Risks of Outsourcing
In recent years, outsourcing has become a strategy of choice for businesses that aim to benefit in terms of time, flexibility, cost, and productivity. But it comes with a myriad of risks.
Among them are threats to the security of their intellectual property rights. How does it affect the decisions companies make when outsourcing their work? Let’s find out in this article.
Copyright thieves, trade secret conspirators, and patent violators pose a grave threat to any business. When companies choose to outsource their work, there’s a silent trade-off between staying efficient while losing their Intellectual Property (IP) in the process.
Intellectual property protection remains one of the crucial factors that govern outsourcing clients’ decisions when sending their businesses offshore. The challenges involved with IP ownership are further magnified in an outsourcing agreement wherein the client’s IP is shared with its provider.
The increased risks associated with protecting the IP entail a concrete and careful risk assessment plan by the outsourcing client. How can you ensure that your outsourcing providers don’t infringe on your IP rights?
We’ll show you how to effectively transfer and protect your intellectual property to an outsourcing provider.
The intellectual property of a company may include data, software, business processes, inventions, trade secrets, employee knowledge, and other forms of confidential information.
Intellectual property risks are the possible threats or vulnerabilities that a company or individual needs to prepare for when protecting their IP. These are potential risks associated with owning and transferring intellectual property to an outsourcing partner. Some of them are:
- The legal costs associated with defending an IP infringement case.
- The damages or settlement costs resulting from the legal findings.
- The costs when the IP loses its value or is no longer considered an asset due to the challenges, invalidity, non-infringement to its ownership or title
- IP violations can have a serious impact on the trust between client and vendor.
- A decrease in revenue or share prices if the IP was found to be invalid.
How to Manage Risks of Outsourcing
Whether it’s in a form of patents, copyrights, trademarks, trade secrets or confidentiality agreements, your company’s intellectual property is just as or, more valuable than your physical assets.
When outsourcing software development, it may require top-level knowledge sharing between the software client and the vendor. As a result of this transaction, it will involve the protection of the stakeholder’s IP rights.
It has become increasingly essential for businesses to implement robust data protection and IP management when utilizing offshore outsourcing. These are steps you can follow to ensure the protection of your intellectual property.
Conduct risk assessment
Before finalizing any outsourcing transaction, make sure to conduct due diligence and a risk assessment plan. This will protect your intellectual property and clearly outline which business function should be outsourced or maintained in-house.
Identify which area is critical to your business. Determine if transferring business knowledge to third-party outsourcing providers will compromise any protocols or practices in the company. Make sure that you understand the risks involved in enforcing the IP; this includes the applicable laws and dispute resolution.
Protection through Service Level Agreements
If global laws governing the cross-country transfer of IP is not present, you can protect your intellectual property through service level agreement clauses. The outsourcing client and provider negotiates on the clause in the SLA.
Keep in mind that the design and structure of IP protection clauses in SLA varies among companies. There’s no one single approach to it as it depends on the type of work being outsourced.
The terms may include the transfer and protection of IP, enforcement of IP rights, and take into consideration the risks of ownership, development, and protection of the intellectual property.
Generally, the SLA clauses may cover the following key components:
- The non-competition and non-disclosure obligations of the outsourcing provider and their employees.
- The ownership allocation and access rights to the intellectual property during the performance and eventual termination of the outsourcing operations.
- Measures that service providers will use to minimize the client’s IP risks.
- The availability of IP rights and resolution to the client in case there’s a misuse, infringement, illegal disclosure on the part of the outsourcing provider.
- The applicable laws governing the transaction and dispute resolution.
Vet your outsourcing provider wisely
Before you outsource, you should investigate if the outsourcing partner has any past or existing breaches of contracts or disclosures agreements. Check how well a foreign country’s legal infrastructure protects the IP rights of stakeholders.
Assess the vendor’s ability to safeguard confidential information against loss, theft, misuse, and destruction. See if they have a detailed security management policy in place.
Review their IP protection and data security practices when it comes to protecting their client’s confidential information. See if there is a need to add security policies to safeguard your data.
Inspect the physical location and employee practices and policies. Make sure that they have thorough employee screening and recruitment and consider their employee retention numbers. Scrutinize their physical security and personnel practices, policies, and procedures.
If you can check reviews or feedback from other clients. choose only an established client that aligns with your business vision and strategy. They should share your idea of high-level data security required to protect your IP.
Eliminate Your Risks of Outsourcing
IP risk management is all about ensuring that your company understands the risks associated with IP and proactively mitigates these risks. It’s essential for you not to underestimate or disregard them as doing so can have a serious impact on the economic value and potential of your business.
At Full Scale, we value our clients’ data security and IP rights. We acknowledge the importance of protecting Intellectual Property and implement measures to mitigate potential vulnerabilities and prevent losing control over their IP.
If you want to work with an offshore software development company you can trust, let’s talk. We make it easy and affordable to outsource your software development project. To learn more, contact us today!