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Intellectual property (IP) is an important asset for any business and, for some, will be the foundation on which the business is built. Develop designs or content for clients? Build software or applications? Analyse or interpret data? Provide a software service or tech solution?

If so, or if you’re involved in one of many other lines of business, you’re likely to be developing and holding intellectual property, whether that’s copyright (e.g. in written or digital content or software code), design rights, database rights, know-how, or other types of IP.

An important thing - but something that is unfortunately overlooked by many (particularly newer or smaller) businesses - is how you exploit that IP with your customers. One wrong move in a contract with one customer could be enough to undo all of the time and money invested in developing a service, piece of content, software, or solution.

Doing business and making sales is obviously important, particularly with bigger companies, which provide good publicity, exposure and higher returns. But could this work cost you more than you realised? Is your intellectual property slipping through your fingers?

 

Beware Customer Contracts

If you’re in the business of selling goods and services to other businesses, you will hopefully have standard contract terms that you use for those dealings and which have been tailored to meet your interests and requirements.

However, some customers will want to deal on their contract terms, rather than yours. Large companies especially are likely to have a lawyer in tow and will have their own standard contracts, which are likely to say something like “we, the customer, will own all intellectual property rights relating to the goods, services and deliverables provided by you, the supplier".

The problem with this type of wording is that you may giving the customer ownership of rights and materials that are integral to what you do and which you use for other customers as well.

A large amount of the materials used to provide most services will be the same for every customer. For example, if doing development work, you may have the backend of a website or platform that might be identical for several customers, though the frontend may be more bespoke. If you give ‘all of the IP’ in these materials away to one customer, you might not be able to use your backend again for your next customer.

 

What do I do to sort this out?

Whether you are using your own contract terms, or signing up to your customer’s terms, you should make sure that you have a clear IP clause that covers:

  • Whether you are licensing or assigning (transferring) IP to your customer. If you’re licensing the scope and duration of that licence should be clear;
  • If you are assigning IP, the IP that you will continue to own (typically called your ‘background IP’) and the IP (normally the new or ‘foreground’ IP) that will be assigned, and the terms on which you will licence the background IP to the client;
  • Any restrictions on the use or exploitation of the IP, which help to protect your know-how and business (e.g. restrictions on modification, adaptation, resale or distribution of your IP).

If you are transferring IP, you need to carefully think through what makes up the assigned IP and what will be retained by you. Anything that makes up part of your standard service should be retained as background IP.

Remember that if you ‘assign’ or ‘transfer’ ownership of IP to a client, it won’t be yours anymore and you will lose the right to use it, unless the client specifically agrees to licence it back to you.

 

What if I haven’t dealt with this properly in the past?

If you’re worried that you may not have dealt properly with your IP in the past, a contract audit can be a useful way of collecting information on how you’ve worked with customers and assessing the level of risk to your business. This involves reviewing the IP provisions (or lack thereof) in previous contracts and summarising the IP position. Roxburgh Milkins is able to assist with this.

If it does transpire that you have agreed some troublesome IP arrangements with customers, you could work with the customer to correct the IP position (normally through a contract variation) or register the risk and work to address it going forward.

Being clear on your IP position and dealings with third parties is very important if you plan to look for investment or seek a buy-out in the future. Any investor or purchaser will most likely want thorough due diligence done on the business, which may expose serious problems. Well prepared is well armed!

If you haven’t dealt with IP at all in the past then generally speaking, in the absence of express wording, background IP will not be assigned to the customer of the services. However, the customer would gain an unrestricted licence to that background IP – which is not much different from owning the IP, save that you, as the service provider, can also continue to use the IP without restriction. This could mean that your customer could use your IP in any future project, without any further dealings with you or paying any additional licence fees, which won’t be to everyone’s liking.  

A well-written and tailored legal agreement, or professional advice on customer contract terms, are important tools to ensure that you protect your IP, one of the most valuable assets any business can possess.

If you’re worried about any of the issues mentioned above, or if you just want a chat, please get in touch on +44 (0) 117 928 1910 or carl.spencer@roxburghmilkins.com.