Key Takeaways

  • An intellectual property clause defines ownership, usage rights, and responsibilities for IP created or shared under a contract.
  • These clauses protect both parties by clearly outlining who retains ownership of pre-existing IP and who owns newly created work.
  • Key elements include ownership terms, licensing rights, usage restrictions, confidentiality provisions, and dispute resolution.
  • In employment and contractor agreements, “work-for-hire” language ensures employers retain ownership of IP created during the relationship.
  • Joint development, subcontracting, and third-party IP use require special attention to avoid disputes and clarify shared ownership or licensing terms.

An IP ownership clause is necessary for a contract, as it states who owns intellectual property. You'll want a contract in place if you own a business for several reasons, but you might not understand what the legal implications are. The agreement states the terms of you providing a service or product that indicates some type of intellectual property, such as patents, copyrights, or trade secrets. It's smart to hire an experienced and skilled attorney to help with drafting and negotiating the agreement.

Contracts: Make Sure There Is an Intellectual Property Ownership Clause

It is essential to remember that every word in the contract has a legal effect, and clarity is important. The intangible property interests and rights may be valuable to your company going forward. For this reason, it's important that the contract is concise and clear when it comes to addressing who owns the intellectual property. This is an advantage if your company has ownership of the property. If that's the case, there needs to be an express, clear provision that identifies the property and states that ownership is with the company.

An example of this is a work-for-hire agreement that refers to an author's ownership of their original works under an agreement. If they hire someone to create a software program or design graphics for the business, the company gets the product but not the copyright. This is according to United States copyright law, unless there's a clause expressly and specifically stating copyright ownership is vested in the company. The product's creator would get the copyright and exclusive rights granted to the copyright holder according to federal law.

Key Elements of an Intellectual Property Clause

An effective intellectual property clause goes beyond stating who owns a creation — it provides a framework that governs how intellectual property is developed, used, shared, and protected within a contractual relationship. While specific language may vary based on the agreement type, most IP clauses should address the following essential components:

  1. Ownership of Pre-Existing IP:
    Clarify that each party retains ownership of any intellectual property they owned prior to entering the agreement. This prevents disputes over pre-existing software, designs, patents, or trademarks.
  2. Ownership of Newly Created IP:
    Specify who will own intellectual property created under the agreement. In most employment and contractor scenarios, the hiring party retains ownership if the work is performed within the scope of employment or under a “work-for-hire” arrangement.
  3. Licensing Rights:
    If ownership remains with one party but the other needs to use the IP, the clause should grant a license — either exclusive (only the licensee may use the IP) or non-exclusive (the owner can license to others too). The clause should detail the scope, duration, and territorial limits of the license.
  4. Usage and Restrictions:
    Outline how the intellectual property may be used. This includes limitations on copying, distribution, modification, or sublicensing. Restrictions are particularly crucial in technology, software, and franchising agreements.
  5. Confidentiality and Trade Secrets:
    Since IP often includes proprietary know-how or trade secrets, the clause should include confidentiality obligations and procedures to prevent unauthorized disclosure.
  6. Third-Party IP Considerations:
    If third-party intellectual property is incorporated into a deliverable, the clause should state how that IP will be licensed and who bears responsibility for obtaining permissions.
  7. Dispute Resolution and Remedies:
    Include a clear process for resolving IP-related disputes, such as mediation or arbitration, and specify available remedies in case of infringement or breach.

By incorporating these elements, businesses can significantly reduce the risk of misunderstandings, disputes, or litigation related to ownership and use of intellectual property.

What Is Intellectual Property?

There are different types of intellectual property, with the main two being patents and copyrights. Copyright is to be understood as the rights that protect someone's original works, either developed now or later, which can be reproduced, perceived, or communicated with the help of a device or machine.

Works of authorship include the following:

  • Musical works
  • Architectural works
  • Literary works
  • Choreographic works
  • Dramatic works
  • Graphics, sculptural, or pictorial works
  • Audiovisual works

The word patent refers to the rights that protect discoveries or inventions that can help with any useful or new process, manufacture, machine, or composition of matter. It can also include plant patents for asexual reproduction of a certain type of plant, including hybrids, cultivated sprouts, newfound seedlings, and mutants. Computer programs are tricky, as they're in an area between two different types of intellectual property. Those that are part of a new and useful process might be eligible for patent protection, while some programs that have a minimal original expression might be eligible for copyright protection.

Types of Intellectual Property Covered in Clauses

An intellectual property clause typically covers a range of IP categories that may arise during a business relationship. These include:

  • Patents: Exclusive rights granted for inventions, processes, or technologies. Contracts should clarify whether any inventions created during the project are assigned to the company or remain with the inventor.
  • Copyrights: Protection for original works such as code, designs, written content, and creative works. Ownership provisions should address whether deliverables are considered “works made for hire.”
  • Trademarks: Distinctive brand identifiers like logos, slogans, and product names. Agreements often include licensing terms for use of trademarks or co-branding arrangements.
  • Trade Secrets: Confidential formulas, methods, processes, or business strategies. Clauses should require nondisclosure and outline remedies for misappropriation.
  • Design Rights and Industrial Designs: Protection for product designs and aesthetic features, particularly important in manufacturing and product development contracts.

It’s also wise to include language addressing future IP — such as enhancements, derivatives, or modifications — to prevent ownership disputes over new developments built on existing work.

Who Owns the Intellectual Property?

The American Association of University Professors adopted a statement when it comes to copyright, but it hasn't officially answered the question of patents. It's the assumption that if a faculty member creates the intellectual property, they own it. This applies to patents as well. Intellectual property that's made, originated, or created by a faculty member should be the exclusive and sole property of the author, faculty, or inventor.

However, they may choose to voluntarily transfer the property in part or in full. There are three areas where a university or college can claim copyright ownership. This includes special works that are known as made for hire, contractual transfers that are negotiated, and joint works.

Made for hire includes if the university or college specifically tells a staff member to create a work, or the work is made due to the employer's job requirement or duty. Another situation is if the faculty author decides to transfer the copyright voluntarily, whether in part or in whole. This transfer will be in the form of a document that's written and signed by the author.

The last scenario is if the university or college worked together to create a joint work. They can have joint ownership due to this clause. This applies when they've contributed certain facilities or services to produce the work beyond what's normally given to faculty members to get their course materials ready.

Special Considerations for Employment, Contractors, and Joint Projects

Ownership outcomes often depend on the nature of the relationship and the circumstances under which intellectual property is created. Here are some key scenarios:

  • Employees:
    Under the “work made for hire” doctrine, intellectual property created by an employee within the scope of employment typically belongs to the employer. To avoid ambiguity, employment contracts should explicitly state that all work-related IP belongs to the company.
  • Independent Contractors and Consultants:
    By default, contractors retain ownership of their creations unless the contract specifies otherwise. Including a clear assignment clause that transfers ownership to the hiring party is essential.
  • Joint Development Agreements (JDAs):
    When two or more parties collaborate on a project, ownership can be shared. The clause should outline how joint ownership is managed, how each party may use the IP, and how revenue from commercialization will be shared.
  • Subcontracting and OEM Agreements:
    If a subcontractor contributes to product development, clarify whether they assign IP rights to the primary contractor or retain certain rights. OEM (original equipment manufacturer) deals often include licensing terms for proprietary designs or technology.
  • Franchise and Licensing Deals:
    Intellectual property in franchising (e.g., trademarks, brand assets, trade dress) usually remains with the franchisor, while the franchisee receives limited usage rights under strict conditions.

Frequently Asked Questions

  1. What is an intellectual property clause in a contract?
    An intellectual property clause defines who owns, controls, and can use intellectual property created or shared under a contract, reducing the risk of future disputes.
  2. Why is an IP clause important?
    It protects business assets, clarifies ownership of creative work, sets boundaries for usage, and ensures proper licensing of third-party content.
  3. Can a contractor retain IP rights?
    Yes. Unless a contract specifies that ownership is transferred, independent contractors typically retain rights to what they create.
  4. What does “work for hire” mean?
    It refers to a legal concept where the employer, not the employee or creator, automatically owns the intellectual property created within the scope of employment.
  5. How do joint ownership clauses work?
    They define how co-created IP is shared, including usage rights, licensing, revenue sharing, and obligations for protection or enforcement.

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