When engaging consultants to deliver creative or technical services (such as brand or software development), businesses often overlook a critical legal consideration: who will own the intellectual property created during the engagement? It is tempting to believe that, if you have paid for someone’s services, you should own the products of those services, including any intellectual property (IP) rights comprised in those services. This could include the copyright in brand design work or software, design rights in fashion or jewellery designs or even registrations for trade marks.  However, under English law, the default position is that consultants typically retain ownership of the intellectual property rights they create as part of the delivery of their services, unless otherwise agreed in writing. This can leave businesses exposed, limiting how they can use or commercialise the work they have paid for and can potentially lead to costly disputes.

When these situations are identified during due diligence in M&A transactions, it can lead to protracted investigations and the requirement for further documentation and/or enhanced indemnity provisions, if a buyer learns that IP rights used by the target business were developed by consultants and the chain of title has not been properly documented.  This can result in delays and additional costs and can be hard to resolve if it is no longer possible to trace the relevant consultant (who may still have title to certain IP assets) to seek confirmatory assignments.

We also often see website design companies instructed to produce new website content for clients who have then ended up as owners of the client’s key business domain names (if the designer acquired these in the course of the website design process).  This will then entail arranging for transfers of the relevant domain names, to avoid the risk that the domain names are not renewed on time, potentially leading to key company websites being unavailable and/or a third party being able to acquire the right to a domain name.

This article outlines practical measures that businesses can implement to safeguard their IP interests when contracting with consultants, including by the use of clear assignment provisions, confidentiality obligations, and mechanisms for managing use of pre-existing IP rights.

1. Clearly (a) define the scope of services being provided under the agreement; and/or (b) describe the deliverables required under the agreement, as applicable

• Ensure to define clearly the scope of services that the consultant is providing under the agreement. In a recent English case, a consultant was able to resist claims that his client had beneficial rights in a trade mark the consultant had registered. This was because the work undertaken to develop the brand for which the trade mark was registered fell outside the scope of the services, as described in the agreement.  
• Specify in as much detail as possible any documents, materials, code, designs or other outputs being delivered under the agreement.
• On longer term projects or where the scope of work has widened, revisit the contract to assess whether any amendments are required to capture ownership of IP rights created in subsequent or new phases of a project.

2. Consider what types of IP rights the consultant will be creating

• If a consultant has been hired to create inventions, then include a provision that the consultant must notify the company with details of any inventions as soon as they are created and to keep details of all such inventions confidential. This is necessary to preserve the company’s ability to apply for a patent in relation to such inventions. 
• Whilst domain names are not strictly IP rights, if these are acquired from a domain name registrar by a consultant, the consultant will have the overall operational control of them and will have the contractual relationship with the domain name registrar.  This may have consequences for domain name renewal and domain name portfolio management. We would suggest incorporating a provision into the agreement that requires the consultant to carry out all necessary acts to ensure that the domain name ownership is transferred over to your company.

3. Include a clear IP assignment clause

• Ensure the contract expressly assigns all IP rights in any deliverables to your company.
• Use specific assignment language, for example “the Consultant hereby assigns to the Company all rights, title, and interest in any intellectual property rights [created by the Consultant as part of its delivery of the services]/[in the deliverables].”
• Avoid vague drafting like “the Company shall own the IP in the deliverables” which, without more, is unlikely to constitute a valid assignment of the IP.

4. Pre-existing Intellectual Property Rights and usage rights

• Request that the consultant identifies:
  • any pre-existing proprietary IP it intends to use in the provision of services/creation of deliverables. Include a licence for your company to use this IP for the purposes of receiving the services/using the deliverables. 
  • if any third party IP will be used in the provision of the services/creation of the deliverables, include a warranty from the consultant that the provision of the services/deliverables will not infringe third party IP rights.
• Include an indemnity from the consultant for any losses suffered by the company in the event that its receipt of the services/use of the deliverables infringes third party IP rights.
• AI usage is a topical question.  The consultant should be asked to confirm if it will be using AI tools to deliver the services, and the impact this will have on IP ownership and the risk that the deliverables will comprise third party IP.  Courts and IP registries worldwide are grappling with the question of who will be the owner of an AI-generated output.  It is therefore prudent to understand how your consultants are making use of AI tools, in case this affects the IP ownership analysis or will expose you to the risks of third party IP claims.

5. Protect your confidential information

• Include a robust confidentiality clause covering all proprietary data, trade secrets, and business processes.
• Ensure confidentiality obligations survive termination of the consultancy contract.

6. Moral rights waiver / copyright works

• Include a clause under which the consultant waives its moral rights in any deliverables (otherwise the consultant may be allowed to object to modifications to such deliverables or require that they be identified as the author of the works whenever the works are published or communicated).

7. Further assurance

• Ensure the consultancy agreement contains a further assurance clause that requires the consultant to do all necessary acts to ensure the effective assignment of the IP rights in any deliverables to the company.

Please reach out to the Technology, Commercial and Data team if you would like to discuss how you can protect your company's intellectual property rights.