Intellectual property and consulting

[duncan drennan]

My main line of business at the moment is as an electronics consultant, and product developer. The whole issue of IP arises each time a contract is signed. IP is certainly one of those things that plays on people's minds the whole time - especially in a line of business where it forms a core asset.

I don't want to impose on what fairly belongs to a client, but I don't want any contract to limit my ability to carry on working. The whole issue is a question of how much the client owns when they get you to do something. Obviously any ideas and the end product belongs to them, but what about components of the final solution?

Sometimes you might find a brilliant solution to a part of a problem - can you reuse it elsewhere? Does the client paying for the solution of a problem, which is unrelated imply that they can own other IP developed by you as a consultant?

I think that it comes back to the issue of ideas (inputs) and solutions (outputs). An idea without an implementation is not really a real thing. That is even ingrained into our patent law - if you take to long to realise your patent, you lose the patent and someone else can apply for the same thing. The problem is that to the client, the idea is the IP, and they want entire ownership of anything related to that.

To me it seems dangerous to tie myself into a contract which limits me from using any components of a solution, which are not inherent to the particular solution in other ways - this is mainly an issue of me not being limited in my business.

It is like finding a balance is the same as trying to keep a see-saw level - the person who applies the most effort gets the advantage. I've started to add a clause to quotes that goes something along these lines,

The client fully owns all rights to the concepts and ideas as laid out in the client's specification. All rights for final solutions and implementations belong to the service provider. Upon final payment of all outstanding amounts the client has full rights to lifetime use of the IP in any way that they may deem fit.

I'd like to know what you think - this is a tricky problem, and seems to be difficult when approached from either side.

So who should own the IP?

[Dave A]

I've got to say this took a bit of chewing over, and I'm still not sure of the "right" solution.

Maybe if we look at something similar (at least I think it's similar), we might find some clues.

Some time ago, to put up a professional website, you'd go to a website designing company. There would be a contract with all the normal stuff that specified your requirements, costs, etc. But what interested me when I went this route for an association about 5 years ago is that all the website companies kept the rights to the program!

So let's get this straight. The client is paying for a custom solution, and does not have ownership of the results. If a change needed to be implemented, I could not go elsewhere with the existing work and get those changes done. I had serious reservations about this, but didn't seemed to have a choice. Of course, with the advent of site builders in India, that stranglehold seems to be broken.

Now if I understand you right, what you are saying is that you are giving the client ownership of the product (in my example the website program), but if in developing that product you invent some new widget or element (some really smart piece of code), rights to that widget will be yours as the designer/creator, but you will allow royalty free rights to the client to use that widget.

Am I on the right track?

[duncan drennan]

Am I on the right track?

Yes, that is pretty much the line of thought. I am trying to figure out a way to avoid the client exercising some sort of control over the work that I can do for others. My intention is not to use the IP for my own gain, but rather my own protection.

To continue with the website analogy...

Say I setup a website for you, and wrote a little bit of code (a function) to cause a pop-up to appear to certain types of customers only (say ones coming in from a certain website). The ability to reuse that function on other people's websites would form part of my "intellectual capital" (to borrow from Sigurd).

In your case the company retained all rights, you just got the right to make use of the end-product.

What I'm suggesting is somewhere between the two - I'll sell you the function, and you can do whatever you want with it. You can modify or sell it at your discretion, but you can't stop me from using that for other clients. I won't reproduce your final product in any way (with your analogy, no one else will get the same web page), but I might use that function for another client.

I would say that anything which is inherent to the clients end product would have to be protected. So if there was some function which made this particular thing unique for the customer, that would not be reused.

I hope that manages to capture what I'm trying to get at. It is a tricky one for me - if I place myself on the client side I'm not too sure how happy I am, and if I place myself on my side, it doesn't look much better. It is largely a question of ethics, but that needs to translate into a contract for mutual protection.

[Dave A]

Then that covers the what and why quite nicely. And seems reasonable enough to my mind.

but that needs to translate into a contract for mutual protection.

Time to visit a tame lawyer, methinks. As a service provider you want the client to sign your contract, not you sign theirs. And getting that concept into leeglish could be a bit tricky.

Maybe take this thread with

[duncan drennan]

Then that covers the what and why quite nicely. And seems reasonable enough to my mind.

The first step was to get feedback on how reasonable my particular stance is.

Time to visit a tame lawyer, methinks. As a service provider you want the client to sign your contract, not you sign theirs. And getting that concept into leeglish could be a bit tricky.

That's step two

Maybe take this thread with

And that just makes sense

[Pierre@Skeg]

Howzit Duncan

This is a very difficult topic. Especially when NDA's and confidentiality agreements have blanket clauses on Know How.

The solution is a bit multi-levelled and also dependant on the specifics of the product/service.

The easiest one to deal with is obviously a patent. If you as the service provider/designer design something that infringes on somebody elses patent, you are screwed. Be it a previous client or not.

The 2nd most easy one to deal with and the most effective method of dealing with IP and the re-use of IP is to agree to a non-compete clause in your contract. Hereby you explicitly try and retain all your know-how and IP and you give the custmer peace of mind that you wll not design a product or service that will compete with his product. This I have found is really effective if there is no real registerable IP be it design registration or patent. It does imply though that you have got the job. Otherwise you have just signed the ability away to design a product in that space for other customers.

The 3rd easiest way is to negotiate a price for signing away your IP. Tough negotiation though and does not give you or the customr the oppertunity to actually discuss the project until you have figured this part out.

I tell all my potential customers 2 basic facts. First is that we see a lot, and I mean a lot, of ideas and that we will immediately tell and show them if their idea is novel or not. The second is that vey few things are really novel. Mostly these days you have very narrow patents so very little is protectable and defendable.

A couple of basic clauses are also required in your NDA.

The fact that any info currently and in the future that comes into the public domain without you putting it there removes any restrictions on you.

The 2nd is to put time limits in to these NDA's. If the customer is sooo serious about his idea he will try and get it developed asap. This works well if 5 years down the line another guy comes with the same idea and your previous customer has done nothing about it. (Do make the new customer aware of the previous guy though, it is just good manners and might protect you from some fall-out when the previous customer knocks on the door)

Make the NDA bi-directional, in other words it protects both parties, and all info shared remains the property of the respective parties until the work is actually commissioned. Then move into a contract with non-compete clauses. You don't want to give away all your know-how in the first meeting and the customer takes it off to his buddy to dsign and you are left in the lurch.

Above all make all the conditions of your NDA explicitly clear, and NOT "leeglish". The 2 parties signing these docs are almost never lawyers.


I'll rant some more later. I can go on about this for some time.

[duncan drennan]

Thanks for the response Pierre - it is much appreciated.

I've been asking the question generally, but there are some specifics which came up today when I received a contract from a client. They have sent me all the info, and I've quoted on a project. In terms of what they want their is no registrable IP, and it is unlikely that any will arise through the project. It is for the development of something that they will use within the company (i.e. not a product they plan to sell).

There are two sections in the contract that are relevant - copyright and inventions. Basically the contractor (me) cedes all copyright to the client, and all improvements, inventions, discoveries, designs, etc. are exclusive property of the client. Both are limited to the agreement and the services rendered. I've seen this elsewhere, so I'm guessing that this is fairly "standard".

The 2nd most easy one to deal with and the most effective method of dealing with IP and the re-use of IP is to agree to a non-compete clause in your contract. Hereby you explicitly try and retain all your know-how and IP and you give the customer peace of mind that you will not design a product or service that will compete with his product. This I have found is really effective if there is no real registrable IP be it design registration or patent. It does imply though that you have got the job. Otherwise you have just signed the ability away to design a product in that space for other customers.

This seems fairly reasonable. How have clients reacted to that suggestion?

In the particular case I'm talking about, I'm one person, they are an international company How realistic is it to expect them to change their contractor agreement for me? (I'm certainly going to expect them to....)

[Dave A]

Welcome Pierre. It's great to see Duncan can now explore this with someone from a similar perspective. I'm afraid I can only explore this in principle and in relation to my frame of reference, which is somewhat different. You certainly bring some important new aspects into the debate which wasn't even a shadow in my mind before now.

A couple of random thoughts to share:
In my cockeyed english -
Leeglish: English understandable by the common man that is also legally sound.
Legalese: English that is legally sound, but that may as well be written in chinese when read by the common man.

I wouldn't get an engineer to scrutinise a legal contract. But then I wouldn't get a lawyer to scrutinise an engineer's drawings either.

Even my largest clients sign my contract (although we do sign and abide by their conditions of entry). The only exception generally is government contracts, and even then at times I've made a variance submission which has, on occasion, been accepted and ultimately is on my terms. To some extent this is determined by common practice in play within any particular industry, I guess. A question of who's the dog and who's the tail. But even if we're the tail, we always have the option to say "no deal."

And I just know I'd be really p'd off if I invented something new and revolutionary as an unintended/unanticipated byproduct of a job spec and I had absolutely no rights in the IP. Maybe the wrong attitude, but my feeling right now.

I'll watch the debate with interest (but reserve my right to stick an oar in if I feel I might have something relevant to contribute ). I'm particularly interested in how the "re-use of elements" aspect is resolved.

[duncan drennan]

Well, I should be speaking to a lawyer (KA-CHING!) about this within the next couple of days, so I'll provide whatever feedback I can from them too.

[duncan drennan]

I'm off to see the wonderful lawyer of Oz tomorrow

I've drawn up requirements, and highlighted the parts of the contract that I'm concerned about, which will hopefully help them to help me faster. I REALLY hope that the cost is going to be reasonable - this is one of my big fears when going to see lawyers. The cost of not protecting myself is way higher though, so let's hope it works out for the best...

[Dave A]

The cost of not protecting myself is way higher though,

That's the key, I reckon.
Hopefully it's more KA-CHING than KA-CHING.

[duncan drennan]

That's the key, I reckon.
Hopefully it's more KA-CHING than KA-CHING.

Seems like it is not going to be too bad, only Ka-Ching

It is never nice when you hear it for the first time and you are not sure what to expect, but thinking about it on the way back, I think the rate is quite reasonable, and probably below what I should be paying.

Quick thoughts:

The main issue that arose in the meeting was that what is in your head is yours. For the big issue is what classifies as "in my head" and what doesn't? Where are the lines drawn.

I haven't instructed him to go ahead yet, but I am planning to. Just mulling it over for a few minutes.

[Dave A]

The main issue that arose in the meeting was that what is in your head is yours.

At the risk of confusing your thoughts:
So you are contracting out your skill, not selling your knowledge.

I think NDA's are pretty well a given from both sides in terms of existing knowledge within either party. It's knowledge/product that you create whilst being contracted to apply that skill that is at issue here.

And I've been thinking about my p'd off instinct about stuff I create within that contract. If I'm being paid to apply my skills to a specific outcome, I can't really complain about the entity paying the bills ending up with ownership of the results.

For me, I form partnerships with some knowledge resources and hire others. The difference lies in the structure and reward for their contribution.

Eish. Feel like I'm going round in circles.

[duncan drennan]

Eish. Feel like I'm going round in circles.

Yes, this is the problem! I keep trying to put myself on each side of the fence, if I am a contractor, what am I happy with? If I was contracting out, what would I want?

What I'm trying to find is some healthy middle road. Essentially you have a situation where you can up your price and include any developed IP in the price, or negotiate the other way, better price, less IP transfer. It really is a tricky one. I'm VERY interested to see what he comes back to me with.

Coming back to your analogy of the website, they did not give you one single piece of IP. They retained copyright, etc. etc. You just got a working product out. That is a commonly used model in software. I think that in general physical stuff seems to sway the other way. You pay me, I leave with nothing, you get everything. The MUST be some reasonable compromise somewhere in the middle!

[Dave A]

You pay me, I leave with nothing, you get everything.

Well, you do get the money. Perhaps the trick is to make sure the money is enough....

I think the really big concern here is that some aspect of a previous job could affect your ability to service a future contract. Some part of both solutions consists of the same component, and you are restrained from using it whilst another engineer would be free to do so. That definitely seems unfairly prejudicial.