work? If so, how do they ensure IP protection? 
  • Where do their servers and source code are located? If something happens in a local facility, do they have a backup support system in place? 
  • What is their security policy for laptops and internet access?
  • Do they have means in place for employees who are working remotely?
  • How does their team coordinate and how are documents shared among the team members?
  • How do they ensure data and documents are removed from the possessions of the employees who left the company or terminated?

 

 4. Make sure You Have Proper Agreements in Place

You have picked an outsourcing firm, and you've set up a process with which you're comfortable, but you still need some legal help to make sure you, your intellectual property vulnerabilities, and your company is adequately protected and end up with what you set out to accomplish. A comprehensive contract between you and your partner will set up the protection you need as you progress. Below are some of the essential components you should include in this contract.

Non-Disclosure Agreement
Non-disclosure agreements (NDAs) should be signed by the company itself as well as by every employee working on the project. This will guarantee that your great app idea does not get shared with anyone and remains confidential until you decide to reveal it to the world.

Transfer of Intellectual property 

In the United States, software development is covered by copyright law. It means that the writer of the code retains ownership of the said code and also holds the copyright of the software. It makes sense that a writer owns what they have written, but when you are outsourcing your software development, eventually you need the code and the software itself to be yours.

Joinder Agreement
You have an agreement with the outsourcing firm, but what’s more important is that you have some kind of agreement directly with the members working on the project to ensure those individuals can be held accountable directly by you for any violation. A joinder agreement is what sets responsibility not just for the firm, but for the employees as well.

Non-compete agreement

A non-compete agreement helps make sure that individuals that have worked on your project cannot compete with you in any way for the consented upon a time. 

Safeguard Your Intellectual Property assets 

Whatever may be your reason for outsourcing, IP risk management is all about ensuring that your company understands the risks associated with IP and proactively reduces these risks. It is also extremely important for you to not take them lightly or disregard them as doing that can cause a serious impact on the financial value and potential of your business  

Evon Technologies is one of the offshore software consulting and software development companies in India that has over a decade of experience in providing quality IT outsourcing services across every vertical. We at Evon greatly value our client's data and IP rights. We acknowledge the importance of protection from Intellectual Property threats and implement measures to moderate potential vulnerabilities and prevent them. Are you considering outsourcing your next digital project, and looking for a trusted partner that can satisfy your software development needs? Contact us today or email your business requirements at  This email address is being protected from spambots. You need JavaScript enabled to view it. to learn more about our process.

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Evon is a Software Consultancy based in India. We are a 250+ people company. We primarily service clients who want to either completely outsource a new idea or are looking to build an offshore team

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