Ownership Rights in Software
Disputes can often arise between those who commission and pay for the development of software and those who actually write the software. If faced with such a dispute it is important to know which party is entitled to ownership of the software – particularly where the software has significant commercial value.
Alternatively, if there is no right to ownership of the software, it is important to establish the terms of any licence to use the software.
The Rule of Thumb
As a general rule of thumb, the author of the software owns the copyright to the software. The owner of copyright is entitled to an important set of rights and privileges. These include:
- the right to copy the software;
- the right to authorise another party to copy the software;
- the right to distribute the software;
- the rights to authorise another party to distribute the software;
- the right to demonstrate the software; and
- the right to adapt the software (e.g. by adding functionality or bug or error corrections).
An exception to this rule is where an individual develops software as an employee. In this case the employer becomes the owner of the copyright to the software (unless, for example, the contract of employment states otherwise).
Copyright in an original development of software lasts for 70 years from the death of the developer of the software. Where software is jointly developed, the right lasts for 70 years from the end of the year of the death of the last developer.
Consultants and Contractors
In reality most software development is outsourced to consultants or contractors – either personally or through employment agencies. Generally speaking such consultants or contractors will automatically own the copyright to the software they develop unless a contract provides otherwise.
It is therefore common for contractor agreements to contain a clause which transfers all intellectual property rights (which includes copyright) to any software developed to the party paying for the contractor’s development services. An example of such a clause would be as follows:
The copyright and all other intellectual property rights in the software (in both source and object code), the software documentation, the functional specification and in all other listings and specifications and documentation relating to the software shall pass to the Company on acceptance of the software.
The contractor may wish to protect his or her position by providing that :
The Developer reserves the right to use in any way it thinks fit any programming tools, skills and techniques acquired or used by the Developer in the performance of this Contract.
This is a reasonable and valid way of preventing the company for whom the software was developed from arguing that the Developer can never again utilise the same method of working.
Where an employment agency is responsible for placing a freelance software developer with the company paying for the software development, it is especially important to ensure that copyright in the developed software is transferred to the end user.
This is because copyright in the software will typically belong to the freelance developer unless transferred to the agency. The agency will then also need to transfer ownership of the copyright to the party commissioning the software development.
In an attempt to avoid the taxation consequences of IR35, many freelance software developers have established themselves as companies. However, both developers and those responsible for commissioning the development of software should recognise that it is possible (even highly probable) for freelance developers to be deemed ‘employees’ and not ‘contractors’.
In determining whether an individual is an employee or an independent contractor, various tests are applied. These tests include an assessment of the level of authority that an employer has over the individual. For example, an employer that pays an individual holiday pay, sickness benefits, provides a pension and health insurance and dictates the precise hours and place at which the individual will work will almost certainly be deemed an employee and not a contractor – irrespective of the fact that the employer has a contract with the contractor’s company – and not with the employee.
This is critically important as if the independent contractor is found to be an employee, the employer will automatically be entitled to ownership of any software created by the developer. This may not be what the developer or employer intended. It is therefore critical that a development contract between employer and employee/independent contractor specifically deal with ownership of copyright. Failure to do so may leave the developer unable to resell his software in other markets.
On occasion a party commissioning the development of software recognises that it will not own copyright to the software – only a right to use the software. In such scenarios the software developer may wish to sell the software to other potential users. The costs of such a development will generally be less than the cost of obtaining exclusive rights to the developed software – as the developer will have the opportunity to make additional profits from sales to third parties.
However, if the party that commissions the software development does not own copyright to the software, it will be important for him to know the terms of the software licence which permit use of the software.
For example, is the licence limited in time or to a number of users? Will you be entitled to receive an Euro compliant version of the software without additional charge? Is your use of the software restricted to a particular server?
It is therefore extremely important for the parties to agree the terms of a written software development and licence agreement that sets out in full the rights to use the software and which provides for other matters such as the provision of support and maintenance services by the developer and the release of the source code in the event that the developer becomes bankrupt or dies.
Given the above, we recommend that both software developer and the organisation paying for the software development clearly set out in a written software development agreement who is to own copyright in the software. Where ownership of copyright is to be transferred (e.g. from the developer to the company paying for the development), it will be necessary for there to be a formal written transfer of copyright.
Further, if you have a software development agreement, but something changes during the course of development then ensure that the change is reflected through a formal written amendment to the development agreement.
The cost of developing a customised software development contract or software licence is minimal – usually no more than £1,000. The costs of using the courts to settle ownership disputes are immense – typically not less than £20,000. Add to this the management time taken to resolve any dispute and the risk that a court may limit your right to use the commissioned software, our firm advice is that you always utilise a formal, written contract.
To discuss any queries regarding software or copyright on an informal basis with no obligation, please call Mark Roberts on 0161 826 9309.