Back to basics – negotiating IP rights in technology development agreements
Businesses frequently choose to engage third party providers to build technology to support business activities. The process of developing and commercialising an idea requires a significant investment of both time and capital. Whether you are commissioning an app or having a developer create a website, it is important to ensure that you enter into a robust agreement with the developer that protects your IP and confidential information and maximises your return on investment.
To ensure that the developer is able to provide a product that meets the needs of your business, you will often need to provide access to data, guides, business processes, trade secrets or client lists. Your agreement with the developer should protect your intellectual property and confidential information, by:
- taking into account all classes of business information that the developer may be privy to in the course of providing services and obliging them to keep it confidential;
- clarifying that no right of ownership of intellectual property or confidential information is assigned to the developer; and
- limiting the purpose for which the developer is entitled to use the intellectual property and confidential information, to the purpose of providing services to you.
If you engage a developer to build or create an original product or design, the ownership of intellectual property can be a significant right, because the owner can take the benefit of various exclusive rights conferred under Australian law.
Copyright protection is automatic and protects the expression of a literary work. For example, software code will be subject to copyright in source or object form, as will a set of specifications or designs. The general position is that, absent an agreement to the contrary, the creator of a work will be the owner of any copyright in it. Accordingly, in order to obtain ownership of the copyright in the work, it is critical that the agreement with the developer contains a written assignment of the copyright in the relevant product or design. In order to track the words of the Copyright Act, the agreement should use the word 'assign', and should expressly provide that the assignment includes 'future copyright' that is not yet in existence when the agreement is entered into.
Patents protect the functionality of a product or the idea/concept. Patent protection is granted by application only and can be difficult to obtain in respect of software or business processes. Any party can apply for an Australian patent. However, only certain persons can be granted a patent, being the inventors or a party or parties who have derived title to the invention from an inventor. The owner of a patent has all the rights provided with ownership, including control over the use, copying and sales of the product. If you intend to apply for a patent for a product built or created by a third party, your agreement with a developer should clearly assign to you any intellectual property in, and title to, the invention.
Sometimes it is not possible to obtain ownership of all of the intellectual property associated with a project. For example, to the extent that a developer is hired to modify their pre-existing designs, products or code, the developer will wish to retain any intellectual property in those pre-existing works (often referred to as 'background IP'). In these circumstances, you will need to ensure that the developer grants you an appropriate licence in respect of that background IP.
Licences can be:
- exclusive or non-exclusive;
- sub-licensable (or otherwise);
- unlimited (worldwide/perpetual) or limited, for example, to a geographical region, field of use or time period;
- transferable or non-transferable.
If the licence is non-exclusive, it means that the developer will be able to licence other parties to use that background IP (which is not unusual in the context of software, as developers often rely on a pre-existing library of tools and code). You would generally seek a worldwide, perpetual, irrevocable licence to background IP unless there is good reason to accept limitations to the licence. Likewise, the licence should permit you to use, copy and modify the product, and to disclose it to third parties (including customers and other developers or contractors you may use) without any confidentiality restrictions.
If a licence is non-transferable and non-sublicensable, it means that you will not be able to assign or sub-license the right to use or modify the product without the developer's permission (if at all). This can be significant restriction if you hope to sell your business at some point, or even if you'd like to retain another developer to modify the product. You will have far greater flexibility if you can obtain a transferable and sub-licensable licence.
Finally, you should carefully consider any other limitations on the licence granted in relation to the developer's background IP, to ensure that they do not unduly restrict the intended use of the end product.