4 Key Takeaways: Consulting Agreements - Who Owns the IP?

August 16, 2017 - Written by Kilpatrick Townsend & Stockton LLP - Alan E. Dow Ph.D.

Consulting Agreements Make It Possible for Companies to Own IP Produced by Consultants

• Absent a written agreement to the contrary, whoever invents or authors IP (patentable inventions, trade secret, software, artwork, etc.) owns the IP, and a co-inventor or co-author co-owns the IP.
• Consulting agreements should grant the company ownership of IP produced by a consultant and assign IP to the company in the present.
• If the company and consultant each have rights to the IP, the consulting agreement should state clearly which party is the owner and what rights are granted to the non-owner.

Common Pitfalls in Consulting Agreements - Work for Hire Clauses

Many consultants are hired to produce creative works: website design, branding, advertisements, photography, custom software, etc.

• Under the U.S. Copyright Act, a consultant who produces a creative work is the author and owner of the copyright -- unless the work is a “work made for hire.” Thus, some consulting agreements include clauses that classify such works as “works for hire” and transfer copyright ownership to the company.
• To be considered a “work for hire,” the U.S. Copyright Act requires that the work be specifically ordered/commissioned under a written agreement, and must fall within defined categories: contribution to a collective work; part of a motion picture or other audiovisual work; a translation; etc. Most creative works fall outside these categories and do not qualify as “works for hire.”
• In California; a person who creates a work that is considered a “work for hire” under a contract with a company is an employee of the company. Consider alternatives to “work for hire” contracts, such as separate copyright assignments.

Common Pitfalls in Consulting Agreements - Conflicting Obligations

Employees of another institution may have obligations to their institution that conflict with the IP terms of a consulting agreement.

• Even if the consultant signs a consulting agreement assigning IP rights to a company, the consultant may not have the authority to override their obligations to their institution. As a result, their institution may own or co-own IP rights produced by the consultant absent explicit written permission to assign IP rights to a company that hires them as a consultant.

Common Pitfalls in Consulting Agreements - Failure to Protect Trade Secrets

• Consultants may be exposed to a company’s most important trade secrets. To enforce your company’s trade secrets, you must use reasonable efforts to maintain their secrecy.
• Use best practices to protect trade secrets:
  • Include well-crafted confidentiality provisions in consulting agreements. Make protection for trade secrets perpetual.
  • Restrict the consultant’s access to trade secrets outside his/her responsibilities.
  • Discuss with the consultant the importance of the company’s trade secrets and how the company protects them.
  • Be clear that the consultant may not share the company’s trade secrets or use such trade secrets for the benefit of other companies during or after their work with your company.