Intellectual property (IP) is fundamental to your business’ success and longevity. It’s what helps you to stand out from your competitors and can be some of your business’ most valuable assets. Because of this, you need to understand how to protect your business’ IP and make sure that you own the works that have been created for your business.
If you’re engaging an independent contractor to design, create or develop works for your business, it becomes even more important to be aware of your intellectual property rights.
For example, you may engage someone to design a logo for your business or hire a software developer to write some code for an app your business is creating. But who actually owns this creation? Your business or the independent contractor?
By default, the independent contractor will own copyright over works they create—even if they are creating them for your business.
This is why it’s really important that you ensure IP ownership is transferred from the independent contractor to your business. If you don’t do this, it’s possible for the contractor to stop you from using the works you paid them to make!
In this article, we’ll run through how your business can protect the intellectual property of the works created by independent contractors. There are several key legal issues you should be aware of when engaging independent contractors, so let’s walk through them!
Is The Creator Engaged As An Employee Or Independent Contractor?
One of the first questions that will arise when talking about IP ownership is whether the person who created the work did so while engaged as an employee or as an independent contractor.
This is a very important distinction to make, especially where there is no clear contractual relationship, as it will generally determine who owns the IP and copyright over the works.
As a general rule, employers will own the IP of works created by their employees if it is carried out “during the course of employment”. If a person is employed to create works as part of their job, the IP will belong to their employer.
However, this rule does not apply to IP created by independent contractors.
The law in Australia is that IP created by an independent contractor will belong to the contractor, unless there is a contract or agreement that says otherwise.
In situations where there is no contract (or where contracts are silent on the issue of IP ownership), businesses are generally understood to have an implied licence to use the IP created for them by contractors. The independent contractor will retain ownership over that IP unless the business has the work assigned to them (for example, through an IP Assignment Deed).
Not sure whether you have engaged a worker as an employee or as an independent contractor? We have an article that can help.
What’s The Difference Between A Licence And An Assignment?
You might be wondering what the difference is between a licence to use a work and an assignment. Why does it matter if you can still use the work created for your business?
An IP assignment will permanently and irrevocably transfer the ownership of IP from the owner (in this case, the creator or independent contractor) to your business. After you have successfully completed an assignment, you will have full ownership rights over the IP. This means that your business will be entitled to use the IP as you wish.
Alternatively, if the IP ownership remains with the independent contractor your business engaged, you will generally be said to have an implied licence to use the work.
Under a licence, the owner of the work will be able to control how you use the work. For example, they will be able to choose where and for how long you are allowed to use it, and they can even control who else is allowed to use the work.
Licences can be an exclusive, non-exclusive or sole licence:
- If your business has an exclusive licence, only you can use the work. Even the owner of the IP will not be able to use it themselves.
- If your business has a non-exclusive licence, anyone will be able to use the work if they have been granted a licence by the owner.
- Under a sole licence, your business will be the only licensee allowed to use the work, but the owner may also use the IP themselves.
So, How Can You Make Sure You Own The IP and Avoid Ownership Disputes?
Simply put: contract, contract, contract!
The best and safest practice for your business is to take proactive steps to iron out any and all issues surrounding IP ownership before work begins. A good contract helps you avoid headaches later on.
Contracts are particularly important when engaging independent contractors—especially because they prevent disputes arising if work is subcontracted out. If the contractor you hire subcontracts the work to someone else, you will need to contact the subcontractor(s) and enter into an IP Assignment Deed to transfer IP ownership to your business.
What Contracts Should You Use To Protect Your IP?
There are two main ways to go about contracting: a Contractor Agreement or an IP Assignment Deed.
A Contractor Agreement (or variations of this contract, such as a Developer Agreement or Service Agreement) deals with more than just IP. It is a robust contract that is generally used when you initially engage an independent contractor to carry out work. It sets out the terms of engagement around things like payment, liability, expected standards of services, and what happens if something goes awry.
The Contractor Agreement can also include an IP clause in which the contractor assigns ownership of the IP they create to your business. This clause clarifies who the creator of the work is and who owns it.
Alternatively, you can choose to use an IP Assignment Deed, as it is a good way to ensure ownership over IP is assigned to your business. The sole purpose of this deed is to transfer ownership of IP from one person to another—in this case, from the independent contractor to your business.
An IP Assignment Deed can also be used if work has already been created, but there was no contractual agreement relating to the ownership of IP.
You may also want to think about having Non-Disclosure Agreements (NDAs) and Confidentiality Agreements. These contracts are a good way to protect your business’ IP and other confidential information, especially if you’re engaging in confidential commercial discussions with people outside of your business.
NDAs and Confidentiality Agreements stop people from using or sharing confidential information that has been disclosed to them. They are always good to have organised early on in new relationships with independent contractors—such as when money has not yet been exchanged, or if development of a work has not yet started.
Making sure you own IP over works created for your business is important for building and upholding your brand’s image and reputation. You need to have the right paperwork in place, especially when engaging independent contractors to design or complete work for your business.
If you need advice or help drafting contracts that are catered to your specific business situation, don’t hesitate to reach out to us for a free, no-obligations chat on 1800 730 617 or at firstname.lastname@example.org. We’ll walk you through your options and help you figure out what contracts you’ll need in your specific situation.
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