Labels, annotations and derived data: who owns what the buyer adds?

What counts as derived data in a data license?#

Derived data in a data license is anything the buyer creates from the licensed records, and the contract's definition decides which of those creations the derived data clause governs. Without a definition, the parties are left arguing over whether a label, a statistic or a vector counts as a copy of the records or as something new.

A workable definition lists the categories and then says what is excluded. One common shape reads: Derived Data means labels, annotations, enrichments, statistics, embeddings, synthetic records and other data created by or for Licensee from the Licensed Data, excluding trained model weights. Models are then handled in their own clause, because they raise different questions.

• 1Labels and annotations: tags, classifications, ratings and corrections added by the buyer's staff or contractors.
• 2Enrichments: licensed records joined with the buyer's other data.
• 3Aggregates and statistics: counts, averages, distributions and benchmarks.
• 4Embeddings: numeric vector representations of records or passages.
• 5Synthetic data: new records generated to resemble the licensed ones.
• 6Model weights and evaluation results: what training and testing produce.

Ownership matrix: default and negotiated positions#

The ownership matrix below shows where derived data usually lands when a contract is silent or loosely drafted, and how each side tends to negotiate. Positions vary by deal, buyer and price, so read it as a map of the bargaining range, not a rule.

Two rows cause most of the negotiation. Labeled records matter because they are where buyer ownership and supplier restrictions collide, and embeddings matter because engineers often treat them as disposable technical artifacts while lawyers treat them as copies. Settle both explicitly rather than leaving them to the general ownership clause.

Why the reveal-the-source test matters more than ownership#

The reveal-the-source test matters more than ownership because a buyer can own a derivative that still carries the supplier's records. A label attached to a support ticket is useless without the ticket, so a labeled dataset is in practice a copy of the licensed data with something added. Treating labeled records as licensed data for as long as they stay attached keeps the supplier's restrictions in force.

Less obvious derivatives can leak too. Research has shown that some embeddings can be partly reversed to recover the source text, synthetic records can repeat rare real ones, and aggregates over small groups can point to a single customer or employee. A supplier does not need to own any of these, but it should control how far they travel outside the buyer.

Clauses that protect a supplier#

The clauses that protect a supplier work together: one defines derived data, one allocates ownership, and the rest limit distribution, re-identification and retention. A single broad ownership clause in the buyer's favor can undo all of them, so read the ownership clause last, against the others.

Provenance standards point the same way. The Use group of the Data & Trust Alliance's Data Provenance Standards includes elements for license to use and intended data use, which reflects how buyers increasingly track permitted use as metadata that travels with a dataset and its derivatives.

• 1Definition of derived data that names labels, embeddings, aggregates and synthetic records.
• 2Treatment of labeled or enriched records as licensed data while they contain source content.
• 3No redistribution, sublicensing or publication of derivatives that can reproduce or reveal records.
• 4No attempt to re-identify people or customers, with the obligation passed to any contractor.
• 5Minimum group sizes or similar safeguards before aggregates leave the buyer.
• 6Deletion or return at term end, with clear exceptions such as trained model weights.
• 7Survival of confidentiality and re-identification limits after termination.

When a supplier should ask for the labels back#

A supplier should ask for the buyer's labels back when expert annotations on its own records would be useful to the business, for example root-cause tags on quality records or resolution categories on support tickets. A grant-back gives the supplier a license to use those labels internally, which can feed its own analytics or future AI work.

Buyers sometimes resist because labels reflect their methods and spend. A narrower grant-back, limited to labels on the supplier's own records and to internal use, is easier to agree. Keep the supplier's existing tags, such as ticket categories and dispositions, clearly inside the licensed data so they are not mistaken for buyer creations.

Illustrative example: a distributor licenses order exceptions#

Illustrative: a fictional industrial distributor licenses order exception records from Epicor, with the related customer service emails, to a model developer. The developer's annotators tag each exception with a root cause and a resolution type. The distributor's general counsel negotiates the derived data clause before anything is delivered.

The final license gives the developer ownership of its labels and models, treats labeled records as licensed data that may not leave the developer, allows aggregates only above an agreed minimum group size and requires deletion of records, labeled records and embeddings at term end. The distributor receives a grant-back of root-cause labels for internal use, which its operations team later uses to review recurring exception patterns.

How SourceX handles derived data terms#

SourceX sets derived data terms during the Approval step of the SourceX five-step transaction, after Preparation has reduced what any derivative could reveal. The supplier approves the permitted use, including how labels, aggregates and models may be handled.

The agreed position is recorded under permitted use in the SourceX Evidence Packet, alongside provenance, licensing rights, the privacy record and release authorization, so both sides can check later what the buyer was allowed to create and keep.