Intellectual property (IP) plays a large role in helping construction businesses and suppliers to maintain their competitive edge. In the growing age of high-tech products and materials, digital platforms and tech-led construction, knowing how to protect a new and innovative idea can help construction businesses project their unique identity within a crowded marketplace. This article examines common IP clauses to protect your IP rights.
Large construction projects involve complicated webs of interconnected Contractors and Subcontractors, each usually governed by their own contractual relationships. This contractual quagmire can be difficult for even the most experienced party to navigate and, if not approached with adequate care, can lead to inconsistent and conflicting IP rights applying across various contracts.
Parties should take care to ensure that, to the extent necessary, (a) their IP rights are protected and (b) if operating in a wider contractual matrix of upstream and downstream parties on a project, that IP rights are consistent between all relevant parties.
A typical civil project consists of a Head Contractor who has an agreement in place with the governmental authority or corporation to complete the project. This Head Contractor will then engage a variety of Subcontractors who are each responsible for a specific aspect of the project. These Subcontractors then engage sub-subcontractors, who themselves may engage sub-sub-subcontractors and the chain may stretch to many parties. Each Contractor will often have a unique contract that governs their relationship with the entity that contracted them and unique contracts in place with each of their Subcontractors. This can create challenges in trying to identify how IP rights and obligations flow between parties.
Intellectual property rights
IP is the legal term used to describe creations of the mind, such as inventions, designs, and artwork. These can be protected in a variety of ways, including as trademarks, copyright material, or patents. We have discussed this in more detail in our previous article on the subject available here.
Generally, any IP rights stay with the creator of the new IP. However, it is possible to transfer these rights contractually between parties so that the IP rights lie with somebody other than the creator. This makes it crucial to understand how these IP rights flow through the complex contractual relationships that make up a construction project to ensure you have the rights to use or rely upon any innovation for future projects, as appropriate.
Commonly, a Principal will seek that ownership of IP passes to it upon completion of works under a Contract. However, in many situations, this will not be desirable for a Contractor. For example, the Head Contractor may wish to preserve the IP in its bespoke construction techniques. A specialist parts or technology solutions Subcontractor may wish to preserve the IP in its technology and retain the right to maintain or repair its equipment.
Common IP provisions in construction contracts
Below, we list some common IP clauses in construction contracts which can be adopted or adapted by parties to a project as appropriate:
For Principals
- An obligation to transfer of IP rights to the Principal upon completion of the works by the Head Contractor. This requires any downstream contracts to facilitate this transfer accordingly.
- A right for the Principal to view documents relating to IP from Subcontractors, to enable them to understand the various rights and obligations of each party.
- A right for the Principal to intervene, prosecute or defend any claims associated with IP rights, to enable them to best preserve their position relative to the other parties in the chain.
For Contractors (including Head Contractors)
- Alternatively to 1, retention by the Contractor of IP rights, with an irrevocable licence granted to the Principal to deal with the IP in the project as required. This would usually permit the Principal to grant additional sub-licences as required for use of the work moving forward.
- A retention of existing IP rights for a Contractor such that only newly created IP rights will vest in the upstream party. This assists to preserve the Contractor’s knowhow and approach to the works in a way that does not require this know-how to be lost to upstream parties. This is common when the Head Contractor is to incorporate IP into design documents for the Principal.
- A right for the Head Contractor to view documents relating to IP from Subcontractors, to enable them to understand the various rights and obligations of each party.
- A right for the Head Contractor to intervene, prosecute or defend any claims associated with IP rights, to enable them to best preserve their position relative to the other parties in the chain.
For Subcontractors/Consultants
- A licence for consultants to use IP of the Head Contractor or Principal to perform services as part of the construction works. This is commonly used for parties like experts, superintendents and the like, to enable them to perform specialist services which require access to and use of the project’s IP.
- An exclusive licence granted by an equipment manufacturer to the Contractor which is sub-licensable to the Principal. Such licence limiting the Principal’s rights to deal with the IP in the property to require the involvement of the equipment manufacturer for servicing and maintenance. This is usually linked to warranty conditions.
- In the case of specialist IP such as software, IP rights may be limited to single-use, or permit copying for all necessary purposes on the project.
For all parties
- A warranty that the IP rights being held out as owned by a party are in fact vested in it. This enables parties reliant upon that ownership and transference under a contract to establish a breach if ownership is not in fact held by that warranting party.
- An indemnity provided by a downstream party to an upstream party for any losses resulting from breaches of IP rights by the downstream party. This is to preserve the upstream party’s position in the event the downstream party has failed to properly procure IP rights in the work it is performing. Of course, the strength of this protection is only as strong as the downstream party’s ability to pay out upon the indemnity, so is often secured with some form of performance security (alongside the works).
- A requirement that payment of any royalties be conducted by a particular party, if royalties are payable for IP to be used in the performance of the works.
- A requirement that moral rights (rights relating to attribution of authorship) be appropriately acknowledged, transferred or indemnified against as appropriate.
- Licences to use IP can be considered regarding their breadth. For example, they can be exclusive or non-exclusive, revocable or irrevocable, jurisdiction-limited, transferrable or sub-licensable and subject to payment of royalties, depending on the parties’ preferences and relative bargaining positions.
- A warranty by a party that any transfer of IP rights pursuant to the contract will not infringe any other legal obligations of the parties (for example, statutory obligations). Also a clause that carves out any obligations to the extent they are not permitted by statute or otherwise at law.
- A clause requiring treatment of IP to remain as per the contract, or to change, upon termination or completion of the Contract works. Non-merger clauses should consider whether the effect of IP rights should be excluded from merging upon completion.
- A clause requiring confidentiality to be maintained regarding the construction works, to preserve the parties’ methodologies and approach to the works required for the project.
- A requirement that downstream parties incorporate rights similar to those identified in this list, to enable upstream parties to enforce their rights further down the contractual chain. Specifically, requiring downstream parties to procure rights to the effect of those required by the Principal or Head Contractor.
Hypothetical scenario
As can be seen from the above list, there are frequently conflicting IP interests between parties to construction contracts. We can explain the complexity of identifying these IP interests across a suite of construction contracts through a hypothetical scenario.
You are engaged as the Head Contractor to a State Government Principal to complete a complex civil construction project. You engage a Subcontractor to design a new building material that will allow you to significantly cut down on construction expenses due to its simplicity and workability. Your Subcontractor goes above and beyond and designs a physical mould and a new form of quick setting concrete. Both you and the State want to use these inventions in your projects going forward.
If proactive, the parties may have identified the opportunity for new technologies to be implemented and agreed a regime to share the ‘upside’ of this technology (for example, by transferring IP appropriately or by invoking a regime to ensure the Subcontractor’s continued involvement on future projects).
If not, to identify if you can use these inventions in the future, the IP rights applicable to these new developments must be identified. This is a potentially complicated question, and requires each contract to be examined individually to identify the flow of IP rights.
Considering the Subcontractor, the new form of concrete is likely a patentable invention and could be patented by the Subcontractor. There will also be associated know-how and other confidential information. The IP in the new mould is made up of the physical item and the documents that explain how to manufacture it. The idea of the mould is not, in and of itself, protectable. The physical item may be registerable as a design as it has a physical form and is produced on a commercial scale. However, the registered design only protects visual appearance and can’t protect functional elements. This would also depend upon registration having occurred by the Subcontractor. The documents that explain how to manufacture the mould would be subject to copyright.
Each contract must be examined to identify if there are any clauses dealing with any newly created IP. These clauses can provide broad IP rights, such as all new IP being the property of one party, or more limited IP rights, such as all new software code becomes the property of one party. The contract could also contain a licence right which grants a party a license to use the invention.
If there are no such clauses, then the IP rights stay with the creator.
Once IP rights which are granted are identified, the relevant IP clauses can be traced through the various contractual relationships to identify what IP rights lie with each party. In this case, this analysis would have to be performed for each of the three IP rights identified (patents, designs and copyright).
This could play out in numerous ways depending on the individual contracts. For example, you could have rights in intangible property passed up from the Subcontractor to you as the Head Contractor but with no movement of rights for the tangible property (ie the physical mould). Then there could also be an irrevocable licence in the Subcontractor agreement for the State and/or you to use anything developed for the construction project for future projects. This would mean that you own the IP rights in the potentially patentable concrete and the design documentation for the mould. The Subcontractor continues to own the rights in the physical mould itself and the State has a licence to use all three in future projects.
The flow of IP rights could be further complicated if your Subcontractor then engaged a sub-subcontractor to develop the specific concrete formulation. You would not have a contract with the sub-subcontractor, so would be relying on the Subcontractor passing through the appropriate IP clauses to allow the ownership of any IP to pass to you. This requires you and the Subcontractor to actively consider IP rights and how they flow between various parties while contracting and highlights the importance of being vigilant concerning IP at all stages of a construction project.
If the concrete was not patentable then there would not strictly be any IP rights that could be transferred to you. However, the concrete could still be kept ‘confidential’ by imposing confidentiality obligations on the other parties as part of your contract. This would restrict any other party from disclosing information about the concrete and prevent any of your competitor’s from using the new concrete formulation and associated know how. This right could then be enforced contractually or through the equitable doctrine of confidentiality.
Next steps
As can be seen, there are many ways IP rights can be treated and considered in construction contracts. Depending on your needs, appropriate structures can be put in place to best preserve your IP rights or position. HWL Ebsworth’s Construction & Infrastructure and Intellectual Property & Technology teams have extensive experience in advising businesses regarding IP rights and risks associated with construction projects. Please contact us for further information on how we can assist you.
This article was written by Matthew Bliem, Partner, Luke Dale, Partner and Max Soulsby, Solicitor.
