Module 4 of 6 — MSAs for Indian Businesses

IP Ownership: Background vs Foreground IP

Reading module · approx 14 min

IP ownership in services contracts is the single clause most commonly left ambiguous, and the ambiguity is almost always discovered at the worst possible moment: when the relationship ends or when the customer tries to use or modify what was delivered.

Indian copyright law, under the Copyright Act, 1957, treats works created in the course of employment differently from works created by independent contractors. For employed authors, copyright vests in the employer by default. For independent contractors and companies engaged under a services agreement, there is no equivalent default rule — the author (the creating company or individual) retains copyright unless it is expressly assigned. This is the central IP risk in services contracts.

Background IP

Background IP is intellectual property that a party owns or controls before the engagement begins, or that it develops independently of the engagement. For a technology provider, background IP typically includes its pre-existing codebase, frameworks, methodologies, tools, and any components it uses across multiple client projects.

The MSA should state clearly that each party retains its background IP, that the provider licenses (but does not assign) background IP to the extent embedded in the deliverables, and that the customer may not reverse-engineer, adapt, or transfer the provider's background IP beyond what is necessary to use the deliverables as intended.

Foreground IP

Foreground IP is intellectual property created specifically during and for the engagement. The question of who owns foreground IP is the most negotiated provision in the IP section.

Providers typically want to retain foreground IP and grant the customer a licence to use it. This allows the provider to reuse and commercialise what it builds. Customers typically want to own foreground IP outright, particularly where it constitutes the core product being built. The compromise — common in bespoke development contracts — is customer ownership of foreground IP with a retained licence for the provider to use its own know-how and methods in other projects, with a carve-out ensuring the provider does not give a competitor the same work.

Work for hire in India The "work made for hire" doctrine that operates under US copyright law does not have a direct equivalent in Indian law. In India, the only routes to IP ownership for a commissioning party are: (1) written assignment of copyright from the creator; (2) employment (works by employees vest in the employer under section 17 of the Copyright Act). A commissioning party that does not obtain a written assignment does not own the copyright — even if it paid for the work to be created. This is a common and significant gap in Indian services contracts.

Assignment mechanics

A copyright assignment in India must be in writing and signed by the assignor or an authorised agent. Verbal assignments are not effective. The assignment should specify: the work being assigned, the territory, the duration, the consideration, and whether the assignment is exclusive. An assignment that is silent on territory or duration may be construed as limited in scope.

Module 5 covers the commercial and tax dimensions of MSA payment clauses — including how GST and TDS apply to services contracts.