Intellectual property (IP) is often one of the most valuable assets in a business relationship. Whether you are developing software, commissioning creative work, licensing technology or entering into a joint venture, the question of who owns the IP can have significant commercial and legal consequences.
Despite this, IP ownership is frequently overlooked during contract negotiations. Parties focus on pricing, deliverables and timelines, only to discover later that they have very different assumptions about who owns the resulting work, who can use it and on what terms.
For businesses entering into commercial agreements, addressing IP clearly and early is essential.
Why IP Ownership Matters
Intellectual property can include:
· Copyright in software, reports, designs, marketing materials, and written content
· Trade marks protecting brand names, logos, and slogans
· Patents covering inventions and technical innovations
· Design rights protecting the appearance of products
· Confidential information and trade secrets such as customer lists and pricing models
Ownership of these rights determines who can:
· Use the IP in their business
· License it to others
· Modify or develop it further
· Prevent competitors from using it
· Sell or transfer the IP as part of a business transaction
Unclear ownership can lead to disputes, delayed projects, lost revenue opportunities and costly litigation.
The Common Misconception: “We Paid for It, So We Own It”
A common assumption is that paying for work automatically transfers ownership of the IP created. Under English and Welsh law, that is not usually the case.
For example, where a consultant, agency or contractor creates original work, the creator is generally the first owner of the copyright, unless there is a written agreement assigning those rights to the client. Simply paying an invoice does not transfer ownership.
This is why properly drafted IP clauses are critical in commercial contracts.
Key IP Issues to Address in Commercial Agreements
1. Identify Existing IP (“Background IP”)
Before the project begins, each party may already own valuable IP that it brings into the relationship. This is often referred to as background IP or pre-existing IP.
Your agreement should clearly state:
· What IP each party already owns
· That ownership of background IP remains with the original owner
· Whether the other party is granted any licence to use that background IP, and if so, on what terms
2. Decide Who Owns Newly Created IP (“Foreground IP”)
The agreement should expressly state who will own the IP created during the project, often called foreground IP.
Common approaches include:
· Client ownership – The client owns all IP created under the agreement, usually through a written assignment from the supplier or contractor.
· Supplier ownership with a licence to the client – The supplier retains ownership of the IP but grants the client a licence to use it.
· Joint ownership – Both parties own the IP together. While this may seem fair, joint ownership can create practical difficulties unless the agreement clearly sets out the terms.
3. Include a Proper Assignment Clause
If the intention is for one party to own newly created IP, the contract should contain a clear written assignment clause.
A robust assignment clause should:
· Clearly identify the IP being assigned.
· State that ownership transfers to the relevant party.
· Specify when the transfer takes effect (for example, on creation or on payment).
· Require the creator to sign any further documents needed to perfect the assignment.
4. Define the Scope of Any Licence
Where ownership is not transferred, the licence terms become crucial. The agreement should specify:
· Whether the licence is exclusive, sole, or non-exclusive
· The territory (UK, worldwide, etc.)
· The duration of the licence
· Whether the client can sublicense the IP
· What happens to the licence on termination of the agreement
5. Protect Confidential Information and Trade Secrets
Not all valuable business information is protected by registered IP rights. Confidential information and trade secrets can be equally important.
Commercial agreements should include:
· Clear confidentiality obligations.
· Restrictions on use and disclosure of confidential information.
· Obligations to return or destroy confidential materials on termination.
· Appropriate carve-outs for information already public or independently developed.
These provisions help protect sensitive know-how, customer data, pricing structures and business strategies.
Avoiding Disputes
To reduce risk and protect your commercial position, businesses should:
· Discuss IP ownership at the outset of negotiations, not after work has started.
· Identify all relevant IP, including pre-existing materials, newly created work, and third-party content.
· Use clear, tailored contract wording rather than relying on generic templates.
· Review licence terms carefully to ensure they match your intended use of the IP.
· Consider future commercial plans, such as expansion, sublicensing, sale of the business, or further development of the IP.
· Seek legal advice early to avoid costly problems later.
Berry Smith Bottom Line
Intellectual property issues are rarely one-size-fits-all. The right approach depends on the nature of the project, the bargaining position of the parties and the commercial objectives of the deal.
Our commercial team advises businesses on:
· Drafting and negotiating IP clauses in commercial agreements.
· Agency, consultancy, and contractor agreements.
· Licensing and assignment of intellectual property rights.
By addressing IP ownership clearly from the outset, businesses can protect their innovations, avoid disputes, and ensure their commercial agreements support long-term growth.
If you are entering into a commercial contract and want to ensure your IP is properly protected, our team can help. Contact us for tailored advice on drafting, reviewing, or negotiating agreements that clearly define who owns what and safeguard your business’ most valuable assets. Contact us on 02920 345511 or at commercial@berrysmith.com