In disputes between clients and their consultants two questions often arise.
They are whether money is outstanding and who owns the intellectual property in completed and delivered work. The short answer for both questions is, it depends… and a lot on what is in writing.
Of course, often the problem is the lack of writing. Where there is no clear or effective contract, there is more room for different understandings and expectations to evolve, as well as different perceptions as to what is fair or reasonable.
When these misunderstandings become a dispute we turn to legal principles as we do briefly here.
Dispute over fees
What’s the usual money deal point? Normally a professional services provider, consultant or other contractor does the job and the client pays the bill with the understanding that the delivered work can be used. That may be a deliverable like a report, a design or some other document or electronic file. There is no additional or ongoing fee for such work.
This simple fee arrangement is common. Suffice it here to briefly add that there are other options for the remuneration basis for trainers, business planners, sales agents, change agents and other service providers.
Dispute over intellectual property ownership
Turning to the intellectual property ownership question let’s consider copyright and confidential information.
As regards copyright the position at law is usually simple. In general terms until there is a written contract none of the copyright is assigned (a word of French origin meaning “sold”) to the client.
As regards confidential information the position at law is a little more involved. But in essence a services provider can assert legal rights and get a legal remedy in court (eg an injunction or damages) for breach of confidential information if three things can be proved.
- The information is his/hers/its and is confidential ie not in the public domain.
- That it was given in circumstances in which a duty to keep it confidential was imposed on the client, normally this arises if discussions were expressly stated to be in confidence.
- That unauthorised use has been made by the client.
There might also be dispute questions about other categories of intellectual property. For example there may be ownership issues as regards a patent, a design capable of registration, domain names, brands and filed trade mark applications. To determine the legal position, each such IP issue will require examination of the relevant specific facts and then application of the legal principles for that precise area of law.
Issues with IP notices
There is sometimes added complications in the facts. For example, lack of use or misuse of intellectual property notices can complicate or confuse application of the above copyright and confidential information law principles.
Here’s an example. You’ll sometimes find a document prepared for the client by a service provider is marked with a confidentiality notice: “Commercial” or “Commercial-in-Confidence”. These variations mean the same thing. The notice may be on one page or in a footer or header of every page; this usually changes nothing.
The document prepared for the client might also have a copyright notice: “© Service Provider Pty Ltd 2008”.
These notices can create a problem. The problem with these short form notices is that they don’t explain themselves in the context of say a consultancy report prepared for a client for a fee. The confusion is over who has the rights to confidentiality and the copyright in the deliverable.
The confusion can be overcome with explanatory text or terms of use to state the precise positions as regards who precisely claims the confidentiality and the copyright. The text can be in the delivered file or document; but it is best to also be in a prior contract between the parties.
A simple email or letter agreement can do the job. Our practical and simple document design work often delights clients. Simplicity is marvellous and improves productivity in legal dealings and the bottom line.
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Separate ownership of background and foreground IP
It is feasible to split ownership between a client and service provider. This can only be achieved with clarity if there is explanatory writing, ideally a contract.
Trainers, management consultants and website developers, for example, often split the ownership of intellectual property with their clients. We’ve done it for a series of such clients over many years. Our work results in the clients building a portfolio of intellectual property:
- which can be sold to third parties, eg anyone who buys their business;
- which can be licensed to third parties, earning a passive income stream for example from print or electronic publications; or
- which can be shared or merged with the work of others to create more attractive products and defeat the commoditisation process which affects service providers just as it does product vendors.
In their terms of use or contracts they state that a client can own the deliverables (eg training materials, intranet or web application customised for them). These deliverables are sometimes termed “foreground intellectual property“. We could also call them the “customised application” to distinguish them from the black box know-how or source code from which the customised application was produced. The latter is sometimes termed “background intellectual property“.
In this arrangement the client is free to do what it likes with the customised application while the service provider keeps the background intellectual property.
The accompanying graphic illustrates many other options for “shared” IP.
Conclusion
When a client fails to pay a bill or otherwise upsets a professional services provider, for leverage claims may be made as to who owes what sum and who owns the intellectual property in the deliverables (ie completed and delivered work).
The process to apply to resolve these disputes is to identify the true facts and the real interests of each side and then treat them by applying legal principles.
At the end of these disputes there is always a recommendation to next time get the deal in writing.
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