Negotiating Big Client Company Agreements for Emerging Companies – Part 5: Protecting Your IP from Unfair Terms
Note: This conversation has been organized around dealing with ‘big’ clients. But many of the lessons apply to large, important vendors.
You already know that your intellectual property is something invaluable to your company. However, if you haven’t had to navigate a big client’s standard ‘one-size-fits-all’ service provider/vendor agreement, it may not be obvious when a contract includes common-but-highly-hazardous language concerning what IP ownership rights your client will get related to the services you provide and work product you deliver. You want to be sure that you are protecting your IP, not putting it at risk inadvertently through the course of doing business.
Today we’ll be discussing some of the most common terms that can show up in these big client agreements, and why you should push back where you can.
1. IP Assignment Clauses that Are Too Broad or Not Appropriate for the Commercial Arrangement:
What is this? IP assignment clauses usually work to assign ownership in whatever deliverables the client’s contract says are to be delivered and, very often, any associated work product you create—even when that associated work product is never really intended for delivery (such as initial drafts, sketches, notes, and so on). These clauses can be legitimately important for a client to have in a contract, especially when you are producing custom deliverables for a client, but they are often written up in ways that can get your company and its IP into a lot of hassles.
When, and Why, This Can Be Unfair:
First, you might not be providing any particular custom deliverables for a client—the kind of situation where this very broad wording might be fair—, but since they are giving you their “one size fits all” vendor/service provider agreement, you still have this legal language to deal with, requiring your push back.
So, for instance, if your company provides some sort of data analysis tool or other SaaS product, it may be perfectly appropriate if a client owns any output your tool or product generates. But you’ll want to make sure that the agreement’s IP terms do not give your client ownership of any of the underlying technology or other related IP that led to the creation of that output.
Another situation that comes up is when you are only licensing some materials to a client for the duration of the contract or some other specific period of time—for example, where the client gets the right to use some work product you’ve generated for them, but only so long as they are signed up and paying your fees. In those sorts of situations, you want to make clear that the client’s rights go only as far as that licensing arrangement and not any further.
Second, even when you are producing custom deliverables for a client—e.g. you are doing a specific software development project or you are a creative services agency—these IP ownership-assignment provisions are commonly drafted with language that is incredibly broad and easy to take advantage of: i.e. where the client gets to own almost anything you do during the term of the contract. That means not only the contracted-for deliverables but any associated drafts, notes, ideas, sketches, etc., for both those deliverables and anything else “related” to the work you are doing for them or even, in some cases, any other work you happen to be doing at the same time that is “arguably” related at all to your client’s business.
Ultimately, the issue with this broad language is that your work, even unrelated to this particular client and which common sense would tell you has nothing to do with this agreement, could get swept up in this IP grab. Not only is that just not correct, but it can cause massive problems for your future and current work outside of this agreement.
What To Consider Asking For Instead:
Let’s walk through each example I gave, as this covers a lot of ground and each situation is different.
For Scenario A (SaaS product or equivalent commercial arrangement), make it clear that the current language simply isn’t applicable and that either the client or you (with the help of your lawyer, if needed) will replace these provisions with terms that are customary to the tool/software-as-a-service you are providing. Commonly, this means that the client will own any contracted-for output but not anything else.
For Scenario B (licensing), make it clear that some, maybe all, of what you are providing (even if it is customized) is going to be licensed to the client for the duration of the contract, not permanently sold to them. And, again, this will mean replacing the client’s default IP assignment language with terms that are customary for this sort of license. Also, you should also make sure that the terms of the license provision reflect your business deal – for instance, if your client can use the licensed materials for their internal business purposes only, or can only use them in the United States and not in any other country, that should be clearly stated.
For Scenario C (custom deliverables), the best approach for you, the service provider/vendor, is to have the legal language clearly state that the client gets to own only those deliverables that are specifically listed in the agreement—usually, these are listed out in a Statement of Work, or an equivalent kind of schedule or exhibit—and, if need be, any work product directly associated with producing that specific deliverable (e.g. notes, drafts, sketches, etc.).
If the client insists on broader IP ownership-assignment language, you should check with a lawyer to see if any part of the client’s specific wording goes too far and may unintentionally result in you giving the client ownership of work you’re producing that you would never consider giving away.
2. IP Assignment Clauses that Do Not Include a “Pre-Existing Rights” Carveout:
What is this? Very often these contracts do not include a carveout over ownership to “Prior Work” or “Pre-Existing Rights” (other terms are used as well)—i.e. whatever intellectual property that gets incorporated into the deliverables that your business has developed itself, on its own time, and usually not for any particular client. You want to make it clear that you will retain rights to the work that existed prior to signing this contract.
When, and Why, This Can Be Unfair: If the client “owns” something you’ve created, they have the legal right to stop you (the original creator) from using it again in the future. If the client has the kind of “license” I’m talking about, they can use or otherwise deal with those Prior Works or Pre-Existing Rights as they wish without needing your permission in the future, but they can’t stop your business from using those same Prior Works or Pre-Existing Rights again or selling them to your other clients.
What To Consider Asking For Instead:
The answer here is to make sure the ownership assignment section excludes any “Prior Works” or “Pre-Existing Rights” (or whatever the agreement calls them). At the same time, you add a special “license” section to the contract which states that, if any Prior Works or Pre-Existing Rights are incorporated into your deliverables, the client has a permanent license to use or otherwise deal as it wants with those Prior Works or Pre-Existing Rights to the extent they are incorporated into the deliverables.
At the least, Prior Works or Pre-Existing Rights should refer to anything you owned or licensed before providing the start date of the applicable contract—that’s usually the “minimum” acceptable language a service provider should require.
But if possible, you also want to make it broader.
One change you should consider is, instead of saying the definition of “Prior Works” or “Pre-Existing Rights” (or whatever term you use) applies only to anything you create before the contract start date, it instead applies to anything you do before you start working on the specific deliverable it is to be incorporated into.
While this might sound like a tiny difference, it can actually be a big deal when you have a contract that lasts for multiple years and you are handling a number of projects over that period of time, each with its own set of deliverables.
And, if possible, it is may be even better for you if the term “Prior Works” or Pre-Existing Rights (or whatever you use) is worded to include anything you have created so long as whatever you created was not done by you specifically as a part of the particular deliverable into which it is incorporated—i.e. if it was done as part of your general business activities or was done first for another customer, you still “own” whatever you’ve created, and the client instead gets a “license” (as discussed above).
Protect Your IP
Understanding these terms and negotiating them effectively is crucial for protecting your business’s IP. Don’t hesitate to seek legal advice to ensure your contracts are fair and balanced. More importantly if you are unsure of a contract negotiation or just want a second opinion, I would love to help, book a free initial consultation here.
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