Negotiating the IP Provisions of Independent Contractor and Consultant Agreements | Practical Law

Negotiating the IP Provisions of Independent Contractor and Consultant Agreements | Practical Law

A discussion of key considerations for organizations negotiating agreements with independent contractors and consultants who are specifically engaged to or may otherwise provide technical or creative services that give rise to intellectual property (IP) rights and assets.

Negotiating the IP Provisions of Independent Contractor and Consultant Agreements

Practical Law Legal Update w-001-1273 (Approx. 3 pages)

Negotiating the IP Provisions of Independent Contractor and Consultant Agreements

by Practical Law Intellectual Property & Technology
Published on 12 Jan 2016 • USA (National/Federal)
A discussion of key considerations for organizations negotiating agreements with independent contractors and consultants who are specifically engaged to or may otherwise provide technical or creative services that give rise to intellectual property (IP) rights and assets.
Companies frequently engage independent contractors and consultants to provide services that result in the creation or development of intellectual property (IP). The contractor or consultant may be retained for a specific research and development project or for other, more general services that give rise to unanticipated IP developments. Whether incorporated into a company's commercial products or used for internal business purposes, IP rights in contractor-created technologies can be among the company's most valuable assets.
The ownership of these IP rights is often extensively negotiated. The company, having paid for the creation of the contractor's work product, typically wants outright ownership of all associated IP rights. The contractor or consultant, in turn, commonly seeks to retain ownership of these IP rights subject to a limited license granted to the company. Even if the contractor agrees to the company's ownership of newly created work product, the work product may incorporate pre-existing contractor materials the contractor needs to provide services to other clients.
The parties' respective IP counsel therefore play a crucial role in negotiating and drafting an agreement that reflects their clients' expectations concerning the ownership and permitted use of IP that the contractor or consultant:
  • Uses in conducting the commissioned services.
  • Creates or develops in performing those services.
To do so, counsel must have a solid command of:
  • The type or types of IP that may be involved in the contractor's undertaking.
  • The client's expectations and needs regarding the ownership and use of that IP.
  • The parties' respective rights in the IP in the absence of their contractual allocation of these rights.
  • The contract language needed to apportion these IP rights according to the parties' expectations.

Key Clauses

To properly identify and allocate rights in the types of IP that may be used in or generated by the contractor's or consultant's services, IP counsel should carefully tailor the following provisions:
  • The definitions of Deliverables, Work Product and Pre-Existing (or Background) Materials. Counsel should review these definitions in combination with one another to ensure that they cover or exclude, as applicable, the appropriate items.
  • The contractor's grant to the company of assignments of IP rights in the Deliverables and Work Product and, where applicable, the contractor's alternative acknowledgment of work made for hire status for certain copyrightable works created in its performance of the services.
  • The terms and conditions of any license grant to the company to use pre-existing materials of the contractor that are incorporated into or necessarily used with the work product. Any license grant should expressly identify:
    • all licensees (for example, in addition to the company, the company's affiliates and their consultants or other third parties that may use work product that incorporates or uses the contractor's pre-existing materials);
    • whether in lieu of or in addition to naming additional licensees, the license should expressly grant the company the right to sublicense to third parties, such as end users, customers, distributors, or the company's other service providers;
    • the license term, specifying whether the license is perpetual or for a specific period of time;
    • whether the license is non-exclusive or exclusive;
    • whether any additional license fees or royalties apply or the license is fully paid-up and royalty-free;
    • whether the license is non-transferable or the company is permitted to transfer or sublicense the license to a third party;
    • the license's geographic scope (or scopes) in relation to manufacturing, marketing, and sales (whether worldwide or restricted to a lesser territory for any of these company activities);
    • the contractor's willingness to accept the risk of indemnification liability for IP infringement in non-US jurisdictions; and
    • any conditions or limitations on the scope of licensed use or express restrictions against specified activities.
  • The agreement's confidentiality provisions (without which the contractor may have no legal obligation to protect confidential information the company discloses to it in connection with the contractor's performance of the services).
For sample language addressing these and other critical IP ownership and use provisions in independent contractor and consultant agreements and integrated notes with important explanations and drafting tips, see Standard Clauses, IP Rights Clauses for Independent Contractor/Consultant Agreements.