Background IP clause

Sample clause

a software development agreement between Bluegum Software and Marlow Logistics, a fictional freight business in Brisbane

1. Definitions. Background IP means intellectual property owned or licensed by a party before the Commencement Date, or developed by it outside this agreement, including the items listed in Schedule 3. Project IP means intellectual property created by the Developer under this agreement for the Client. 2. Ownership. Each party retains ownership of its Background IP. Nothing in this agreement transfers Background IP. 3. Project IP. The Developer assigns the Project IP to the Client on payment in full of the Fees. 4. Licence of Background IP. The Developer grants the Client a perpetual, irrevocable, worldwide, non exclusive licence to use, reproduce and modify the Developer's Background IP to the extent it is embedded in or required to operate the Project IP, with the right to sublicense to a supplier operating the system on the Client's behalf. 5. Additions to the Schedule. The Developer may add an item to Schedule 3 only with the Client's written agreement before the item is used in the Project IP.

Sample wording, not legal advice.

Variants

What to negotiate

• Who writes the schedule and when

  A schedule drafted before work starts is a negotiation; the same schedule produced after delivery is an assertion. Clients should require it at signing and should treat late additions as needing written approval. Makers benefit too, because a list agreed up front protects tools they genuinely need to keep, without an argument about whether they were always background.

• How broad the licence back has to be

  The client's test is simple: can it run, maintain and extend the deliverable without coming back for permission. That usually needs a perpetual, irrevocable, worldwide licence with the right to modify and to sublicense to whoever operates the system. Makers resist the right to modify, which is where most of the negotiation happens, and often concede it limited to the delivered system.

• Whether the licence survives termination for breach

  A licence that ends when the client breaches leaves the client with a system it cannot lawfully run. Makers want that leverage; clients point out that it turns a payment dispute into an operational outage. The common settlement is a licence that survives termination for any reason, with unpaid amounts pursued as a debt rather than by switching the system off.

• Open source components

  Open source inside a deliverable is neither party's background and carries its own licence conditions. Clients want disclosure of every component and its licence before delivery, and a warranty that nothing has been included on terms that would affect the client's own code. Makers ask that the warranty exclude components the client directed them to use.

The risk of leaving it out

Without the clause the contract either promises the client ownership of material the maker cannot lawfully assign, or leaves the client owning a deliverable it cannot operate without components nobody licensed to it. Both problems surface at the same moment, usually when the client asks a second supplier to maintain the work.

Why an assignment alone is not enough

An assignment clause that transfers everything created under the agreement reads cleanly and is often impossible to honour. A development team's deliverable includes its own libraries, a studio's artwork uses its own brushes and templates, and a consultant's report runs on a model built over years of other engagements. Assigning those away either does not happen, because the maker never owned the right to assign them in that way, or happens accidentally and destroys the maker's business. The background clause fixes both outcomes by naming the boundary and then licensing across it, so the client gets something it can use and the maker keeps what it needs for the next project.

The schedule is the whole clause

Background IP is defined by a list far more often than by a definition, and the quality of that list decides whether the clause works. A schedule written at signing, naming specific components rather than categories, gives the client a way to check what it is not getting. A schedule that says the Developer's proprietary tools and methodologies gives it nothing, because the same words cover anything the maker later wants to keep. Clients should also require that additions be approved in writing before the material is used, otherwise a component can become background simply by being included in a delivery.

Where it sits in a generated document

The document generator writes an agreement as numbered content, so the definitions, the ownership statement and the licence back each become their own numbered provision, with the background list referred to as a schedule. The generated text is written from the description it is given and it never prints citations, so any component name or licence scope in a draft has to be checked before the document is used. Describing the licence back in the same sentence as the assignment keeps the two clauses consistent.

Documents that carry this clause

Statement of work template under a master agreementArdent Analytics migrates Coastline Insurance’s claims database to a cloud platform over 18 weeks under SOW-2026-041, governed by a master services agreement dated 3 March 2026. The work is time and materials with four roles priced by the day and a $412,000 estimate before GST, five dated deliverables, ten business days to accept each one, and five assumptions written down before anyone starts.Consulting agreementAn advisory firm reviews three bakeries over seven weeks. What makes this agreement useful is not the fee clause but the two clauses that say what the advice is not.Founders agreement templateTwo people in Fremantle are building a tide and swell planning app and have not registered a company yet. There are no shares to issue, so this agreement fixes the split, records why it is 55/45 while the memory is fresh, and turns itself into shares on the day the company exists.Joint venture agreement template with contributions and splitAn unincorporated joint venture has no company to fall back on, so everything a company structure would supply has to be written down. This one puts two builders together for a single $14.6 million refurbishment, splits it 55/45, and sets out who funds it, who decides, how a deadlock breaks and how either of them gets out.

Questions people ask