Who Owns the Intellectual Property?

In the complex landscape of modern business, intellectual property (IP) often becomes a cornerstone of value and competitive advantage. As companies invest in digital assets, software, and branding, understanding who holds the ownership of created content—whether it’s logos, software, or marketing materials—is fundamental.

When an organization hires someone, the nature of the employment contract plays a significant role in determining IP ownership. Typically, if the creator is an employee, the intellectual property created during their duties usually belongs to the employer. This arrangement is straightforward because the terms are generally integrated into the employment contract, aligning with company policy.

However, the waters are muddier when dealing with independent contractors or external agencies. Despite common assumptions, paying for development does not equate to owning the resulting intellectual property. In fact, without a specific agreement, a contractor or a vendor who creates something for a company retains the ownership of their creation.

The Importance of Explicit Contracts

Given this default stance, businesses must proactively address IP ownership in their contracts when engaging with contractors. The inclusion of a ‘work-for-hire’ clause is critical, as it ensures any intellectual property created during the contract period will belong to the company, not the individual or entity hired.

Crafting Effective IP Agreements

To avoid potential disputes and ensure clarity, contracts should explicitly state that all created works intended for company use are to be considered as ‘work-for-hire,’ thereby transferring all associated IP rights to the company. Moreover, specifying the nature of the ownership of outputs—like software code, designs, and other creative work—prevents future legal challenges and solidifies the company’s asset base.

Best Practices for Protecting Intellectual Property

  • Draft Clear Contracts: Always include comprehensive work-for-hire and IP assignment clauses in your contracts with freelancers and external vendors.
  • Consult Legal Experts: Engage with legal professionals who can provide tailored advice and ensure your contracts are watertight regarding IP rights.
  • Educate Your Team: Ensure that all parts of your organization understand the importance of IP rights and the distinctions between different types of employment and their implications on IP.

Conclusion

As businesses continue to leverage creative and technological assets, understanding and managing intellectual property rights becomes increasingly significant. By establishing clear, legally sound agreements that define IP ownership, companies can secure their valuable assets and avoid complex legal disputes. Remember, intellectual property is not just a legal asset but a crucial business one, safeguarding it should be a priority for any forward-thinking business leader.

Video Transcript

Understanding Intellectual Property Ownership in Business

Who owns the intellectual property you paid for? As a business owner or CEO of a company, you are regularly paying people to create intellectual property for the company. This might be employees, designers, contractors, or a vendor. The question, though is, if you pay for work to get done, do you own the intellectual property rights from that work?

Common Misconceptions

The answer might surprise you. If the person is an employee, you generally own the intellectual property right. In other words, if an employee prepares a design or software for a company, the company generally owns the intellectual property. But if you hire a contractor in general, the contractor owns the intellectual property.

Now this is a shock to many companies because you might think, “Hey, I paid somebody to put together a logo for me or to write computer software for me. I thought that if I pay a company a hundred thousand dollars to write software code for me, that we own the code.”

Understanding the Default Rule

The general rule in the United States is that you don’t own the code if it is prepared by a contractor. Now, that default rule can change if you have a contract that says you own the code. Typically, this is called a work-for-hire provision, and it might also be called an intellectual property assignment. If you have any creative work, software, design, video, text, language, audio, or whatever it is that you have put together by a contractor, the general rule is you will not own the copyright and trademark rights in that.

Best Practices for Contracting

There might even be patent rights. You will not own that intellectual property unless a contract says you own it and they don’t. And that contract generally needs to be signed by them. So, the best practice is, if you are going to have an independent contractor, that is a contractor of any type who is not an employee of yours.

Maybe it is an agency. Maybe it is a company, an LLC, or an individual. It doesn’t matter. If that contractor is putting together something for you that would have copyright value or some other intellectual property right value, make sure you have a contract that says, “This is work for hire.” You own the intellectual property rights in what they are creating.

About Aaron Hall

I am Aaron Hall. I am an attorney representing business owners and entrepreneurial companies. This is one of many common mistakes I see companies make. And if you would like to know some of the other common mistakes, I have a free guide for you. You can get it at AaronHall.com/free. Not only will you get the guide, but you will also get videos explaining how to avoid some of these common problems in your company, so you can keep legal fees to a minimum and avoid legal trouble. To learn more about me, visit AaronHall.com.