The Scottish Executive ruling forces charities to give up ownership of items their work creates, such as scientific research, publicity materials and computer software, as well as sacrifice any profit.
The new contracts, which were introduced without consultation, drew a fierce response from the Scottish Council for Voluntary Organisations.
"What the voluntary sector creates, the public sector would own," said SCVO policy officer Andrew Jackson. "For a small organisation, having to cede ownership of a quality youth-work educational or training pack is outrageous. The rules suggest the Executive has the right to the intellectual property of anything created using its money."
The Department for Education pioneered the new grants regime, which the Executive intends to implement across all departments. Its conditions state that "all intellectual property rights are assigned to and shall vest in the Crown". This applies to "all rights of ownership" of books, leaflets, computer software, patents, trademarks and registered designs.
The lack of consultation is in breach of the Compact. The Executive has since belatedly agreed to a four-week moratorium so that SCVO can consult its members. But the Department of Education has said that it will not withdraw the new conditions.
A spokesman for the Executive said that the rules were justified: "Part of the conditions mean that the Executive can retain intellectual property rights on research undertaken using public funding," he said.
"This is nothing new and has existed for some time. In these circumstances it is correct that that we should own intellectual property, as the taxpayer is paying for intellectual property to be developed."
SCVO is also concerned about a condition in the Department of Education contracts, stating that grants will not be paid until three months after the beginning of the financial year.
It believes that many organisations will not have the resources to cover the gap in funding.
Grants criteria to be introduced by the Scottish Executive will allow it to retain intellectual property rights over materials created by voluntary organisations using public money
Umbrella body SCVO is opposed to the move
The Executive says that the state should own intellectual property whose development is paid for by taxpayers.