Technical Services in Intellectual Property: The Legal Solutions

In technical services, if a firm had to write every single line of code, configure every server, and build every automation workflow completely from scratch for every client, they’d go bankrupt, the process being too slow and too expensive.[1]

Instead, they build reusable IP, which is software, code snippets, automation scripts, or frameworks that the tech firm owns, but uses across multiple different clients to get projects executed faster.

The Real-World Breakdown

When a client hires a tech services firm to build a custom e-commerce mobile app, there are two aspects:

• The Custom data, which the client owns: The exact brand logos, the specific UI/UX design, the unique product recommendation logic, and the final compiled app are paid for by the clients, and consequently, owned by them.
  

• The Reusable IP, which the tech firms retain: The background code that connects the app to a payment gateway, such as Stripe, the pre-built user login/authentication system, and the automated database backup scripts.
  

The tech firms didn't invent those background systems specifically for that one specific client; they've been perfecting them for years. That "reusable IP" is moulded into the client's project so that the app can be delivered within two months instead of eight.

Chaos in Contracts

This is where the massive point of contention arises:

Since the clients paid for the service they demanded, they feel entitled to exclusive ownership of every line of code, especially so that their competitors can't have it. The tech firms on the other hand, are of the stance that if exclusive ownership of the login script is provided to one client, it legally cannot be used for any other client ever again, and they’d have to reinvent the wheel every single time.

The Common Resolution:[2]

In order to limit endless lawsuits and litigation, standard contracts generally include a clause that reads along the lines of:

"We (the tech firm) own the underlying tools and reusable code. But we grant you (the client) a perpetual, royalty-free, worldwide license to use it forever within this app."

Through this clause, the client gets to use it, but they don't own it, and they can't sell that specific underlying code to anyone else.

References :

[1] Zottola, A. J. & Gatewood, C. D. (2023). Technology Contracts: An Overview. Venable LLP. https://www.venable.com/insights/publications/ip-quick-bytes/07-technology-contracts-an-overview

[2] (2024). Ownership of IP Rights in Deliverables: Limited Transfer. Tech Contracts. https://www.techcontracts.com/2024/03/29/ownership-of-ip-rights-in-deliverables-limited-transfer/