Probably the single biggest problem that I see arise on a regular basis is that most businesses have improper or non-existent agreements with contractors. Let’s look at the 3 most critical clauses that you should include in every contractor agreement (in addition to actually making sure you have written agreements in place with ALL your contractors).
1. Ownership of Intellectual Property Clause, When Appropriate
Most businesses don’t obtain the proper ownership rights in the materials that are being created by contractors. The problem is usually discovered at a much later date when the person you hired to create something special for you starts selling the same or similar work to your competitors, and you don’t understand how they could legally get by with that. But under the U.S. copyright laws, unless there is a written agreement that transfers over the copyright, the contractor still owns the copyright and you basically just got a license to use it for your specific scenario.
There are some scenarios where it is perfectly fine for the contractor to retain ownership and to re-use portions of the work with other clients. But if you are having a contractor develop something special or custom for you and you want to make sure you have complete ownership of that work, you need to include a transfer clause in a written agreement with the contractor.
Here is an example of what that clause could say if your company wants to obtain complete ownership of everything the contractor is being paid to create:
All patentable and unpatentable inventions, discoveries, ideas, source code, materials, and other intellectual property (hereinafter “Materials”) which are developed by CONTRACTOR for COMPANY under the terms of this AGREEMENT shall be deemed to be works made for hire, and shall belong exclusively to COMPANY, and COMPANY shall be the sole owner of all copyrights, patents, inventions, discoveries and trade secrets in the same, including the right to change, edit, and distribute same throughout the world. To the extent that any Materials may not be deemed works made for hire, CONTRACTOR hereby irrevocably assigns to COMPANY all its right, title, and interest therein.
2. Image/Media Licensing Clause
I talked in the January 2014 issue about the risk you have with contractors and employees using images and other media that are not properly licensed. The risk of copyright infringement is REAL in today’s always-connected world. That’s why it is critical for you to have a process in place for how media is used and licensed. You should include a description of your process in your agreement with the contractor (and employees for that matter).
Here is an example of what that clause could say:
Before including any third party content (software, plug-ins, images, multi-media, etc.) that require
a licensing fee within the work being performed for COMPANY, CONTRACTOR shall first inform COMPANY of the need for such third party license and reach an agreement with COMPANY on whether COMPANY shall purchase the required license, whether CONTRACTOR shall purchase the license at CONTRACTOR’s own expense, or whether a different route that doesn’t require the third party content should instead be taken. COMPANY does not authorize any third party content requiring a licensing fee to be included in the work CONTRACTOR performs for COMPANY unless COMPANY gives explicit permission. Although pre-approval is not required for any third party content that is free, CONTRACTOR shall provide COMPANY with a list of any such free third party content that CONTRACTOR has included in the work being performed for COMPANY so that COMPANY can maintain the proper licensing records and ensure compliance with any such third party licensing restrictions.
3. Indemnity Clause
In addition to having a clause that explains your process for handling image licensing, you should also include a clause that states the contractor will indemnify you for any intellectual property violation that results from them improperly including third party content without permission. Of course if the contractor is an individual with no money, you would not likely be able to collect from them in the event of a problem. But you should still include the clause in your agreement.
Here’s an example of a simple indemnity clause that you could consider:
CONTRACTOR agrees to indemnify and hold COMPANY harmless from any third-party claim of intellectual property infringement or any other liability that arises from the actions or omissions caused by CONTRACTOR without the permission of COMPANY or in violation of this Agreement.