Managing IP risks in outsourcing deals

By Dr Sushil Kumar,Clairvolex Knowledge Processes

Outsourcing as a competitive strategy undoubtedly delivers benefits for the client in terms of cost, time and operational flexibility. However, potential outsourcing clients are also exercising caution owing to the prevalence of risks – especially in certain service provider destinations – in relation to data security, intellectual property (IP) protection, regulatory compliance and dispute resolution. These factors affect business decisions and intelligence regarding outsourcing work.

Dr Sushil Kumar,Vice-president,Clairvolex Knowledge Processes
Dr Sushil Kumar
Clairvolex Knowledge Processes

The security of IP that will be transferred as part of an outsourced project remains one of the key factors governing any decision to send work offshore. The risks and challenges associated with ownership and protection of IP are significantly amplified in an outsourcing transaction, in which the client’s IP is necessarily shared with the outsourcing provider (which may also create new IP on behalf of the client). While the increased risks involved in transferring and protecting existing and new IP necessitate a robust and vigilant risk assessment and management plan on the side of the outsourcing client, they also present the outsourcing service provider with critical issues that must be carefully addressed and determined. The skill and thoroughness with which this is done may make the difference between clinching and losing a deal.

It is important for the outsourcing service provider to devise well-structured strategies to contain and mitigate IP risks for their clients. A key strategy is to have well-designed IP management policy standards and procedures in place. Such internal standards should specify the channels (in terms of personnel and procedures) through which sensitive information such as a client’s IP can be received and handled by the provider; impose non-disclosure obligations on professionals working for the service provider; and establish detailed guidelines for how any IP created by the provider for the client during the work contract is to be protected. Further, effective compliance with these standards needs to be demonstrated during the negotiation of an outsourcing deal, and then regularly throughout its implementation.

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Dr Sushil Kumar is the vice-president at Clairvolex Knowledge Processes, a Delhi-based legal outsourcing firm.

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