Protecting IP created and developed with third parties 

IP ownership is essential for enhancing your business's value and competitive advantage. When collaborating with or commissioning third parties to create content, software, or other materials, securing ownership of the resulting intellectual property (IP) is critical. Without clear ownership of IP created by third parties, you risk losing control over valuable assets and exposing your business to various legal and operational challenges. 

In this article, we look at IP and the practical steps you can take to safeguard it when collaborating with third parties. If you need assistance with IP protection, our IP and commercial law teams are ready to support you. 

What are the risks of not clarifying IP ownership?

Consider this scenario - your business engages a top designer to create a unique and valuable logo that’s vital for your business. You pay a lot for the work and simply assume you own it. However, without an agreement assigning the rights to your business, the designer retains ownership. This limits how your business can use the logo and may even result in legal disputes. This situation is more common than you might think but can be easily avoided if you take the right steps.  

Why does securing IP ownership matter for your business?

Securing IP ownership, especially when working with third parties, is crucial for your business for several reasons: 

• Understanding your IP rights. Ownership grants your business exclusive rights to use, licence, or sell the IP, providing a significant competitive advantage. Without clear ownership, you risk losing control over how the IP is utilised or commercialised. 

• Enhancing business value. Strong IP assets can boost your business’s value, making it more attractive to investors. During due diligence, investors often scrutinise your IP portfolio; holding robust IP rights can work in your favour and potentially increase your business valuation. 

• Protecting against infringement claims. Owning the IP positions you to defend against infringement claims more effectively and to enforce your rights, safeguarding your business from potential legal challenges. 

What key issues should your business consider around ownership of IP and contracts?

IP rights can arise in a range of products and creative works. You’ll need to start by identifying the creator of any IP first to address ownership rights. Consider the following:

How does IP ownership work with employees?

Generally, IP created by employees in the course of their employment belongs to the employer, although there are exceptions. It’s important to evaluate how you can use employment and consultancy contracts to protect your intellectual property effectively.  

What about IP created by consultants and other third parties?

When working with consultants or third-party suppliers to develop IP you intend to own, it is important to ensure that your contracts: 

• Include assignment terms. Clearly state that all IP rights in the created works are transferred to your business. These terms should explicitly cover all rights being assigned, be documented in writing, and be signed by the creator to ensure a valid transfer. Without this clarity, the consultant or third party may retain ownership, limiting your ability to use the IP. 

• Secure additional protections. Incorporate warranties and indemnity clauses in your agreements. Indemnities can provide compensation if the work infringes on a third party’s IP rights, protecting your business from claims and associated losses.  

• Address existing IP. Many projects, especially in technology and software, may involve ‘background IP’ – pre-existing components necessary for the new development. While developers may not transfer ownership of this background IP, they should grant your business a licence to use it alongside the newly created IP. Carefully navigate these background IP rights and seek legal advice if needed.  

What should your business consider for R&D projects?

For research and development (R&D) projects, it is essential to address IP ownership from the outset: 

• Clarify IP ownership and rights. Determine early on who will own any new IP created during the project. Agree on whether your business will have full ownership, with the other party granted limited licence rights, or if there will be a shared ownership arrangement. Keep in mind that joint ownership can be complex, and so it is wise to seek legal advice if you are uncertain.  

• Plan for future use. Consider how your business intends to use or commercialise any newly created IP. Including provisions for future licensing or commercialisation strategies can help ensure your business is well-positioned to leverage its IP effectively. 

Practical steps to safeguard your business in third-party IP creation scenarios

When your business engages in projects involving third-party IP creation, there are several key steps you can take to mitigate risks:  

• Establish IP ownership early. Clearly define IP ownership from the outset. This is often a crucial negotiation point that can affect project costs. Determine whether one party will own it outright or if there will there be joint ownership with specified rights for each party.  

• Document IP assignments thoroughly. Ensure your contracts clearly outline the transfer of IP rights. Proper documentation helps prevent disputes and guarantees a valid transfer of IP to your business. 

• Draft comprehensive commercial agreements. Include essential terms that protect your IP rights in agreements. Regularly review contracts with consultants, third parties, and employees to ensure they are robust and safeguard your IP. 

• Consider the impact on business valuation. Investors often scrutinise IP during due diligence. Clear documentation of your IP ownership can enhance your business’s appeal and potentially increase its valuation.  

Our IP and commercial law teams can assist you in taking proactive steps to secure ownership of IP created with consultants and third parties. We can also help you develop a long-term strategy for IP management, enabling you to avoid major pitfalls and protect your business from unnecessary risks.