IP transfer agreements are an important part of doing business with independent contractors and freelancers, but unfortunately, many businesses don’t consider them at all. This is a risky position to be in, as you want to make sure that the work that your freelancers are providing really belongs to you, especially when the relationship comes to an end.
While all the work that your employees do is considered “work for hire”, and therefore the output belongs to your business – with freelancers the situation is different, as ultimately they are working for themselves.
This article is part of our guide on independent contractors’ agreements.
What is an IP transfer agreement?
To answer this, we first need to understand what Intellectual Property (IP) is to begin with. The term covers anything that comes under Copyright law, as well as patents, trademarks and designs. Without an IP transfer agreement, the law is not on your side. Usually, any work that falls under these categories will automatically belong to the creator, not to your business.
Obviously, in a worst-case scenario, we’re talking about your snazzy logo or your awesome product design being sold to your competitor. But even if we stop catastrophizing, without the rights to your intellectual property, you can’t freely use your own content for your business.
To make sure that you can distribute, adapt or change the content – let’s say you want to translate an article into a new language, use a design for your latest product, or even modify the source code from your website to update your branding, you’ll need an IP transfer agreement. This will state that the freelancer’s rights over the IP have been passed over to your company, usually in return for compensation.
Isn’t it all covered by “work for hire?”
“Work for hire” (sometimes called work made for hire) is a term that’s used in the US Copyright Act to differentiate what kind of work doesn’t fall under copyright protection for the creator. Generally speaking, if you’re hiring freelancers then their output doesn’t count as work for hire, which is why you need the IP transfer agreement in the first place. However, there are some exceptions to that rule.
If the work falls under these categories, you may choose to add that to your freelance contract under the scope of work, call it out as “work for hire”, and then you don’t need to worry about IP transfer at all.
Collective work: If your team is all working together to create a collaborative project, like a magazine, a database, an anthology, or an encyclopedia.
Supplementary work: Adding or changing content that already exists, such as appendixes, glossaries, or indexes, or translating existing text to a new language.
Fact-based content: You can’t copyright information that is factual or already exists, for example, questions and answers for tests, or instructional texts, guide books like Atlases, and how-to content.
Audio-visual work: In complete form this would need to be included in your IP transfer agreement, but in part – this isn’t covered by copyright law and isn’t automatically owned by the creator.
Psst: Californians, listen up!
One important differentiation applies in California, where the very words “work for hire” could create an employer/employee relationship between you and your freelancers, even if they don’t meet any of the other factors used to define an employee. This language is, therefore, best avoided in a contract in California. </box
What should I include in my IP transfer agreement?
Remember, if your content doesn’t fall into these categories, such as any creative work, designs, original code or graphics, it doesn’t count as work for hire. It’s time to draw up your IP transfer agreement. This can be a part of your general freelance contract, or you can create a separate license or contract. The most important thing to remember is that this needs to be in writing, signed by both the employer and the freelancer. Here’s what you can and should include:
#1. Details of the intellectual property itself
What content is being included? Just like with an NDA, it’s important to find a balance here. On the one hand, if you make the clause too broad (for example if you say, “all the activities that John does for our company”, you might find that the contract becomes unenforceable. On the other hand, if you make the clause too narrow (for example, our new company logo) then you could miss out important examples of IP, especially if the scope of the work that the contractor is performing is dynamic or you’re entering into a long-term arrangement that’s yet to be fully defined.
Remember (non-Californians) to call out work that is covered by work for hire regulations, and explicitly define anything that falls outside of these categories.
#2. Exactly how the IP rights are being transferred
Here you can lay out the details of the IP transfer, which will probably depend on how you’re using the content, and the nature of the freelancer relationship. For example, does the freelancer retain their IP rights until the project is complete? Will the freelancer retain rights until payment has been made in full for their services? (Remember: Compensation is not enough to consider IP as transferred, so this is more about ensuring both parties are happy with the agreement.) Think about what you would want to happen if the project was terminated mid-way through. Could it be damaging to your business if the freelancer could use partial designs or content with another client?
You’ll want to consider whether the freelancer is waiving their ownership forever, and if you are asking for universal rights to the IP, or only in your country or region. Universal rights for eternity will obviously give you the most coverage and flexibility, but will often be overkill, and could even put freelancers off from working with you.
#3: What exceptions are you prepared to offer?
To find a balance between what you need as an organization, and what the contractor might want for their own livelihood, it’s important to layout any exceptions and terms very clearly within the contract. For example, you might want “always and anywhere” rights to content related to your branding or the “secret sauce” design of your product. However, you could allow freelancers to use certain content for their portfolio, assign credit to the author or designer of a project after they have transferred IP rights, or transfer rights back after a set amount of time has passed and the IP is no longer sensitive for your business.