Key Takeaways

  • Third-party IP refers to intellectual property created or owned by someone outside your business, such as contractors, freelancers, or vendors.
  • Businesses must secure ownership or licensing rights before using third-party IP to avoid infringement claims.
  • Common risks include unclear IP ownership, lack of written agreements, and use of unlicensed software or media.
  • Preventative steps include implementing strong IP clauses in contracts, conducting IP audits, and training employees.
  • IP due diligence is vital when seeking investment, mergers, or acquisitions to confirm all assets are properly owned.
  • Insurance, confidentiality agreements, and compliance programs reduce exposure to third-party IP claims.

Third-party intellectual property rights occur when one party has infringed upon another party's intellectual property rights and, as a result, must take defensive action. Infringement comes with different consequences depending on the type of intellectual property. Business owners should educate themselves on third-party intellectual property rights to avoid potential lawsuits.

First-Party vs. Third-Party Intellectual Property

First-party intellectual property (IP) is considered a company's intangible assets, such as its knowledge, goodwill, patents-trademarks-copyrights-and-trade-secrets">patents, and trade secrets. An individual or company owns its intellectual property unless the IP is transferred under contract. Someone else who doesn't own the IP may use it only if they're given written permission.

Third-party intellectual property is when you have personally infringed on someone else's intellectual property and must now defend yourself against allegations or lawsuits.

In other words, third-party IP is defensive while first-party IP is offensive.

Understanding Third-Party IP Ownership and Rights

When third-party contractors, freelancers, or vendors create intellectual property for your company—such as software code, marketing materials, or product designs—ownership of that IP does not automatically transfer to your business. By default, the third party retains ownership unless a written agreement assigns those rights to you.

For example, hiring a software developer to create proprietary tools without an explicit “work-for-hire” or IP assignment clause could mean that your company merely licenses, rather than owns, the code. This becomes especially problematic when investors conduct due diligence and discover that critical IP assets are not legally yours.

To secure IP ownership:

  • Include a clear IP assignment clause in all contractor, supplier, or freelancer agreements.
  • Use work-for-hire provisions that automatically vest ownership in your company upon creation.
  • Maintain written records of all transfers and signed acknowledgments.

Without these precautions, your company could face costly disputes or lose the right to commercialize its own products.

Third-Party Intellectual Property Claims

Business owners should be aware of a couple of things to avoid risking third-party IP lawsuits:

  • Exposure exists
    • Don't merely shrug off patent information because you think your company doesn't have any exposure.
    • Social media has become a major source of unexpected business exposure.
  • Pursuing or defending intellectual property infringements comes with an excessive cost, so it's always best to protect it from the onset. 
    • The internet, in particular, has created large numbers of patent and copyright issues, including third-party consent, framing, linking, and implied licensing.

Common Third-Party IP Risks and How They Arise

Third-party IP claims often stem from one of the following scenarios:

  • Unclear Ownership: Contractors or vendors use pre-existing materials or code that they still own.
  • Unlicensed Use: Employees or departments use third-party media, software, or technology without permission.
  • Collaborative Development: Joint ventures where IP contributions are not properly attributed or assigned.
  • Expired or Missing Licenses: Use of stock images, fonts, or open-source software beyond their license terms.

In the digital era, the widespread sharing of content through cloud platforms and social media magnifies the risk. A simple image or line of code posted without authorization can trigger a third-party claim, even if the infringement was unintentional.

Mitigating these risks requires regular IP audits, ensuring license compliance, and keeping a record of all third-party materials used in product development or marketing.

Protecting Your Company

The first step in protecting your company from patent exposure and third-party copyright is to realize the exposure exists. Trademark rights vary by location. The most famous trademarks are considered “well-known marks” in various countries thanks to brand recognition built up over the years.

To minimize your own intellectual property risks, start developing adequate internal procedures and processes. This includes establishing strong risk-management practices.

Every company should have an intellectual property compliance program in place. All employees must be trained in this program, which should be updated and reviewed regularly. A strong program will:

  • Evaluate ongoing exposure
  • Check for signs that companies are either proceeding “out of copyright” or are requesting permission to use intellectual property
  • Draw from many resources, including the company's financial, legal, and marketing departments

When you've identified your company's intellectual property risk, consider protecting it with a proper insurance policy. Available insurance policies include:

  • Standalone IP policies
  • Patent defense policies
  • Infringement abatement coverage
  • Patent infringement cost reimbursements

Terms and conditions of these insurance policies vary, but insurers adapt to meet changing demands.

Contractual Safeguards for Third-Party IP

Contracts are your strongest defense against third-party IP disputes. Every agreement involving external contributors should include:

  • IP Ownership and Assignment Clauses – Clarify that all IP created during engagement is owned by your company.
  • Warranties and Indemnities – Require the third party to warrant that their work does not infringe on others’ IP rights and indemnify your business if it does.
  • Confidentiality Agreements (NDAs) – Prevent unauthorized sharing or misuse of trade secrets and proprietary materials.
  • License Scope – Define any limits on how, where, and for how long your company can use licensed IP.

Additionally, for multinational operations, ensure that contracts comply with both U.S. and international IP laws. Strong documentation supports investor confidence and avoids future ownership disputes.

Involving Every Department in the Process

There are many reasons to have every department in your company get on board with intellectual property protections. For starters, you need your legal team to vet third-party information so you're not unknowingly infringing on someone else's property. Your legal department or outside legal representative can verify whether the information is patented or still under copyright.

Your marketing team should then create a marketing strategy based on this third-party knowledge found by previous researchers. Finally, the financial department should consider the costs associated with the entire plan of action.

Unless these teams communicate with one another, one department may infringe upon intellectual property rights. For example, the marketing department may utilize patented information that the legal team already discovered. Failing to communicate could result in pulling an entire marketing strategy for failure to not do due diligence, which is an expensive mistake.

Conducting IP Due Diligence and Internal Audits

Internal collaboration plays a critical role in managing third-party IP. Your legal department should perform IP due diligence to verify ownership, while procurement teams confirm that all vendors sign compliant agreements. Engineering and creative departments should document sources for all third-party materials they use.

A company-wide IP register—listing all owned, licensed, and jointly developed assets—helps track obligations and avoid infringement. Regular audits can identify risks early, especially before major transactions like mergers or investor rounds.

Educating staff through IP awareness programs also helps prevent accidental misuse of third-party materials, particularly in marketing and product design.

How to Avoid Third-Party Lawsuits

There are several steps you should take to avoid IP infringement. For instance, consider the iconic Nike Swoosh symbol. If you own a shoe retailer and want to use the Nike Swoosh in promotional materials, you must receive permission from Nike. Otherwise, you'll be hit with an immediate infringement claim.

Certain types of intellectual property are available to the public, such as open-source software codes. These codes are copyrights, but they exist in the public domain, which means that anyone can use them.

When in doubt, request permission from the IP owner to avoid legal action.

Since social media is now considered exposure, it's important for your company to have policies that discourage or limit social media use from company-owned computers. Simply restricting employees from accessing Facebook and other social media sites from work computers is a smart way to limit exposure. Simply have them access these sites via their mobile phones instead.

Insurance and Risk Mitigation Strategies

Even with strong contracts, third-party IP disputes can still occur. To reduce financial exposure:

  • Obtain IP infringement insurance covering legal defense and damages.
  • Use vendor vetting to ensure third parties hold proper IP rights.
  • Require warranties of originality from external creators.
  • Maintain clear documentation of permissions and licenses for all third-party IP.

In addition, companies should have a response plan for infringement claims—designating who will investigate, negotiate settlements, and coordinate with counsel.

When used together, legal contracts, internal compliance programs, and insurance policies form a layered defense that minimizes liability while supporting innovation.

Frequently Asked Questions

1. What is third-party IP? Third-party IP refers to intellectual property created or owned by someone outside your company, such as contractors, freelancers, or suppliers.

2. Who owns IP created by a contractor? Unless stated otherwise in a contract, the contractor typically owns the IP. To secure ownership, businesses should include an assignment or “work-for-hire” clause.

3. How can I avoid infringing on third-party IP? Use only licensed materials, maintain written agreements for all external contributions, and verify IP ownership before publication or product launch.

4. What happens if I unknowingly use third-party IP? You could face legal claims, injunctions, or financial damages. Promptly seek legal counsel to negotiate settlement or licensing terms.

5. Why is IP due diligence important for startups? Investors and acquirers require proof that all core IP is owned by the business. Clear third-party IP assignments increase valuation and reduce legal risk.

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