Many companies outsource the development of software, technology or other trade secrets to independent contractors. Just because you pay for it, does not mean you own it. In the absence of a written agreement providing that intellectual property developed by a non-employee third party is property of the company and constitutes a “work made for hire”, an outside development company or non-employee third-party consultant may have a valid claim of ownership of such intellectual property.
To minimize the risk of adverse claims, and to otherwise protect a company’s intellectual property and proprietary information, companies should enter into Proprietary Inventions and Assignment Agreements with independent contractors, third-party consultants and developers. Such agreements should include, at a minimum, the following terms:
• A provision that all work created by the outside developer shall constitute “works made for hire” and shall be the sole property of the company;
• The agreement of the outside developer to take all reasonable actions necessary to assign all intellectual property rights to the company;
• The agreement of the outside developer not to use, and to maintain the confidentiality of, all works developed by the outside developer;
• The agreement of the outside developer to maintain the confidentiality of all proprietary company confidential information disclosed to or obtained by the outside developer in the course of performing services for the company;
• A representation by the outside developer that all work they develop shall be original work and shall not infringe on the rights of third parties, or to the extent the intellectual property of any third party is incorporated into the intellectual property under development, that the outside developer shall obtain for the company, a royalty-free license to use such third party intellectual property; and
• In certain circumstances the company should obtain indemnification protection from the outside developer in case the developed intellectual property infringes on the rights of a third party and legal action is brought against the company.
Although intellectual property developed by an employee during the course of his or her employment with a company is generally considered property of the company, to avoid potential ambiguity, it is a good practice to also have employees sign a Proprietary Inventions and Assignment Agreement.
The information contained in this article is strictly for educational purposes and is not intended to be legal or tax advice or to be relied upon by anyone without doing their own research, and consulting with legal and tax advisors.