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How do you protect IP created by third parties?

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5 mins read

Updated on 27 September 2024

Our subject expert
Julia Ellis

Senior Solicitor - Commercial

Protecting intellectual property (IP) created and developed in collaboration with third parties is essential for any business engaging in collaborative innovation.

Whether you're co-developing software with an external partner or working with a contractor on proprietary designs, unclear ownership rights can lead to costly disputes and lost value. When intellectual property arrangements aren’t clearly defined, businesses risk losing control over the very assets that give them a competitive edge.

Our commercial intellectual property solicitors specialise in helping businesses like yours navigate the complexities of joint IP ownership. We craft clear, enforceable agreements that set out who owns what, how it can be used, and what happens if the relationship ends – so your innovations stay protected from day one.

What are the risks of not clarifying IP ownership?
Why does securing IP ownership matter for your business?
What key issues should your business consider around ownership of IP and contracts?
1. How does IP ownership work with employees?
2. What about IP created by consultants and other third parties?
What should your business consider for R&D projects?
Practical steps to safeguard your business in third-party IP creation scenarios
Protect your intellectual property with confidence

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.

These issues can also arise when a third-party manufacturer changes a product, adapts its design or develops improvements during production. A carefully drafted manufacturing agreement should address ownership and permitted use of the relevant IP, including what happens to those rights when the agreement ends.

Similar considerations apply when an influencer creates photographs, videos or other campaign content for your business. A clear influencer marketing agreement should address who owns that content, how each party may use it and how long any licence will continue.

What should your business consider for R&D projects?

For research and development (R&D) projects, it is crucial to address intellectual property (IP) ownership from the outset. The UK Intellectual Property Office offers guidance on utilising collaboration agreements to manage IP rights in joint innovation efforts effectively.

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 be joint ownership with specified rights for each party.

Document IP assignments thoroughly. Ensure that your contracts clearly outline the transfer of intellectual property 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.

Protect your intellectual property with confidence

From joint ventures to collaborations with external teams, safeguarding your intellectual property rights is indispensable for the stability and growth of your business. Our expert commercial intellectual property solicitors can help you negotiate and draft airtight agreements, ensuring that your intellectual property is shielded from risks while fostering healthy partnerships.

About our expert

Julia Ellis

Senior Solicitor - Commercial

Julia is a highly experienced commercial lawyer who helps ambitious businesses manage risk, solve problems and grow with confidence. She advises start-ups, scale-ups and established multinational groups across B2B and B2C markets, bringing more than 20 years’ experience from private practice and in-house legal teams.

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