WHO OWNS THAT SOFTWARE?

August 9, 2017  |  Carole Clark Isakson

Ownership is important… especially in the context of a sale. If you want to sell your company, whether as an asset sale or through an ownership sale, the buyer will want to make sure that it can continue to use the software that you use. Conversely, if you are buying a company, don’t forget that the accounting software and whatever else is used in running the company is an important asset! Business owners FREQUENTLY forget about this.  When investigating assets do not forget about the software (and make no assumptions…)
Ownership is incredibly important, as this gives that person:

1. The right to reproduce the code
2. The right to create “derivative works” based on the code
3. The right to distribute copies of the code
4. The right to “display” the code, for example by posting to a web site. (17 S.C. § 106)

The basic rule is this – the person that puts fingers to the keys and creates the code, owns it, except for three exceptions….  

There are three exceptions to the basic rule that almost consume the rule itself.  These exceptions are:

1. Work “made for hire”
   • Code written by an employee in the SCOPE OF EMPLOYMENT
   •  Work specifically contracted for (i.e. project based) in one of ten named categories (see 17 USC 101) AND the written agreement states that the work is being done as a “work for hire”.
     So… what about the cousin that came in and helped out?   
     What about the programmers in Turkey?
     What about the receptionist that helped out in IT?
2. License or Assignment. Most software is the subject of a license agreement which will set out the rights of the parties, including ownership. A license is a use right, and assignment is a transfer of ownership. Naturally, the detailed agreement should set out the how ownership rights will be reflected between the parties.
3. Open Source Code. Open Source code is free, but that does NOT mean that it comes without usage rules, it does. The open source code itself will be subject to a license agreement you must follow. Note the difference between derivative software, and software written to perform on an open-source platform.

Recommendations:
If you are hiring outside programmers, make sure the agreement meets the requirements for a work for hire, and get ALL IP assigned absolutely to your company.
When hiring an employee for your IT department, ask him or her to 1) disclose any inventions he claims to have created prior to you hiring him, and 2) have him sign an agreement putting him on notice that all work done now is work for hire and done for the company.
When buying or selling a business, pay just as much attention to the software ownership issues as you do to the lien search or building inspection.
When in doubt? Consult with an attorney that practices in this area.