By Julie Weller
Whether it has its own, specific heading or is inherently part of a provision regarding the ownership of work product, intellectual property (IP) provisions frequently appear in automation contracts. If you are an integrator, your company works hard to develop and improve its own “background” IP to better serve your customers. This background IP is a part of the experience and expertise that sets your company apart in a growing market.
From the perspective of an end user retaining an integrator, it may see itself as the customer paying for the work product—and, therefore, may think that it should have ownership of everything related to the deliverables. How can these two competing interests be balanced?
What follows is one idea of a process to create a solution for both parties.
- Add a separate definition for background intellectual property. Using clear definitions of terms, make it clear that background IP (and any improvements made to it during the project that do not specifically incorporate the end user’s unique information, process or products) will be treated separately from what the contract considers work product. Such a definition will depend on the type of work. For example, background IP may include the integrator’s pre-existing data, source code, development tools and toolkits, designs, templates, or standard applications and scripts.
- Grant the end user a license to use background intellectual property. It is common for contracts to provide that the end user will obtain full ownership rights of the work product. Create an exception for the integrator’s background IP and offer the end user an irrevocable, perpetual, royalty-free license to use it once final payment has been made.
- Limit the end user’s use to the purpose of the agreement. The end user shouldn’t have the right to use the integrator’s background IP for whatever it wants—especially when that use could be in lieu of hiring the integrator for the next project! The license should be limited to the intended operation of the project deliverables. It also should be non-transferable and prevent the customer from copying (other than backup copies) or reverse engineering the integrator’s background IP.
- Consider including a list of background intellectual property that will be incorporated into the work product. While negotiating a limited license to the integrator’s background IP is important, it will only be useful if the parties have made it clear what that means for a specific deliverable. Disputes over what is background material and what is newly developed material are common in the automation market. Adding a table or exhibit to the contract listing the background IP can help avoid disputes and provide clarity to each party. For master agreements, this may change on a project-by-project basis; consider making such an exhibit a part of the standard statement of work form under that contract.
A careful review of the IP provisions of contracts by legal counsel experienced in complex automation and integration projects is important to avoid giving away the rights to one of an integrator’s most important assets — while still allowing the end user to have all the rights to the deliverables it needs for a successful project.
Julie Weller is an attorney in the industrial construction and automation practice at Faegre Baker Daniels LLP, a full-service law firm in Chicago. Faegre Baker Daniels is legal counsel to CSIA. Julie can be reached at julie.weller@faegrebd.com.