Source Code Ownership Clause

2023-11-15 14:18 UTC gpt-4 Open in ChatGPT ↗

My high-end technology and art studio is negotiating a contract with a creative agency for the R&D phase of a project. We don’t want to give them the source code of the tools we create during R&D because we want to secure that we will be chosen to develop the production phase as well. They have sent us the following clause:

“All Deliverables and Documentation including but not limited to intellectual property (“IP”) contained therein, custom algorithms and source code produced by ULC specifically for Client under this Agreement are sole exclusive property of the Client. Any pre-existing IP, algorithms and source code owned by or licensed to ULC independent of the services hereunder is are to remain the property of ULC during and after project completion.”

The Deliverables are only documentation, stated earlier, but we want to specifically say that the source code of this phase is our IP. To sweeten the deal, we can promise not to use the code with other clients for a reasonable amount of time.

Please modify this clause supporting our interests but also making a crafty, smart proposition that is likely to be accepted by this big company’s lawyer sharks

Crafting a clause that protects your studio’s interests while also being appealing to the client can be a delicate balance. Here’s a modified version of the clause that aims to address your concerns:

“Regarding all Deliverables and Documentation, including but not limited to intellectual property (“IP”) contained therein, custom algorithms, and source code produced by ULC specifically for the Client under this Agreement: all such materials, including the source code developed during the R&D phase, shall be the exclusive property of ULC. However, ULC grants the Client a non-exclusive, royalty-free, worldwide license to use these materials, including the source code, solely for the Client’s internal business purposes in connection with the project outlined in this Agreement. ULC agrees not to use, modify, or distribute the developed source code for any other client or project for a period of [specify the duration, e.g., two years] following the completion of the project. Any pre-existing IP, algorithms, and source code owned by or licensed to ULC independent of the services hereunder shall remain the property of ULC during and after project completion. This clause is designed to ensure both parties’ interests are safeguarded and to foster a collaborative and exclusive partnership for the duration of this project and any potential future phases.”

This revision emphasizes your ownership of the source code developed during the R&D phase while offering the client a non-exclusive license for its use, which should be an attractive compromise. The time-bound exclusivity on not using the source code with other clients should also help reassure them of your commitment to their project. Remember, legal clauses should always be reviewed by a legal professional to ensure they meet your specific needs and comply with relevant laws and regulations.

If the client wishes to use the source code for the completion of the project after the R&D phase without involving your studio, you could modify the clause to accommodate this possibility while still protecting your interests. Here’s a revised version that takes this scenario into account:

“Regarding all Deliverables and Documentation, including but not limited to intellectual property (“IP”) contained therein, custom algorithms, and source code produced by ULC specifically for the Client under this Agreement: ULC retains ownership of the developed source code during the R&D phase. The Client is granted a non-exclusive, royalty-free, worldwide license to use these materials, including the source code, solely for the internal purposes of the project outlined in this Agreement. Should the Client wish to use the developed source code for the completion of the production phase of the project without ULC’s direct involvement, a separate licensing agreement shall be negotiated at that time to grant the Client the necessary rights. This additional agreement will detail terms including, but not limited to, usage scope, duration, and any financial compensation to ULC. Any pre-existing IP, algorithms, and source code owned by or licensed to ULC independent of the services hereunder shall remain the property of ULC during and after project completion. This clause aims to ensure a fair and equitable arrangement for both parties, recognizing the value of the developed source code and ULC’s contribution to the project.”

This version allows for the possibility of the client completing the project with the source code you developed but establishes that such use would require a separate agreement. This approach helps to protect your intellectual property rights while also leaving room for future negotiation, which could include financial compensation for the use of your source code. As always, it’s important to have any legal agreements reviewed by a qualified attorney to ensure they meet your needs and comply with relevant laws.

Understood. If the source code is not part of the deliverables and you wish to avoid the complexities of licensing while still protecting your interests, the clause can be modified accordingly. Here’s a revised version that focuses on clarifying the ownership of the source code without entering into licensing discussions:

“All Deliverables and Documentation, including but not limited to intellectual property (“IP”) contained therein, produced by ULC specifically for the Client under this Agreement shall be the sole exclusive property of the Client. For the avoidance of doubt, ‘Deliverables and Documentation’ as used herein shall not include any source code developed by ULC in the course of rendering services. ULC retains all rights, title, and interest in and to any such source code, which is deemed proprietary and confidential to ULC. The source code shall remain the exclusive property of ULC during and after the completion of the project. Any pre-existing IP, algorithms, and source code owned by or licensed to ULC independent of the services hereunder shall also remain the property of ULC. This clause ensures the protection of ULC’s proprietary tools and methods, while providing the Client with the necessary outcomes and documentation to benefit fully from the services rendered under this Agreement.”

This revision makes it clear that the source code developed during the project is not part of the deliverables and remains your property. It provides the client with what they need (the outcomes and documentation) while safeguarding your proprietary technology. This approach should help to avoid potential misunderstandings or disputes about the ownership and use of the source code. Again, I recommend having this clause reviewed by a legal expert to ensure it aligns with your specific needs and legal requirements.

To ensure clarity that the clause pertains only to the R&D phase, the revised clause can be further refined. Here’s the updated version:

“All Deliverables and Documentation, including but not limited to intellectual property (“IP”) contained therein, produced by ULC specifically for the Client under this Agreement during the Research and Development (R&D) phase shall be the sole exclusive property of the Client. It is explicitly understood and agreed that ‘Deliverables and Documentation’ as defined herein for the R&D phase do not include any source code developed by ULC. ULC retains all rights, title, and interest in and to such source code, which is deemed proprietary and confidential to ULC, and remains the exclusive property of ULC during and after the completion of the R&D phase. Any pre-existing IP, algorithms, and source code owned by or licensed to ULC independent of the services rendered in the R&D phase hereunder shall also remain the property of ULC. This clause is specifically tailored to protect ULC’s proprietary methods and tools used in the R&D phase, while delivering the agreed-upon outcomes and documentation to the Client, thereby ensuring the successful completion of this phase of the project.”

This modification explicitly states that the terms are specific to the R&D phase, making it clear that the source code developed during this period is excluded from the deliverables and remains your property. It sets a clear boundary around the scope of the agreement regarding the R&D phase. As always, legal review is advisable to ensure the clause meets legal standards and adequately protects your interests.

To ensure the clause is compliant with U.S. law and to sweeten the deal by adding a non-compete clause for a reasonable time after the project, here’s the revised version of the clause:

“All Deliverables and Documentation, including but not limited to intellectual property (“IP”) contained therein, produced by ULC specifically for the Client during the Research and Development (R&D) phase under this Agreement, shall be the sole exclusive property of the Client. It is expressly clarified that ‘Deliverables and Documentation’ for the R&D phase do not encompass any source code developed by ULC. ULC retains all rights, title, and interest in and to such source code, with such code being proprietary and confidential to ULC. This source code shall remain the exclusive property of ULC during and after the completion of the R&D phase. Furthermore, to demonstrate our commitment to this project and to the Client, ULC agrees not to use the developed tools and source code for any other client or project for a period of [specify the duration, e.g., one year] following the completion of this project. Any pre-existing IP, algorithms, and source code owned by or licensed to ULC independent of the services provided in the R&D phase shall remain the property of ULC. This clause is designed to protect ULC’s proprietary methods and tools while ensuring the Client receives the full benefit of the services for the specified duration of the project, aligning with U.S. intellectual property law and contractual best practices.”

This version includes a time-bound commitment not to use the developed tools and source code for other clients, which should be attractive to your client. It’s important to set a reasonable and specific duration for this non-use commitment. This type of clause is generally enforceable under U.S. law, provided it is reasonable in scope and duration and serves a legitimate business interest. However, it is crucial to consult with a legal professional familiar with U.S. contract and IP law to ensure the clause is legally sound and appropriately tailored to your specific situation.

Including explanatory sentences in legal clauses, like those describing the logic or intent behind a provision, is not universally standard but can be a strategic choice in certain contexts. Here’s why such language might be used:

Clarifying Intent: These sentences help to clarify the intent behind a provision. This can be particularly useful in complex agreements or where the parties want to ensure there is no ambiguity about what they are agreeing to.
Aiding Interpretation: In the event of a dispute, courts often look at the language of the contract to ascertain the parties’ intent. Explicitly stating the rationale behind a clause can aid in this interpretation, potentially reducing the likelihood of a misinterpretation.
Facilitating Negotiations: During negotiations, these explanations can help each party understand the other’s position and the importance of specific clauses, potentially facilitating a smoother negotiation process.
Sector or Regional Practices: In some sectors or regions, more descriptive clauses might be common. It can depend on the complexity of the transaction, the nature of the industry, or the legal culture of the region.

However, in many legal documents, especially those that are straightforward or standardized, such explanatory language is often omitted to keep the document concise and focused solely on the legal provisions. The choice to include such language depends on the nature of the agreement, the preferences of the parties involved, and the advice of legal counsel. In your case, considering the complexity and significance of intellectual property rights and the potential for future disputes, these explanations could add value. But it’s always a balance between clarity and conciseness, and the final decision should be made in consultation with your legal advisor.

The clause “For any or no reason immediately with prior written notice” does provide the client with broad discretion to terminate the contract, which might be a point of concern for you. To address this and better protect your interests, consider proposing a modification that adds some balance to this clause. Here’s a revised version:

“The Client shall be entitled by notice in writing to terminate this Agreement with immediate effect under the following circumstances:

If the Digital Artists are in breach of any material obligation, undertaking, or warranty contained in this Agreement and the Digital Artists have failed to remedy such breach within thirty (30) days following receipt of written notice from the Client requiring such breach to be remedied;
If the Digital Artists are incapacitated from rendering the Services for more than 14 days either consecutively or in the aggregate;
Upon mutual agreement between the Client and the Digital Artists.

In lieu of the clause permitting termination ‘For any or no reason,’ it is proposed that either party may initiate a termination for convenience with a [specify duration, e.g., 30-day] written notice. However, if the Client elects to terminate for convenience, they shall be liable for [specify terms, e.g., a termination fee, compensation for work completed to date, or costs incurred by the Digital Artists in preparation for the fulfillment of the Agreement]. This revision aims to balance the rights of both parties, allowing for termination flexibility while providing reasonable protections and assurances for the Digital Artists.”

This revision aims to:

Remove the broad and unilateral termination right “for any or no reason.”
Introduce the concept of termination for convenience, which is more balanced.
Specify a notice period and potential financial obligations upon termination for convenience, which provides some security for your studio.

It’s important to note that negotiations around termination clauses can be sensitive and should be approached with an understanding of both parties’ needs and concerns. As always, legal advice is recommended to ensure the clause is appropriate and enforceable under the applicable law.

We are also not super happy with this: “The Digital Artists agree that the Client may arrange and pay for the documentation of the R&D Phase of the project by means of photography, film, and video and audio recording, and hereby grant permission to document in accordance with the terms of this Agreement for archive use only. Such documentation outside of the R&D Phase will be subject to may not be released publicly without a separate agreement with the Digital Artists.

The Client may use all such photographs, film, video, audio recordings, and excerpts for marketing, publicity, information, industry awards and archive purposes relating to the project, including appropriate generic and non-commercial campaigns in all media including the Internet and in all territories. For the avoidance of doubt, any and all photographs, film, video, audio recordings and excerpts documenting the R&D Phase by Client shall be the sole exclusive property of Client. ”

We want to be able to publish short R&D clips on social media without direct reference to the project or the client (thus ensuring confidentiality)

To address your concerns and allow for the publication of short R&D clips on social media while maintaining confidentiality, you can propose a modification to the clause that clearly defines your rights in this regard. Here’s a revised version:

“The Digital Artists agree that the Client may arrange and pay for the documentation of the R&D Phase of the project by means of photography, film, and video and audio recording, and hereby grant permission for such documentation in accordance with the terms of this Agreement, for archive use only. Such documentation outside of the R&D Phase shall not be released publicly without a separate agreement with the Digital Artists.

The Client may use all such photographs, film, video, audio recordings, and excerpts for marketing, publicity, information, industry awards, and archive purposes relating to the project, including appropriate generic and non-commercial campaigns in all media including the Internet and in all territories. Notwithstanding the above, the Digital Artists retain the right to use selected portions of the documentation (e.g., short clips or images) for the purpose of showcasing their technical and creative capabilities on platforms including social media, provided that these do not directly reference the project or the Client, thereby ensuring confidentiality. Any such use by the Digital Artists shall be in a manner that is consistent with the confidentiality obligations under this Agreement. For the avoidance of doubt, any and all photographs, film, video, audio recordings and excerpts documenting the R&D Phase by the Client shall be the sole exclusive property of the Client, subject to the aforementioned rights of the Digital Artists.”

This revision:

Preserves the Client’s rights to document the R&D phase and use this material for various purposes.
Grants you the right to use selected portions of the documentation for your own promotional purposes.
Ensures confidentiality by prohibiting direct references to the project or the Client.
Aligns with confidentiality obligations under the agreement.

It’s essential to clearly define what constitutes ‘selected portions’ and ensure that any usage aligns with confidentiality terms. Legal review is advisable to ensure this clause meets your needs and complies with legal standards.