Consider this scenario:

Your company, BestDesignCorp (“BDC”), is hired by WeAdvertiseCorp (“WAC”) to come up with a design for their upcoming advertising campaign. WAC will pay you in installments upon certain milestones being achieved. BDC gets paid $25,000 after delivering a preliminary design to WAC, which is calculated as 25% of the total work being done.

Who owns the preliminary design? BDC or WAC? What if WAC decides to take that preliminary design and do the work themselves without further requiring BDC?

In order to find out who owns that preliminary design, one must look at the agreement between BDC and WAC. From the BDC’s perspective, a properly drafted agreement would state that BDC owns all the intellectual property associated with their work until the work is complete (in this case, when the design is finalized and reaches the 100% of the total work) and the amount under the agreement is fully paid. From the WAC’s perspective, it would want the intellectual property rights to the design at any stage after payment (so in this case, WAC would have the rights to the preliminary design). Ultimately, it will be up to the parties to negotiate which arrangement is the best.

The danger is more apparent in cases where BDC works on a simple design and is only paid once the finalized design is delivered to the client. In this case, there may be an exchange of preliminary design(s) between BDC and the client before BDC is even paid a dime, increasing the risk that the client could run away with the design.

A lesson to be learned is, if you are in the service industry creating intellectual property work, you should have a clause in the service agreement that you own the intellectual property rights to the work being produced and that the ownership rights will only transfer when you are fully paid for the work.

This article is for informational purposes only and does not constitute legal advice. If you wish to discuss your issue with a lawyer, contact Hugues today.  613-747-2459 ext.304,