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8.3.2 Intellectual Property Rights Template

One of the most challenging contractual problems associated with ITS is the establishment of adequate rights for the agency with respect to the system’s software. It has not been unusual for agencies to pay for the development of some custom transportation software programs only to find, because of restrictive contract language, they cannot see the code. The agency also may find they must go back to the original developer for maintenance and future system upgrades.

The rights of the agency to use a software product are established in an Intellectual Property Rights clause. It is included in the terms and conditions of their contract with the software developer. There are three aspects to these rights that are generally covered in this clause. The first is the agency’s right to receive from the developer not only the executable code, but also the source code and the related documentation needed to understand and replicate that code. The second is the agency’s right to use the code and the documentation to maintain and upgrade the software program. This includes the right to give the software and documentation to another development contractor for maintenance and/or upgrade. The third is the necessity to recognize that the original developer has some rights to the software as well. This is especially true if they, and not the agency, paid for the development of it.

To illustrate these points, example wording for the parts of an Intellectual Property Right clause is derived from wording developed by the Department of General Services of the State of California. This example is not intended to be used in a contract as an Intellectual Property Rights clause. A project manager should contact his agency’s legal staff for appropriate contract wording.

Issue 1 – Getting the Necessary Documentation

This is really a problem for the Contract’s Statement of Work. The Statement of Work is where the deliverable documents and products are defined. It is where the delivery of executable and source code, as well as other related documents, is defined. Related documents may include High Level and Detailed Design Specifications, Software Development Plans, instructions on how to compile the executable code, and user’s manuals.

A sample clause for the contract is:


The Contractor agrees to provide to the Agency a number of all nonproprietary manuals and other printed material, as described with the Statement of Work, and updated versions thereof, which are necessary or useful to the Agency in its use of the Equipment or Software provided hereunder.

Issue 2 – Getting the Right to Use the Software and Related Documentation

This part of the Intellectual Property Rights puzzle is handled entirely in the Contract. Here the agency wants to get and retain the unencumbered rights to:

  • Use the software in the system it was designed for
  • Give the software and documents to a third party [another contractor] for maintenance and upgrades
  • Give the software and related documents to another government agency for their use

The example clause does this by defining a set of “Government Purpose Rights” which it then gives to the agency. In doing this, it also defines rights which are left as the sole or joint right of the development contractor.

A sample clause for the contract is:


1.       All inventions, discoveries, intellectual property, technical communications, and records originated or prepared by the Contractor pursuant to this Contract including papers, reports, charts, computer programs, and other Documentation of improvements thereto, and including Contractor’s administrative communications and records related to this Contract [collectively, the “Work Product”], shall be Contractor’s exclusive property. The provisions of this sub-section may be revised in a Statement of Work.

2.       Software and other materials developed or otherwise obtained by or for Contractor or its affiliates independently of this Contract or applicable purchase order [“Pre-Existing Materials”] do not constitute Work Product. If Contractor creates derivative works of Pre-Existing Materials, the elements of such derivative works created pursuant to this Contract constitute Work Products, but other elements do not. Nothing in this Chapter will be construed to interfere with Contractor’s or its affiliates’ ownership of Pre-Existing Materials.

3.       The Agency will have Government Purpose Rights to the Work Product as Deliverable or delivered to the Agency hereunder. “Government Purpose Rights” are the unlimited, irrevocable, worldwide, perpetual, royalty-free, non-exclusive rights and licenses to use, modify, reproduce, perform release, display, create derivative works from, and disclose the Work Product. “Government Purpose Rights” also include the right to release or disclose the Work Product outside the Agency for any Agency purpose and to authorize recipients to use, modify, reproduce, perform, release, display, create derivative works from, and disclose the Work Product for any Agency purpose. Such recipients of the Work Product may include, without limitation, Agency Contractors or other agencies. “Government Purpose Rights” do not include any rights to use, modify, reproduce, perform, release, display, create derivative works from, or disclose the Work Product for any commercial purpose.

4.       The ideas, concepts, know-how, or techniques relating to data processing, developed during the course of this Contract by the Contractor or jointly by the Contractor and the Agency, may be used by either party without obligation of notice or accounting.

5.       This Contract shall not preclude the Contractor from developing materials outside this Contract .which are competitive, irrespective of their similarity to materials which might be delivered to the Agency pursuant to this Contract.

Issue 3 – Agreeing to the Rights of the Development Contractor

The third and final issue that the Intellectual Property Rights clause must deal with is recognizing rights retained by the developer. Not all of the software components the developer uses in the system software were developed just for this project. Sometimes, the developer uses software that they have developed, at their own expense, as a product line. Because the agency does not pay their development costs, they cannot expect to get the same all-inclusive rights as they would get to custom software. In addition, many components of the software, such as the operating system, a database engine, or communications packages, have been developed by third parties. Since the developer’s business livelihood is dependent on the exclusive ownership of those products, the agency not only gets limited rights, but also must take reasonable steps to protect what information they do get from the original developer’s competitors.

A sample clause for the contract is:


1.       Agency agrees that all material appropriately marked or identified in writing as proprietary, and furnished hereunder are provided for Agency’s exclusive use for the purposes of this Contract only. All such proprietary data shall remain the property of the Contractor. Agency agrees to take all reasonable steps to insure that such proprietary data are not disclosed to others, without prior written consent of the Contractor, subject to law.

2.       The Agency will insure, prior to disposing of any media, that any licensed material contained thereon have been erased or otherwise destroyed.

3.       The Agency agrees that it will take appropriate action by instruction, agreement, or otherwise with its employees or other persons permitted access to licensed software and other proprietary data to satisfy its obligations under this Contract with respect to use, copying, modification, protection, and security of proprietary software and other proprietary data.

Tip.Use of software escrow accounts is one approach that allows the contractor to maintain rights and also protects the buyer. A Software escrow account is a specialized firm that holds intellectual property such as source code and design documentation in case the contractor defaults, or goes bankrupt. Then, it is released to the buyer.

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