A Client Wants To Own 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 rights the client should receive, what your business needs to keep, and whether the contract makes that distinction clear.

What Does It Mean To Give A Client The IP?

Who owns the intellectual property in client work can depend on what has been created, who created it and what the parties have agreed.

New Zealand also has an important rule for certain commissioned copyright works.

Generally, the author of a copyright work is the first owner. However, where someone commissions and pays, or agrees to pay, for certain types of work - including a photograph, computer program, painting, drawing, diagram, map, chart, plan, model, sculpture, film or sound recording - the person commissioning the work will generally be the first copyright owner. The parties can also agree to a different ownership arrangement.

That rule does not apply to every type of commissioned work, so it is worth checking what has actually been created rather than assuming either the client or supplier automatically owns everything produced during the project.

Where rights still need to be transferred or documented, this will commonly involve 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 build a custom platform for a client using a framework they have developed across many different projects. Even if the client owns certain commissioned elements, that does not necessarily mean they should also own the developer's existing framework, reusable code or other background IP.

For copyright specifically, an assignment must generally be in writing and signed by or on behalf of the person assigning it. Copyright can also be assigned only in part, rather than necessarily transferring every right.

If ownership needs to be transferred formally, an IP Assignment Deed can document what is being transferred and on what terms.

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 dealing with ownership of the final deliverables and one saying the client owns all intellectual property created, developed, used or incorporated in connection with the services.

The second version can go 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 client's rights.

The same issue can arise where a developer uses an existing code library to build software, a consultant adapts their standard assessment framework or a designer uses templates or systems 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, code libraries, software, frameworks, systems, methodologies or standard materials.

Take a consulting business that has spent years developing its own business assessment methodology.

A client hires the consultant to review its operations and prepare a customised report. The report may contain analysis and recommendations created specifically for that client. The methodology used to produce it, however, might be something the consultant relies on across almost every engagement.

If the contract is drafted broadly enough to capture all IP used in connection with the services, the consultant needs to check whether that wording could also affect the methodology sitting behind the report.

That matters because giving away rights in something your business depends on across future projects is very different from dealing with ownership of one bespoke deliverable.

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

Depending on the project, the agreement can distinguish between client-specific IP and the background IP the supplier already owns.

For example, a client might receive ownership of a bespoke report, design 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 completely separated.

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

The agreement might therefore deal separately with the project-specific IP and give the client an appropriate licence to use any background IP incorporated into the finished product.

IPONZ confirms that copyright owners can licence others to use their work while retaining ownership, and those permissions can be subject to particular terms and conditions.

That can give the client the practical rights they need without requiring the supplier to give up assets it relies on elsewhere.

What About Reusing Your Work?

This is where broad IP wording can create problems beyond the current project.

Say a developer has built a library of generic components that they reuse across different projects. While working for one client, they use some of those existing components and develop another generic function that could also be useful later.

The client may have good reasons for wanting strong rights in the custom software built for them. But if the contract says the client owns everything created or used during the engagement, the developer needs to check whether that wording could also capture 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 separate issues.

The question 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.

Does The Client Actually Need To Own Everything?

Sometimes they may need broad ownership rights.

A client commissioning a bespoke brand identity, for example, may want clear ownership or broad usage rights over the final logo and other unique brand assets.

A business commissioning custom software may similarly want strong rights in the code developed specifically for its product.

In other situations, though, ownership may not be the client's real concern.

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

Depending on the project, those needs may be dealt with through a licence rather than giving the client 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, but in some cases the better fit is for the client to own certain project-specific material while receiving appropriate rights to use the background IP sitting underneath it.

Do You Actually Have The Right To Transfer It?

Before promising to transfer IP to a client, check that your business actually has the rights it is promising to give them.

A finished deliverable might include licensed fonts, stock photography, software libraries, plugins or other third-party materials. You may have permission to use those assets without owning them, which can limit what you are able to transfer to somebody else.

IPONZ notes that permission is generally required to use another person's copyright work in ways reserved to the copyright owner, and that licences may come with limits on how the work can be used.

The same issue can arise where freelancers or contractors have contributed to the project.

New Zealand's copyright ownership rules can vary depending on the type of commissioned work involved, and the statutory defaults can be changed by agreement. That means it is better to deal with ownership expressly than to assume paying a contractor settles every IP question.

For example, if your agency promises a client particular IP rights in a website, campaign or other deliverable, check whether the agreements with the people who helped create it actually give your business the rights it needs to make that promise.

A Contractor Agreement can deal with IP ownership alongside scope, payment and other important parts of the engagement.

The question is simple: do you actually have the rights you have promised the client?

When Does Ownership Transfer?

Even if both sides agree that certain IP will ultimately be transferred, there is still another question: when does that happen?

The agreement might link ownership to creation, delivery, completion of the project or payment.

That timing can matter for suppliers.

For example, if the contract provides for ownership to transfer before the client has paid the final invoice, the supplier may already have given up the relevant rights before receiving the full agreed price.

Another agreement might instead make the transfer conditional on full payment.

Where copyright is being assigned, the rights can also be transferred only in part rather than necessarily as an all-or-nothing assignment.

There is no single structure that suits every engagement. What matters is understanding what the contract actually says 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 rights am I actually giving the client? Is the clause limited to the bespoke deliverable, or does it 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 have the rights I am promising? Check contractors and any third-party materials used in the work.
• When does any transfer happen? 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 controls some of the most valuable things your business creates.

The Bottom Line

A client asking for ownership of IP created during a project is not unusual, and in many situations it can make commercial sense.

The issue is making sure the contract reflects what is actually intended.

In New Zealand, the starting copyright ownership position can also vary depending on the type of work created and how it was commissioned, so it is particularly important not to rely on assumptions.

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 the client receives, what stays with you and what each side can do with the IP involved.

If a client has sent you an agreement with a broad IP clause, a Contract Review can help you understand what the clause actually means for your business before you sign. You can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.