IP Assignment and Background Asset Carveouts in a Master Services Agreement: A Guide for an E-learning Development Agency

Introduction

For an e-learning development agency, understanding intellectual property (IP) ownership and background asset carveouts in a Master Services Agreement (MSA) is crucial. These elements play a vital role in protecting both the agency's creations and the client's expectations. IP ownership issues can lead to disputes and confusion if they are not clearly defined. Imagine delivering a fantastic e-learning course only for a client to claim ownership of your proprietary methods without compensation. This is why it is essential to establish clear agreements, and we encourage you to consider the implications of these clauses as you navigate your contracts.

What Is IP Assignment?

IP assignment refers to the transfer of ownership rights from one party to another. In the context of an agency-client relationship, clients often expect ownership of the final deliverables after payment is made. This expectation arises naturally; they have funded the project and therefore presume they own the results. However, for creatives, it is important to have clear guidelines about what is being assigned. Clarity around IP assignment ensures everyone knows what belongs to whom, preventing misunderstandings and future disputes.

What Are Background Assets?

Background assets are the proprietary tools, frameworks, and methods that a consultant brings to the table that are essential for delivering services. These are not directly created as part of the contract's deliverables but are vital resources that the agency has developed over time. Carving out these assets in the agreement protects the agency's intellectual property and preserves its competitive edge. By ensuring that these background assets remain with the agency, both the agency and the client benefit from a clear understanding of each party's rights.

Work Product. Upon full payment of the Fees provided in the SOW, Consultant agrees that the deliverables, work product, content and other materials created, developed or conceived by Consultant for Client for purposes of this Agreement as provided in the SOW (the “Work Product”) shall be the sole and exclusive property of the Client. Consultant hereby irrevocably assigns to Client all right, title and interest worldwide in and to the Work Product, including all copyrights, patents, trademarks, trade secrets, and other intellectual property rights therein. Consultant acknowledges that to the extent permitted by law, all of the Work Product consisting of copyrightable subject matter is “work made for hire” as defined in 17 U.S.C. § 101 or any similar or analogous law or statute of any other jurisdiction and such copyrights are therefore owned by Client. To the extent that the Work Product and/or the results and proceeds of the Services may ever be determined under the laws of any country not to be a “work made for hire,” Consultant hereby confirms that effective on the date of creation of the Work Product, it assigns (or has assigned) to Client all right, title and interest thereto (including all copyright and associated rights, extensions and renewals, and all causes of action appurtenant thereto) throughout the world. If Consultant has any rights in any jurisdiction, including without limitation “artist’s rights” or “moral rights,” in the Work Product that cannot be assigned, Consultant hereby unconditionally and irrevocably waives the enforcement of such rights, and all claims and causes of action of any kind against Client or Client’s customers.

Background Assets. “Background Assets” are the materials, tools, utilities, techniques, technical frameworks, data models, object models, methodologies, know-how and information (both in object code and source code) made available to Client by Consultant under this Agreement that are proprietary to Consultant. This Agreement grants Client a non-exclusive limited right to use the Background Assets and does not constitute a sale or convey title or ownership of the Background Assets or any intellectual property rights therein to Client. Consultant is and shall remain the sole and exclusive owner of all right, title and interest in and to the Background Assets, including all improvements or modifications made thereto, and all intellectual property rights embodied in or related to the Background Assets.

By outlining these aspects in the Master Services Agreement, both parties can establish a mutually beneficial relationship. The agency ensures it retains ownership of its proprietary tools, while the client secures the rights to the work produced under the contract, minimizing the risk of conflict.

Example Scenario

Imagine an e-learning development agency that has crafted a unique learning management system (LMS) framework. They enter into an agreement to create a custom course for a client using this framework. If the MSA lacks a carveout for the background assets, the client might claim ownership of the LMS framework once they pay for the course. However, with a clear background asset carveout included in the agreement, the agency retains ownership of their innovative system while still delivering the course as per the client’s directives. This way, the client benefits from the course they paid for, but the agency's competitive asset remains protected.

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FAQs

What is the difference between work product and background assets? Work product refers to the tangible deliverables created under the agreement, while background assets are the proprietary resources used to create those deliverables.

Do clients have a license to use the background assets? Yes, clients are typically granted a limited license to use background assets as part of the services, but they do not own those assets.

Are source files included in the deliverables? Source files may be included, but it depends on the specific terms outlined in the statement of work (SOW).

How are third-party or open-source components handled? It is important to clearly document any third-party or open-source components in the SOW to clarify ownership and usage rights.

How can we document the split between work product and background assets in the SOW? The SOW should explicitly define what constitutes work product and what remains as background assets, ensuring that both parties have a clear understanding.

Final Thoughts

Adding clear clauses on IP assignment and background asset carveouts to your Master Services Agreement is a proactive step that protects your agency and empowers your clients. Taking the time now to clarify these aspects will save you from potential disputes down the line. If you have questions or need assistance in drafting these clauses, feel free to reach out for help.