IP Provisions in Consulting Contracts- Part 3

By Debby Winters

Consulting contracts can be for work performed by an outside service provider or consultant, like market research, product design, product development, software implementation, employee benefit plan administration, and the list can go on. The consultant can begin to negotiate the consulting contract once the project proposal is accepted. Many times these contracts, as prepared by in-house counsel, are one-sided with intellectual property provisions that can be a disaster for the consultant with regards to future work. Believe me, I’ve been that in-house counsel drafting these contracts. The goal of in-house counsel is to protect your company but looking at these contracts from the consultant’s viewpoint, the contract can limit their ability to bid for and perform future work. In my last two blogs on this subject,  we looked at ownership of the work product and confidentiality provisions. This time, let’s look at the non-compete or exclusivity provisions in consulting contracts and suggests some possible approaches for workarounds.

NonCompetition/Exclusivity

Another less direct method by which customers attempt to secure rights in intellectual property developed by consultants is through a provision on exclusivity.  If your consultant client’s new customer is Fortune 500-sized or one of the leading companies in its industry, you will often see a provision in the services contract that prohibits your client from performing similar consulting work for the customer’s competitors in the industry. Sometimes specific competitors are named, but more common are the prohibitions against working in the customer’s industry are just broadly defined.  This situation is usually both ironic (the consultant was often successful in the RFP process because it has other current and prior clients in the new customer’s industry) and problematic (the consultant was hoping to leverage the new project into winning work from other companies in the industry).

Putting aside the possible antitrust implications of these provisions, the obvious ideal result is to convince the customer to drop its exclusivity demands.  If that is not possible, given the competitive importance of the project to the customer or the consultant’s desire not to fight the issue and risk losing the work, some possible fallback strategies are to limit the exclusivity to (1) a relatively short time period (e.g., six months after project completion) and/or (2) a very specifically defined set of services and/or (3) a very specifically defined market niche.

Next time we will look at non solicitation clauses and how the contractor can limit having these in the contract.

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