Every developer, agency or specialist you engage carries a history of work with them. By the time they start on your project they have source libraries, templates, brand assets, datasets and know-how built up over years of other engagements. In IP terms that material is background IP, also called pre-existing IP, and it is separate from the new material the project itself produces. The split matters because it decides who can use the finished product, who can maintain it, and who can take it and sell it elsewhere.
The law's answer starts with a set of default ownership rules, one for each type of IP, which apply automatically when an engagement is silent. A written contract can then move those rights in either direction. This guide walks through how the defaults operate for employees and contractors, how a licence differs from an assignment, and the clauses that settle who owns what before work begins.
Background IP and project IP: two buckets, one contract
What counts as background IP is not defined in any statute. It is a drafting convention: background IP is anything that existed before the project started and that a party brings into it, while project IP, sometimes called foreground IP or new IP, is what gets created while the project runs. A typical engagement agreement defines both terms against the commencement date so there is no argument later about which bucket a piece of material falls into.
Examples of background IP a supplier might bring:
- Source code: libraries, frameworks and internal tools a developer wrote for earlier clients.
- Creative assets: design templates, style guides, photography and fonts an agency already owns.
- Business assets: proprietary processes, training content, datasets and algorithms.
- Registered rights: patents, trade marks and registered designs a party holds.
Examples of project IP:
- Built outcomes: the application built for you, the website or the specific feature set.
- Designed outcomes: the logo drawn to your brief, the brand guidelines produced for you.
- Written outcomes: the course content or documentation produced under the contract.
The distinction earns its keep because the two buckets are treated differently. Background IP is usually the foundation a supplier reuses across many clients, so they will want to keep it and licence it to you. Project IP is the outcome you paid for, so you generally want to own it outright or hold a licence broad enough for your actual use. Sorting material into the two buckets on day one is what lets the rest of the contract allocate rights cleanly.
The defaults that apply if you sign nothing
Australian law allocates ownership by default, and the defaults differ by type of IP and by whether the creator is an employee or a contractor. Three Commonwealth statutes do most of the work, and the leading case on inventions marks the boundary of the employee rule.
Employees: the employer takes copyright, but not everything
Copyright in a literary, dramatic, artistic or musical work made by an employee in pursuance of the terms of their employment under a contract of service is owned by the employer under s 35(6) of the Copyright Act 1968 (Cth). Note the words "in pursuance of the terms of their employment". Work a salaried designer produces as part of their job belongs to the business. Work that sits outside the scope of their duties may not.
The Full Federal Court drew the same boundary for inventions in University of Western Australia v Grey [2009] FCAFC 116, where the university failed to establish ownership of a professor's patents because inventing was not part of his duties and no express term assigned the inventions to it. For inventions, an employer's entitlement is not automatic. It depends on the scope of the employee's duties and on what the contract says.
Section 35(3) of the Copyright Act also lets the parties modify the employment default by agreement. An employment contract can confirm what the business owns, expand it to cover works made outside strictly defined duties, or narrow it where the employer wants to leave side projects with the employee.
Contractors: the creator keeps the rights unless the contract moves them
Independent contractors sit outside the employee rule. Copyright in their work belongs to the author by default under s 35(2) of the Copyright Act 1968 (Cth). If you engage a freelancer and do nothing, they own the copyright in what they deliver and you hold at most an implied licence to use it for the purpose of the engagement, the scope of which is often narrower than businesses assume. Ownership requires an express assignment.
Patents work the same way. A patent may only be granted to the inventor or to a person who derives title from them, so an engager's rights depend on an assignment under s 15(1) of the Patents Act 1990 (Cth).
Registered designs flip the other way. Under s 13(1) of the Designs Act 2003 (Cth), a design created in the course of employment, or under a contract, with another person belongs to that other person unless the designer and the other person have agreed otherwise. A design created under a client contract can therefore vest in the client by default, which surprises suppliers more than clients.
Registered rights follow the register
Trade marks sit with the registered owner, who may deal with the mark as its absolute owner under s 22 of the Trade Marks Act 1995 (Cth). Ownership of a registered right only moves by a recorded assignment, not by paying for the work that used the mark. The same logic applies to patents and registered designs: the register records who holds title, and any assignment should be recorded so the register reflects reality.
Moral rights survive ownership
Copyright ownership is only part of the picture. The individuals who created the works keep moral rights: the right to be attributed, the right not to have the work falsely attributed, and the right of integrity. These survive any assignment of the economic rights. The Copyright Act lets a creator consent in writing to acts that would otherwise infringe those rights, and an employee can give a standing consent for the benefit of their employer under s 195AWA. For public-facing work, consent clauses are standard, because without them a business that edits a design or publishes without credit can face a moral rights claim from the individual who made it.
Licence or assignment: how rights actually move
Once you know who owns what by default, the contract decides how rights move. There are two mechanisms and they do different jobs.
Licence: permission without transfer
A licence lets the owner keep title while the other party gets defined rights to use the material. It is the usual vehicle for background IP: the developer keeps their libraries and you get the right to use, maintain and develop the product built on them. A licence that works sets out the scope of permitted acts, the purpose it is limited to, whether it is exclusive, the territory and term, any fees, and whether it can be sublicensed to subcontractors or affiliates. Where the licence is attached to a deliverable that must keep working, the term is often perpetual and the territory worldwide, because a licence that lapses when the contract ends can leave the client unable to run its own product.
Assignment: title changes hands
An assignment transfers ownership permanently. It is the vehicle for project IP you must own outright, whether to sell the product, licence it onwards, or give investors the clean title position they expect. Copyright assignments only take effect if they are in writing signed by or on behalf of the assignor under s 196(3) of the Copyright Act 1968 (Cth). A handshake, an email chain or a paid invoice does not assign copyright. Trade marks may be assigned with or without the goodwill of the business and for part only of the goods or services under s 106 of the Trade Marks Act 1995 (Cth). Once granted, a licence binds successors in title to the copyright owner, so a properly documented licence survives a change of ownership under s 196(4) of the Copyright Act.
The clauses that move the rights
The defaults only change if the agreement says so. The standard machinery in an engagement agreement looks like this:
- Definitions: define background IP and project IP against the commencement date so every material item can be classified.
- Ownership: state who owns project IP on creation, and include an automatic assignment if the client is to own it, so title passes without a further document.
- Licence grant: give the client a licence to the background IP needed to use the deliverables, typically perpetual, worldwide and royalty-free, and cap it at what the deliverables actually need.
- Carve-outs: reserve the supplier's right to keep using their own background IP for other clients, and say so in writing.
- Moral rights: set attribution standards and obtain written consents where the client may alter works or publish without credit.
- Third-party materials: list what is included, such as fonts, stock imagery and plugins, whose licences govern them, and who pays ongoing fees.
- Open source: require disclosure of open-source components and assign responsibility for complying with their licence terms.
- Confidentiality: protect disclosure of background IP before the deal is done, usually through a non-disclosure agreement.
- Exit rights: cover handover of files and repositories, and which licences survive termination.
Where the mechanism bites
The defaults and the clauses meet in a handful of recurring failure points, and they are worth knowing before you sign rather than after:
- Paying does not equal owning: The most common assumption is that commissioning and paying for work transfers copyright. It does not. Without a written assignment you may hold only a narrow implied licence, and you cannot safely resell, relicense or even modify the work.
- "In the course of employment" is narrower than it sounds: Grey shows the boundary: inventions made outside an employee's duties, or without an express term, can stay with the employee. Employment contracts should require disclosure of inventions and cooperation with any patent filings.
- Designs default the other way: Under the Designs Act, a design made under a client contract belongs to the client unless agreed otherwise. A supplier who assumes they can reuse a bespoke design for the next client may need a written reservation to do so.
- Moral rights are personal: The creative who designed your logo can still insist on attribution years later unless they consented in writing to the uses you have in mind.
- Open source flows through: Undisclosed open-source components bring their own licence obligations, and some licences can require the client to release its own source code. A schedule of components and their licences removes the surprise.
- Exit is where relationships fray: Without handover obligations and licence survival clauses, a terminated project can strand the client with unusable files or no right to keep using the product that was built.
Getting the allocation right with Artificer Legal
The defaults are fixed but the contract is not, and that is where a practitioner earns their keep. An IP lawyer can work out which defaults apply to your specific relationship, draft the definitions, ownership and licence clauses that match the actual deal, and review the supplier's standard terms, which usually favour the supplier. For a client, the practical work is checking that the licence to background IP covers the channels you actually sell through and the modifications you will make. For a supplier, it is making sure the carve-outs let you keep working for other clients and that you are not assigning more than the deliverables require. Getting this assessed early, before work starts, is far cheaper than unwinding a dispute after delivery, and a consultation can usually identify in an hour which clauses your current template is missing.
The decision point is before work starts
Every part of this mechanism is controllable at the contracting stage and almost none of it is after the fact. Ownership does not follow payment, it follows the document: if the agreement is silent, the statutory defaults decide, and they rarely match what a business owner assumed they paid for. The allocation clause in the engagement agreement is where the value and the risk concentrate, so it deserves scrutiny before the first invoice.
Background IP is anything a party brought to the project; project IP is what the project created. Employees' work within the scope of their duties generally belongs to the employer, contractors keep their rights unless the contract assigns them, and registered rights follow the register. Licences move permission, assignments move title, and copyright assignments need writing. Definitions, an ownership clause, licence scope and moral rights consents are the clauses that make the outcome predictable.