By Debby Winters
In today’s world it seems that everything is outsourced. In addition to call centers in India, various functions that used to be handled in-house are farmed out to consultants. These include things like market research, product design, product development, software implementation, employee benefit plan administration, and the list goes on. In this process, many times once the project proposal is accepted, the negotiation of the contract begins. Many times these contracts, as prepared by in-house counsel are one-sided with intellectual property provisions that are a disaster for the service provider. This disastrous contract can sometimes limit the service provider’s ability to bid for and perform future work, especially in the new customer’s industry. Let’s look at some of the most common problematic IP provisions in consulting contracts and suggests some possible approaches.
The provisions that govern who owns the intellectual property arising from the customer’s project are usually the most difficult to negotiate. The form contract typically takes the approach of saying that everything tangible, intangible, oral, or written relating to the project, whenever it was created, and whether or not it was created especially for the customer, is work product. With this definition, the intellectual property is owned exclusively by the customer, which means the consultant is barred from using it again or adapting it for other customer.
This is not an irrational initial position for the customer to take. After all, it’s paying good money for the consulting services and expects to get something in return. The problem is that the consultant is almost never working on a completely discrete standalone project that can be totally separated from its other work. It probably won the project because it has provided similar services for other customers. Oftentimes these other customers are in the same industry. The consultant will most likely be customizing prior work product for the new customer. Likewise, the consultant also expects to use the new customer’s work product as the basis for work product in future projects.
Here are some principles to keep mind when negotiating these provisions:
- To the greatest extent possible, define work product as including only those materials first developed for the customer as part of the project.
- To the greatest extent possible, define work product as including only the final versions that are actually delivered to the customer. This way all rights in the concepts and ideas that were brainstormed, developed, but ultimately not used or included as part of the services should remain with the consultant.
- To the greatest extent possible, exclude from the definitions of work product as any materials developed by the consultant (1) prior to the customer’s project, (2) for the consultant’s own use or (3) for its other customers.
- To the greatest extent possible, include language specifically excluding from work product and deliverables (1) the general skills and know-how that are used by consultants in your client’s field, (2) general design, aesthetic, or organizational principles and (3) all materials, ideas, and concepts that are not protectable under general principles of intellectual property law.
If these are not completely successful in negotiation, attempt to limit the customer’s ownership and exclusive use rights to its specifically defined industry, to a specifically defined market segment, or to a limited time period. The negotiation process should be just that, negotiation.
One last item to include in the contract would be language that all transfers of ownership is contingent upon payment in full of the consulting fees required under the contract.