Who owns your Software Copyright?

Software Copyright

You’ve paid someone to develop software for your business.  But do you own the software copyright?

Sadly the answer is not all clear cut. It depends.  In this post we examine the quirks of software ownership and software copyright that can trap the unwary. For more information, check out our other article on how to avoid getting screwed by a web designer.

Copyright Belongs to the Authors

The most important form of intellectual property law applicable to software is copyright law.  Both source code and object code can be protected under copyright law. Generally speaking, the authors (or developers) of a piece of software own the copyright to the code from the moment it becomes fixed in a tangible form.  No filings, registrations, or notices are required.

What does this mean to you?  If you hired someone to develop software, by default that software will likely belong to the developer, not to you.  In some cases, this may be the desired result.  If you wish to retain the ability to use the code, however, you will need to make sure that either:

1. the software was made as a “work for hire,”
2. the authors assign the rights to the software to you,
3. or you have obtained an appropriate written license that covers the software.

Works For Hire

There is an exception to the rule that the author owns the software copyright.  If a work is created as a “work for hire,” the employer is considered the legal author, and therefore owns the copyright in the work.

There are two ways a work can be a work for hire.  First, and most intuitively, software is considered a work for hire if it is prepared by an employee within the scope of his or her employment.  Thus, if a corporation hires developers to create a new electronic medical record system, said corporation will own the copyright in their work.  Employers who wish to rely on this must be careful to distinguish who is making the software! Employee work falls under the work for hire doctrine, but work from independent contractors does not.

The second way a work can be made for hire is if it is specially commissioned, falls into one of nine very specific categories, and there is a written work for hire agreement.  Software is generally considered a literary work, and literary works are not one of the nine categories of works that can be specially commissioned.  So, despite the fact that many software contracts recite that software is a work for hire, it would be unwise to rely on such a clause.  If the intent is that the person paying for the software owns the software copyright, such a clause should also be backed up by an appropriately tailored assignment.

Assignments

The most powerful way to retain ownership of code written by third parties is by assignment.  Where the employer has sufficient bargaining power, the software contract should assign the software copyright in the code to the employer.  Where a valid assignment exists, the only right retained by the author is the right to terminate the assignment between 35 and 40 years after the assignment.  For most projects, this will exceed the useful life of the software.  Assignments are the preferred approach when contracting out development to third parties.

Express Licenses

Another common method of apportioning ownership rights in software is the license. A license represents the permission of the owner to use, copy, distribute, publicly perform or display, or create derivative works of a copyrighted work.  The scope of the license can be restricted in numerous ways.  Licenses can be perpetual or for a limited term.  They can be exclusive or non-exclusive.  They can restrict the manner in which the software may be used.  And of course, they can and often do create flexible and creative mechanisms governing payment for all of these rights.  A software attorney can help you tailor a software license to fit just about any business arrangement.

Implied Licenses

If your company paid for software that was not a work for hire, was not assigned, and was not covered by a written license, there is still a chance you can obtain non-exclusive rights to continue to use the software.  Courts may create an “implied license” when:

1. the licensee requests the creation of a work,
2. the licencor makes that particular work and delivers it to the licensee who requested it,
3. the licencor intends that the licensee-requester copy and distribute his work.

Whether this test is met is a highly fact-specific determination, and licensees are well-advised to avoid this by using an appropriately drafted contract, license, or assignment.

In Conclusion

Software ownership is not a difficult area, but there are a number of traps for the unwary.  If you have questions about your software copyright, don’t hesitate to contact us.

Law 4 Small Business, P.C. (L4SB). A little law now can save a lot later.