Dealing with onerous IP clauses in tender documents

From design agencies to training providers, entrepreneurs and small businesses across various industries often throw their hat in the ring when organisations send out Invitations To Quote (ITQ) for upcoming projects.

These documents set out the requirements for a project, and enables a potential vendor to assess how much to charge for its goods and/or services. But beyond noting the nature and volume of the work involved, we believe that potential vendors who bring their own intellectual property to the table should also scrutinise the IP requirements of an ITQ.

For instance, you might find clauses such as:

• The IP rights of materials created by the vendor for the organisation for the purpose of this contract shall belong to the organisation
• The vendor will grant the organisation a non-exclusive, perpetual, irrevocable, worldwide, royalty-free right and license to use the vendor’s IP for the organisation’s own purposes

Such clauses are not uncommon, and seem to put the vendor at a clear disadvantage — he will not be able to re-use his IP, while the customer can do so without any charge.

How should potential vendors deal with such situations? We ask Frank Rittman, the Founding Director of the Centre for Content Promotion and legal advisor to PitchMark, to share some insights.

Why are such onerous IP clauses often the default standard for organisations that create such contracts?

It is unsurprising that the party drafting the agreement seeks to structure it to their advantage, rather than create an agreement that is more neutral, objective, and even-handed.

Doing so maximises their freedom to do as they choose with the contracted property while minimising the likelihood of restriction or undue interference. This provides more certainty for the organisation in its business operations.

Are there some scenarios in which such clauses make more sense? For instance, if the ITQ is for the design of a brand identity, then rationally the organisation would not want others to be able to use the content created.

It is certainly reasonable for parties to agree that certain creations or contributions will be used solely by one party (for example, the design of a corporate logo).

There is also nothing inherently wrong or inappropriate in an organisation requesting and obtaining other IP-related assurances, in the absence of any refutation or resistance from the vendor.

But it is also reasonable that vendors may be unwilling or unable to accede to more wide-ranging restrictions, for instance in cases where such requests would constrain their ability to provide their goods and/or services for other customers in the future and thus hurt the continued viability of their business. Vendors should read contracts carefully, so they are fully aware of what exactly they are agreeing to.

The examples of IP clauses cited above are quite easy to understand. Are there instances where onerous IP requirements are couched in language that would be trickier for a vendor to understand? Are there any red flags to look out for?

At the end of the day, a contract is nothing more than a legally enforceable agreement, and ambiguity and uncertainty tend to render agreements less enforceable. So it is in fact preferable for all parties that the contractual language be plain, clear and unambiguous, even if/when it may seem far-reaching and overly intrusive in scope.

“Red flags” that should prompt vendors to read contracts even more carefully might include finer print (i.e. smaller font), or text that is in a different colour than is found elsewhere in the contract. Contractual terms presented in these ways can often relate to warranties of authenticity and legality of the subject matter under consideration, and to the indemnification that would typically accompany them.

Generally speaking, the more expansive, mandatory, or final the language (i.e. references to “any” or “all”, “must”, “shall”, “forever”, “wherever”, etc) the more worthy they are of close review and thought.

If vendors assess IP requirements to be onerous, what can they do to seek fairer contractual conditions?

In such instances, vendors can/should respond to the requesting party, identify and communicate their area(s) of concern, and seek to propose alternative wording that is less intrusive.

Beyond a case-by-case negotiation, what can or has been done at a collective level to try and change contractual standards that may be unfair to vendors when it comes to IP?

Legislatures around the world sometimes introduce regulations and laws that attempt to level the bargaining power of the parties. For example, amendments in Singapore’s new copyright bill include the right for creators of commissioned works to be the first owners of copyright, which puts them in a better position to negotiate with the commissioning parties.

Beyond legislatures, trade associations and unions are sometimes able to negotiate “standard” or “recommended” contracts that are less onerous than the marketplace might otherwise command.

For instance, the American Institute of Architects developed a standard owner-architect agreement that recognises the design documents for a project as "instruments of service" for use solely with respect to said project. The architect retains all rights, including copyrights, to these documents.

What do organisations putting together such ITQs need to learn in terms of understanding exactly how unfair such IP clauses can be for vendors? What other carrots and/or sticks would help to change their approach?

Hopefully, organisations can at least recognise that certain provisions and assurances that they may seek may be objectionable to or unreasonable for vendors, and thus anticipate the likelihood that vendors will ask for further negotiations.

Therefore, organisations can and should first determine for themselves which provisions and text are bare minimal requirements for what they seek or need to do, and which provisions are in the realm of “nice to get if you can”.

Certain parties that contract with each other frequently can and do negotiate alternative provisions, in order to preclude the need for case-by-case and repetitive negotiation. Such cases, where the extent of rights granted are redefined, can serve as starting points for new standards across the board.

Beyond that, judicial interpretation of ambiguous or unfair provisions that are then rendered invalid tends to resonate within industries. Word of mouth and a bad reputation also have an effect — organisations with histories of dealing with vendors in an unfair manner can start to be viewed by other potential vendors with apprehension or distrust.

By the same measure, organisations known for fair and reasonable behaviour garner respect within creative communities. The concept of “face” may therefore be a suitable inducement to change behaviour.