When it comes to custom software development, a particularly niggly aspect is around the context of intellectual property rights ownership of the software being created. Understanding how intellectual property rights can be used in the context of business is important. Intellectual property rights can be used to give you a competitive advantage over a rival, help you distinguish your business and provide a potential revenue stream. In this article, we will briefly set out what factors to consider when dealing with intellectual property rights within custom software projects, and how Full Stack deals with such matters.
The legal nature of software
Globally, software is commonly protected by the law of copyright. Whereas there are some exceptions or differences here and there, thanks to international instruments like the Berne Convention the law of copyright is harmonised across most countries.Copyright is seen as a negative right, meaning you as owner can tell other people what they can’t do with your property – similar to regular property, if you think about it. As owner, you have the right to commercialise, transfer or otherwise exploit the rights that you have been given. There are some limitations and exceptions to this, usually to protect individuals who also enjoy limited rights to the intellectual property or who are otherwise dealing with it in a fair manner. Whereas this aspect may be explored more in a later article, for now it is good enough to note that intellectual property is often treated just like any form of property, and the rights, obligations and remedies are also functionally equivalent.In the briefest of terms, a work is eligible for copyright protection if it is published in a recordable format (i.e. it is capable of being copied), is seen as sufficiently original, and is categorised as a recognised work capable of obtaining protection. If the requirements for copyright eligibility is met, automatic protection is granted. Once protected, the owner or beneficiary of copyright can enforce their rights in any country where the Berne Convention applies – for reference, 181 out of 195 recognised countries have signed, so it’s effectively worldwide protection!
Traditionally, software is recognised as a form of literary work, and this is still the case in many countries. Whereas this might sound odd, if you think about code as a ‘book’ that can only be read by a certain amount of people (kind of like latin) it makes a bit more sense. However, because software isn’t exactly like a book, most countries have either adopted a new category for software or developed new rules surrounding ownership and what can and can’t be done with software.The above rules however only apply to the actual software code, which in practice is often only a part of a complete software solution. What also distinguishes software from other literary works is that there would be other aspects which, while part of the software as a whole, are technically seen as separate works. This includes art, databases, technical documentation and other related design elements. These are all subject to their own rights and rules about ownership. It is therefore important to consider how ownership works in this broader context.
Who owns the software?
Copyright law dictates that the author of a work is also its first owner. There are two exceptions to this rule. The first is when the author creates the work in the course and scope of their employment, in which case it belongs to the employer. The second is when the author contracts to assign the work to another. This is usually done in instances where a work is commissioned by another.In the instance where an author assigns their work, there are certain formalities that must be met, otherwise the assignment isn’t valid. Firstly, the assignment must be in writing. Secondly, it must be signed by the author and the individual to whom the rights are transferred. If this is not done, then the commissioner (irrespective of whether they paid for the work or not) will likely not be the owner of the work. It is important to understand that the person who pays for something is not the creator thereof, and so if the rights are not transferred, at best they can rely on some kind of beneficial licence to what has been created.Unlike other literary works, which usually only has one person working on it, custom business software is built by a team of developers, usually led by a product owner. Add to that the further complication of all the separate yet related aspects done by artists and analysts, and it can get quite messy if not properly contracted.So, who is the author of software?
For the code, the person who exercises technical control over the making thereof would be seen as the author. In practice, this would often be the product owner or lead developer as they are the ones taking the broad instructions of a client and ensuring that they are enacted. This would mean the software company owns the code, as the product owner works for them. Similarly so, the individuals involved in the creation of art, design and other technical assets would work for the developer. Hypothetically, in the instance where a client is actively involved in the direction or creation of the work, this might be different, but this is rarely the case in the context of custom business software development (you are, after all, paying for a product that suits your needs so you don’t have to worry about it). Even in such cases, this ownership would only pertain to the code and not other aspects because of how the rules of authorship differs.
Licencing versus assignment
In order to ensure that an individual who commissions the development of custom business software is granted sufficient rights to what they have paid for, it is crucial that there are proper provisions in place. There are two ways in which this can be done. The first is when the developer provides a licence to the client. The second is when the software solution is assigned to the client in accordance with the requirements discussed above. It is important to always check what the contractual arrangement is with your developer, discuss this with them, and come to an agreement.The difference between licensing and assignment can most easily be explained by analogy. Licencing is the same as renting a house and being the tenant. While there is a lease in place, you have the rights of access, use and enjoyment of the property, and these rights are potentially stronger than even those of the owner – it really does all depend on what is agreed upon! However, should the lease end, or be terminated, the rights revert to the owner, and you have very little rights or recourse. Licences can regulate where, when and how long the rights may be used – it’s quite possible, for instance to be granted rights in perpetuity, just like a leasehold. In the case of assignment, instead of leasing the property, you are outright buying it, which means you get all the rights and responsibilities in relation to it.In practice, most software is licenced to clients at a fee, even when ‘buying’ it. This could be once-off, monthly, annually, and may also change based on the amount of people using the software. In turn, custom software can be licenced or assigned, it all depends on the agreement between the client and the developer.
Usually, assignment of software may be a little bit more expensive, given that the developer would not be able to use the code in other projects. There are also aspects which a developer is unwilling or unable to assign to you as they might already have been used in other projects. This is also not uncommon. The reuse of such code means the developer can build things quicker and more cost-effectively in relation. In practice it’s therefore quite possible to have a hybrid arrangement where the new, original work is assigned to a client and a perpetual licence is granted for other aspects.
At Full Stack, we regularly assign new work to clients, while retaining some rights to proprietary libraries of code which don’t pertain to the function or nature of a client’s software and which allows us to expedite certain aspects which are common to a variety of solutions. This provides a client with certainty that they own the core of their software while also allowing us to build it more efficiently. When not assigning code, we ensure that our licences are structured in such a way to ensure effective use and enjoyment of the entire software solution in a manner that is fit of and for purpose. We are also more than willing to discuss what best suits a client’s needs from an ownership and rights point of view to ensure comfort of mind and clarity on these issues, so if you have questions, feel free to ask us.Pieter Koornhof is the Company Secretary and Legal Officer of Full Stack. He holds a variety of qualifications in law, economics and education, including a doctorate on the regulation of internet monopolies. He is also a World Intellectual Property Organisation recognised expert on matters of software, IP and competition, and digital entertainment.
