Do you develop technology as an independent contractor? Here’s how you should think about defining your IP ownership, assignments, and licenses

There are a lot of moving parts when you start working together with another party on joint research & development or in an independent contractor relationship. One of the trickiest aspects is defining who will own the IP developed during the engagement. In fact, the IP ownership question can dictate the value of the contract or, alternatively, kill the deal if the parties can’t agree on a mutually acceptable approach.

Here is a list of options to help you think about several of the ways IP can be developed, owned, assigned, and licensed during an independent contractor or joint R&D project.

For convenience and clarity, I refer to two hypothetical parties–the Company and the Contractor–as different partners in the joint R&D project. This assumes the Company brings on the Contractor to perform specific R&D tasks on behalf of the Company. You might or might not have an explicit independent contractor relationship. Or you might have an arrangement where the parties work together more collaboratively. You need to consider your specific circumstances and tailor your negotiations and agreement, accordingly. Be aware, though, as a fundamental starting point the type of relationship you have with one another might impact the default rules applicable IP ownership, depending on the jurisdiction you’re in or you choose to control the relationship.

PRE-EXISTING IP

This is the simplest scenario, and it’s typical for each company to continue to own any IP they developed prior to beginning to work together with the other party.

Ownership: Each party should maintain ownership of its own pre-existing IP.

Licensing: If applicable, the Company might grant a limited license to the Contractor to use the Company’s IP in development of the final design. Similarly, the Contractor might grant a limited license to the Company for any of the Contractor’s IP that gets incorporated into the final design.

MODIFICATIONS TO PRE-EXISTING IP

This situation is a little more complicated. Factors that typically come into play are:

• Who’s IP is being modified?
• Who is creating the modifications?
• How applicable are the modifications to the final design?

Modifications by the Company, or modifications by the joint efforts of the Company and the Contractor, to the Company’s pre-existing IP

This is usually treated similar to pre-existing IP.

Ownership: The Company will maintain ownership of the modifications it creates, whether alone or in combination with the Contractor, to its own pre-existing IP. In the case of jointly developed modifications, the Contractor would assign any IP rights to the Company, and the parties should use language that clearly states that any modifications or improvements will be owned by the Company and, to the extent the Contractor creates works deemed to be copyrightable, that the modifications or improvements are “works for hire.”

Licensing: If applicable, the Company might grant a limited license to the Contractor to use the Company’s modified IP in development of the final design.

Depending on the bargaining power of the parties, the independent design capabilities of the Contractor, and the compensation exchanged between the parties, the Company might concede to grant ownership of jointly developed modifications to the Contractor.

Modifications by the Contractor to the Company’s pre-existing IP

This is usually treated similar to pre-existing IP. However, a very powerful Company might push for ownership of all modifications and/or new IP that is related to or developed under the joint relationship.

Ownership: The Contractor will have ownership of the modifications it creates to the Company’s pre-existing IP.

Licensing: If applicable, the Contractor might grant a limited license to the Company for any of the Contractor’s modified IP that get incorporated into the final design, while retaining rights to use the modifications in other designs or technologies.

Modifications by the Contractor, or modifications by the joint efforts of the Contractor and the Company, to the Contractor’s pre-existing IP

This might be treated similar to pre-existing IP, subject to the bargaining power of the parties and the compensation required by the Contractor.

Ownership: The Contractor will maintain ownership of the modifications it creates, whether alone or in combination with the Company, to its own pre-existing IP. In the case of jointly developed modifications, the Company would assign any IP rights to the Contractor, and the parties should use language that clearly states that any modifications or improvements will be owned by the Contractor and, to the extent the Company creates works deemed to be copyrightable, that the modifications or improvements are “works for hire.”

Licensing: If applicable, the Contractor might grant a limited license to the Company for any of the Contractor’s IP that get incorporated into the final design, while retaining rights to use the modifications in other designs or technologies.

Modifications by the Company to the Contractor’s pre-existing IP

In a situation where a Contractor is specifically hired to create designs for the Company, this situation might be outside the contemplated scope of the agreement. It’s possible an applicable non-disclosure agreement would contractually limit the legal authority of the Company to use the Contractor’s confidential information or IP for it’s own purposes. However, it’s usually better to be clear and thorough up front than to have to deal with this situation unexpectedly.

Ownership: The Contractor will have ownership of the modifications the Company creates to the Contractor’s pre-existing IP.

Licensing: If applicable, the Contractor might grant a limited license to the Company for any of the Contractor’s IP that get incorporated into the final design, while retaining rights to use the modifications in other designs or technologies.

NEW IP

New IP created by the Company

New IP created by the Company is probably also outside the scope of the joint relationship, because if the Company could have developed its own new technology, then it might not have engaged the Contractor to begin with.

Ownership: The Company will own all new IP developed exclusively by the Company.

Licensing: If applicable, the Company might grant a limited license to the Contractor to use the Company’s new IP in development of the final design.

New IP created by the Contractor or jointly developed by the Contractor and the Company.

Again, the final disposition depends on the negotiations and compensation arrangement between the parties. But the default position often results in ownership by the Contractor, unless the Company provides sufficient incentives to transfer the ownership.

Ownership: The Contractor will maintain ownership of the modifications it creates, whether alone or in combination with the Company, to its new IP. In the case of jointly developed modifications, the Company would assign any IP rights to the Contractor, and the parties should use language that clearly states that any modifications or improvements will be owned by the Contractor and, to the extent the Company creates works deemed to be copyrightable, that the modifications or improvements are “works for hire.”

Licensing: If applicable, the Contractor might grant a limited license to the Company for any of the Contractor’s IP that get incorporated into the final design, while retaining rights to use the modifications in other designs or technologies.

It’s worthwhile to add a further note about jointly developed IP. To the extent that the parties don’t consolidate ownership in a single party, the jointly developed IP might be partially owned by both parties. Depending on the type of IP it is, this might or might not be workable. In the case of patents, each owner has the right to use the IP as though it has 100% ownership, which can lead to obvious conflicts and obstacles around accounting, enforcement, assignment, and licensing. As with patents, joint ownership in copyrights presents similar problems, even though enforcement issues might be easier by a single owner. Trademarks present even more problems, considering the need for consistent use and monitoring of the mark.

Consequently, even though joint ownership of IP is possible, it is rarely a desirable outcome because it complicates and significantly devalues the IP rights that exist.