Your intellectual property can be one of your business’s most valuable assets. From software and product designs to written content, branding and inventions, the work created by your employees and consultants can play an important role in the value and growth of your business.
The rules are particularly important when working with consultants, freelancers and other third parties. Employment and consultancy contracts can help establish who owns intellectual property, how it can be used and what happens when the relationship ends.
In this guide, our intellectual property solicitors explain how intellectual property ownership works for employees and consultants, the clauses you should consider including in your contracts and the practical steps you can take to protect your business.
Contents:
- Who owns intellectual property created by an employee?
- Who owns intellectual property created by a consultant or freelancer?
- Can an employer own intellectual property created outside working hours?
- Do employment contracts need an intellectual property clause?
- What should an intellectual property clause in a consultancy agreement include?
- What happens if a contract does not include an intellectual property ownership clause?
- What is the difference between an intellectual property assignment and an intellectual property licence?
- Is a confidentiality clause enough to protect intellectual property?
- Can a business protect intellectual property after an employee or consultant leaves?
- How can businesses protect intellectual property in employment and consultancy contracts?
- How our intellectual property solicitors can help
Who owns intellectual property created by an employee?
The starting position depends on the type of intellectual property involved and the circumstances in which it was created.
For copyright, an employer will generally be the first owner of copyright in literary, dramatic, musical or artistic works and films created by an employee in the course of their employment, unless there is an agreement to the contrary.
This could cover a wide range of material produced within a business, including software code, website copy, photographs, marketing materials and reports. You can read more about how copyright arises and can be protected in our guide to copyright protection.
Similar statutory rules can apply to certain other intellectual property rights. For example, an invention made by an employee may belong to their employer where it was created in the course of duties in circumstances where an invention might reasonably have been expected to result, or in certain circumstances where the employee had a special obligation to further the employer’s interests.
Ownership can depend heavily on the facts. Businesses should avoid relying solely on the statutory position. Clear intellectual property provisions in employment contracts can reduce uncertainty by setting out what employees are expected to disclose and which rights belong to the business.
Who owns intellectual property created by a consultant or freelancer?
The position can be very different when you engage a consultant or freelancer. Businesses sometimes assume that if they have commissioned and paid for a piece of work, they automatically own all the intellectual property in it. That is not necessarily the case.
For copyright, the general rule is that the author of the work is the first owner unless an exception applies. The employee exception does not generally apply to an independent consultant simply because your business has commissioned their work.
For example, you might pay a freelance developer to build software specifically for your business. Unless the consultancy agreement deals properly with intellectual property ownership, the developer may own copyright in the code while your business only has a right to use it.
This can become particularly problematic during an investment round, sale of the business or intellectual property dispute, when you may need to demonstrate that the company owns the assets on which it relies.
A well drafted consultancy agreement should address intellectual property ownership from the outset.
Can an employer own intellectual property created outside working hours?
Not everything created by an employee automatically belongs to their employer. Whether the business owns particular intellectual property will depend on factors including the type of intellectual property, the employee’s duties and the circumstances in which the work was created.
Simply creating something at home or outside normal working hours does not necessarily determine ownership. Equally, employment does not give a business an unrestricted claim over everything an individual creates while they work for it.
For example, there may be a significant difference between a software developer working on a product closely connected with their role at the weekend and an employee writing an unrelated novel in their spare time.
Employment contracts can help provide clarity by defining the intellectual property covered by the agreement and requiring employees to notify the business about relevant inventions, developments or works. Clauses should be drafted with the applicable statutory rules in mind rather than attempting to claim every idea an employee may have.
Do employment contracts need an intellectual property clause?
Even where the law already gives an employer ownership of certain employee created intellectual property, an express intellectual property clause is useful. A carefully drafted clause can clarify the scope of the employee’s obligations and provide a process for dealing with intellectual property created during employment. Depending on the employee’s role and your business, provisions might cover:
- ownership of relevant intellectual property created during employment
- disclosure of inventions and other potentially valuable intellectual property
- obligations to sign documents needed to confirm ownership or register rights
- protection of confidential information and trade secrets
- the treatment of moral rights where relevant
- obligations that continue after employment ends.
The appropriate wording will depend on the role. A standard clause may be sufficient for some employees, whereas businesses employing software developers, engineers, designers, researchers or other employees who regularly create valuable intellectual property may need more detailed provisions.
What should an intellectual property clause in a consultancy agreement include?
A consultancy agreement should clearly identify who will own the intellectual property created during the engagement. If your business needs to own the intellectual property outright, the agreement will usually need an appropriate assignment of the relevant rights. Under UK copyright law, for example, an assignment of copyright must be in writing and signed by or on behalf of the person assigning it.
The agreement should also distinguish between new intellectual property created for the project and any pre-existing intellectual property the consultant brings with them. A consultant may, for example, use an existing software library, template, methodology or tool when delivering the project. They may reasonably want to retain ownership of that material. Your business may instead need a sufficiently broad licence to use that pre-existing intellectual property as part of the finished product. The agreement can also require the consultant to obtain appropriate rights from anyone else involved in creating the deliverables and to identify restrictions affecting third party materials.
Getting these points clear before work starts is considerably easier than trying to resolve an ownership dispute afterwards.
What happens if a contract does not include an intellectual property ownership clause?
If the contract is silent, ownership will depend on the applicable legal rules and the circumstances in which the intellectual property was created. For employees, your business may already own certain rights created in the course of employment. For consultants, the absence of an assignment can leave the consultant owning important rights even where your business commissioned and paid for the work.
This can create both operational and transactional problems. You may discover that the company cannot use, modify or commercialise an asset in the way it expected. Questions over ownership may also emerge when an investor or buyer conducts due diligence.
If you discover an ownership gap, it may be possible to resolve it by entering into a separate intellectual property assignment with the creator. You will need their cooperation, and they may seek payment or other terms in return.
If you are unsure which rights your business owns, an intellectual property audit can help identify your existing intellectual property, how it is owned and where further protection may be required. Reviewing ownership before a project begins is generally more straightforward than correcting the position later.
What is the difference between an intellectual property assignment and an intellectual property licence?
An assignment and a licence achieve different things. An intellectual property assignment transfers ownership of the relevant intellectual property rights from one party to another. Once the assignment takes effect, the recipient becomes the owner of the rights covered by it. An intellectual property licence allows someone to use intellectual property without transferring ownership. Licences can be drafted in different ways. For example, they may be exclusive or non exclusive and can contain restrictions relating to territory, duration and permitted use.
Which approach is appropriate depends on the commercial arrangement. If a consultant creates a bespoke piece of software that will form a core asset of your business, ownership may be important. If a consultant incorporates one of their existing tools into a project, a licence to that tool may be more appropriate.
Our guide to intellectual property licensing explains how businesses can use licensing arrangements to exploit their own intellectual property or obtain rights to use intellectual property owned by somebody else. The important point is to establish what your business actually needs rather than assuming an assignment is always required.
Is a confidentiality clause enough to protect intellectual property?
Confidentiality and intellectual property ownership are related, but they are not the same thing. A confidentiality clause can restrict how employees and consultants use or disclose sensitive business information. This can be particularly important for trade secrets, product plans, technical information, customer information and commercially sensitive know how. But a confidentiality clause does not, by itself, necessarily transfer ownership of intellectual property. Your contracts should therefore deal separately with confidentiality and intellectual property ownership where both are relevant. Businesses should also consider practical protections alongside contractual obligations. These might include controlling access to sensitive information, keeping appropriate records, using non disclosure agreements where necessary and making sure confidential material is clearly managed within the organisation.
Can a business protect intellectual property after an employee or consultant leaves?
Certain contractual obligations can continue after employment or a consultancy arrangement ends. For example, confidentiality provisions can be drafted so that obligations relating to confidential information continue after termination. The contract can also require the individual to return or delete company materials and provide assistance with formalities needed to confirm or protect the company’s intellectual property rights.
Where intellectual property has been properly assigned to the business, ending the working relationship does not normally reverse that transfer simply because the individual leaves.
Businesses should not rely on the contract alone. An effective offboarding process can help protect valuable intellectual property and confidential information.
This might involve recovering devices and documents, removing access to systems, reminding the departing individual of continuing confidentiality obligations and checking that any outstanding documentation has been completed.
How can businesses protect intellectual property in employment and consultancy contracts?
Contracts are an important part of protecting intellectual property, but they work best as part of a wider intellectual property strategy. Start by identifying the intellectual property your business relies on and who creates it. Review your employment and consultancy agreements to check whether ownership is clear, particularly where contractors, founders or third parties have helped develop important assets.
You should also consider whether any third party or pre-existing intellectual property is incorporated into your products or services and whether your business has the licences it needs to use it.
For registered rights, such as trade marks and patents, make sure registrations are held in the correct name and kept up to date. For unregistered rights, good record keeping can help demonstrate when material was created and by whom.
These checks can become particularly important when you are seeking investment or preparing to sell your business. Uncertainty over ownership can raise questions during due diligence and may need to be resolved before a transaction can proceed. The key is to deal with intellectual property ownership at the beginning of the relationship rather than waiting until valuable rights have already been created.
How our intellectual property solicitors can help
Clear employment and consultancy contracts can help ensure that your business owns or has appropriate rights to use the intellectual property it depends on. Our intellectual property solicitors can review your existing arrangements, identify potential gaps in ownership and draft appropriate intellectual property provisions, assignments, licences and confidentiality agreements.
We can also help you develop a wider intellectual property strategy, including identifying and protecting key intellectual property assets and preparing your business for investment, growth or sale.
Get in touch with our team to discuss how we can help protect your intellectual property.
