A Client Wants All The IP In Your Work - What Should You Check Before Agreeing?

A client sends you a contract, but there’s a catch - they want to own all the intellectual property in the work you create.

That may be completely reasonable for the final deliverables they are paying for. The issue is that some IP clauses are drafted broadly enough to cover more than just the finished work. If your business uses existing templates, systems, code, frameworks or processes to create the deliverable, those materials could also fall within the wording unless they are clearly excluded.

For example, a client may reasonably expect to own a logo designed specifically for their business. That does not necessarily mean the designer should also give up ownership of the tools, templates or methods they use across other projects.

The key is to work out what the client should own, what your business needs to keep, and whether the contract makes that distinction clear.

What Does It Mean To Give A Client The IP?

A client paying for a piece of work does not necessarily mean they automatically own all of the intellectual property in it. Who owns the IP will depend on what has been created, who created it and what the parties have agreed.

Where the client is meant to receive rights to the IP, this will commonly happen through an assignment or a licence.

An assignment transfers ownership of the relevant IP. A licence allows someone to use IP without necessarily becoming its owner.

For example, a developer might create a custom website for a client using a framework they have built and refined across many different projects. The parties might agree that certain elements created specifically for the client will be transferred to them, while the developer keeps ownership of the underlying framework and gives the client the rights they need to use it as part of the website.

For copyright specifically, an assignment generally needs to be in writing and signed by or on behalf of the person assigning it. An IP Assignment Deed can be used where ownership of intellectual property is intended to formally transfer from one party to another.

If the IP wording sits inside a broader customer or services agreement, a Contract Review can also help clarify what the clause would actually require you to give up before you sign.

What Exactly Is The Client Asking To Own?

Before deciding whether an IP clause is reasonable, look closely at what it actually covers.

There can be a big difference between a clause saying the client owns the final deliverables created specifically for the project and one that gives the client ownership of all intellectual property created, developed, used or incorporated in connection with the services.

The second version potentially reaches much further.

Imagine a marketing agency creates a campaign for a client. The final artwork and copy might have been developed specifically for that business, but the agency may have created them using an existing reporting framework, briefing process, template library or internal methodology.

Those underlying materials might never be handed over as separate deliverables. However, if the wording is broad enough, questions can still arise about whether they have been swept into the IP being transferred.

The same issue could arise where a developer uses an existing code library to build custom software, a consultant adapts their standard assessment framework or a designer uses a template or design system they rely on across multiple projects.

This is why it is worth checking how terms such as Intellectual Property, Work Product, Project Materials or Developed IP are actually defined in the contract.

This is also where background IP becomes important.

What Is Background IP?

In commercial agreements, background IP is commonly used to describe intellectual property a party already owns, or develops independently of the particular project.

Depending on the business, that could include templates, software, code libraries, frameworks, systems, methodologies or standard materials.

Take a consulting business that has spent years developing its own business health-check methodology.

A client hires the consultant to assess its operations and prepare a customised report. The report may contain information and recommendations created specifically for that client. The methodology used to produce it, however, might be something the consultant uses every week.

If the agreement simply assigns all IP used in connection with the services, the consultant needs to consider whether that wording could also affect the methodology sitting behind the report.

That matters because transferring ownership of something your business depends on across dozens of future engagements is very different from transferring ownership of one bespoke deliverable.

Can The Client Own The Deliverable While You Keep Your Background IP?

Yes. Depending on the project, the contract can draw a distinction between the new IP created specifically for the client and the background IP the supplier already owns.

For example, the client might own a custom design, report or piece of software created specifically for the engagement, while the supplier keeps ownership of its existing templates, systems or reusable code.

Sometimes the two cannot be neatly separated.

A software developer might build a bespoke platform for a client using code the developer already uses across other products. The client still needs to be able to use the finished platform properly, but that does not necessarily mean they need to own every piece of underlying code.

In that situation, the agreement might transfer ownership of certain project-specific IP while giving the client a licence to use any background IP built into the finished product.

An IP Licence can be useful where one party needs permission to use IP without taking ownership of it.

The important part is making the distinction clear rather than leaving both sides to assume what happens.

What About Reusing Your Work?

This is where a broad IP clause can create problems well beyond the current project.

Say a developer has built a library of generic components that they reuse to make projects faster and more efficient. While working for one client, they use some of those existing components and develop another generic function that could also be useful in future projects.

The client may have a legitimate reason to own the custom software built specifically for them. But if the contract says the client owns everything created or used during the engagement, the developer needs to consider whether that wording also captures components they would normally continue using elsewhere.

The same issue can arise with an agency's reporting framework, a consultant's methodology or a designer's templates.

This does not mean a supplier should be free to reuse a client's confidential information or bespoke work for somebody else. Those are different issues.

The question here is whether the contract clearly separates client-specific IP from the underlying tools, systems and materials the supplier needs to continue running their own business.

If it does not, an agreement intended to give the client ownership of their particular project could potentially have much wider consequences.

Does The Client Actually Need To Own Everything?

Sometimes they do.

If a client pays an agency to develop a bespoke brand identity, for example, there may be good commercial reasons for the client to want ownership of the final logo and other unique brand assets.

A business commissioning custom software may similarly want ownership of code developed specifically for its core product.

In other situations, however, ownership may not be what the client really needs.

They may simply want certainty that they can continue using the finished work, modify it, commercialise it or bring in another supplier to work on it later.

Depending on the project, those objectives may be achievable through an appropriately drafted licence rather than transferring ownership of every piece of IP involved.

That is why it can be useful to ask what the client is actually trying to achieve.

The answer may still be an assignment. In other cases, the more practical arrangement could be for the client to own the bespoke deliverable while receiving appropriate rights to use any background IP it relies on.

The scope of those rights should also be clear.

That became a significant issue in the High Court case Realestate.com.au Pty Ltd v Hardingham. Professional photographs and floor plans had been supplied to real estate agencies under informal arrangements, and a dispute eventually arose over how far the agencies' rights to use and sublicense that material extended. The facts were quite different from an ordinary supplier agreement, but the case is a useful reminder that saying someone has permission to use IP does not always answer how far that permission goes.

Do You Actually Have The Right To Transfer It?

There is another practical question before you promise to transfer IP to a client: does your business actually own everything it is promising to give them?

A finished deliverable might include licensed fonts, stock photography, software components, plugins or other third-party materials. You may have permission to use those assets without actually owning them, which means you may not have the right to assign them to somebody else.

Contractors can create another potential gap.

If a freelancer or subcontractor has contributed to the project, check what rights your business received from them. Your agreements upstream should support the rights you are promising downstream to the client.

A properly drafted Contractor Agreement can deal with IP ownership alongside the scope of work, payment and other parts of the relationship.

The practical point is to make sure there is a clear chain between who created the IP, who owns it and what you have agreed to give the client.

When Does Ownership Transfer?

Even if both sides agree that the client will ultimately own certain IP, there is still another question: when does that ownership actually transfer?

The contract might say ownership passes when the work is created, when it is delivered, when the project is completed or only once the client has paid in full.

That timing can be particularly important for suppliers.

For example, if ownership transfers as soon as the work is created but the client later fails to pay the final invoice, the IP may already have been transferred before the supplier has received the full agreed price.

Another agreement might instead provide that ownership transfers once payment has been made.

There is no single structure that suits every project. What matters is checking the timing rather than assuming ownership will pass at the point you expect.

What Should You Check Before Signing?

Before agreeing to a client's IP clause, ask:

• What am I actually transferring? Is it the final bespoke deliverable, or does the wording go further?
• What existing IP am I bringing into the project? Check whether your templates, code, systems, frameworks or processes are clearly dealt with.
• Will I need to use any of this again? Make sure the agreement does not unintentionally restrict your ability to reuse your own underlying materials.
• Do I actually own everything I am promising to transfer? Check contractor arrangements and any third-party materials used in the work.
• When does ownership transfer? In particular, consider how the clause interacts with delivery and payment.

An IP clause may only take up a few paragraphs of a contract, but it can determine who owns some of the most valuable things your business creates.

The Bottom Line

A client asking to own the IP in work created specifically for them is not unusual, and in many cases it makes commercial sense.

The important part is making sure the clause stops where everyone expects it to.

The finished work created for the client, your existing business assets and the tools you use to produce that work are not necessarily the same thing. A clear agreement should spell out what is being transferred, what stays with you and what rights each side has to use anything that sits between the two.

If a client has sent you an agreement containing a broad IP clause, Sprintlaw can review the contract and help you understand what you would actually be agreeing to before you sign. You can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.