27.8 IP ownership and rights for Commonwealth agencies and institutions

27.8.1 Determining the appropriate type of IP ownership for the Commonwealth

The agency should specify in the solicitation the type of IP ownership arrangement that it is seeking and whether the IP terms and conditions are negotiable. This approach may reduce the likelihood of protests as well as the expense and time spent by the agency and supplier negotiating IP rights. The IP ownership arrangement should be selected after carefully considering the options available to the Commonwealth and determining which ownership option best suits the agency’s business needs or the IT project.

Addressing IP ownership issues during the solicitation phase helps ensure an even playing field for the Commonwealth and potential suppliers.

In instances where an agency, as defined by § 2.2-2006, is contemplating procuring software products, services and related deliverables for which IP ownership may be needed, the agency should consider whether the benefits of total ownership will outweigh the costs. Agencies should consider: (1) the cost of IP ownership, (2) the cost of alternative IP ownership arrangements, such as a licensing arrangement with the supplier, and whether a sufficiently broad license right can be procured, (3) the number of potential users of the IP, and (4) the potential risks associated with IP ownership, including possible IP copyright and patent infringement suits and future support and maintenance. If an agency insists upon total IP ownership with no license back to the supplier, suppliers may be discouraged from submitting a proposal at all and this could increase the total amount of a contract.

The norm for most IP ownership is that the supplier retains ownership of the IP and the customer takes a perpetual, non-exclusive license. Some different licensing/ownership configurations are discussed below:

  • Agency/Commonwealth owns IP with a license to the supplier-Commonwealth or the agency owns the IP that is the subject of the IT contract. The agency grants the supplier a license to use the IP developed under the contract with other customers, to create derivative works and to authorize others to use the IP. License granted to supplier allows supplier rights tantamount to ownership and mitigates supplier’s concern over surrendering IP ownership.
  • Supplier owns IP with a license to the Commonwealth (or agency)-Supplier retains ownership of IP but provides the Commonwealth (or agency) with a license to use the IP. This arrangement tends to be favored by suppliers, since it makes it easier for them to use the IP in projects for other clients. The supplier can grant the agency a license tantamount to ownership in terms of the breadth of the rights. The benefit to the agency or Commonwealth of this arrangement is that the agency does not have to assume the burdens of IP ownership, including the potential for copyright infringement lawsuits.
  • Commonwealth or agency owns IP with no license to supplier-Commonwealth or agency owns the IP that is the subject of the IT contract, and the supplier does not retain a license to the software to use the IP for other customers or purposes. Suppliers reject this type of arrangement as they want to retain their IP and any future revenue. Suppliers will charge higher prices to offset the value of IP ownership. Only a few suppliers would be willing to agree to this type of ownership arrangement, thus reducing competition and increasing pricing.
  • State-contractor joint ownership-Commonwealth and supplier claim joint ownership over IP. Joint ownership may create an opportunity for both the Commonwealth and the supplier to benefit from the revenue generated by the redistribution of the IP to other states or entities. Both parties should assess all potential issues of IP indemnification and copyright infringement and determine how they may be appropriately handled in the context of joint ownership.