Software agreements require hard examination

Infotech and the Law | Legal insights for today's market

James G. Gatto

Subtle points in software development agreements can make a huge difference. Certain provisions in such agreements are imperative to ensure that you own the intellectual property that you think you do. Most information technology professionals and contracting managers are familiar with the high-level concepts regarding intellectual property but often overlook some of the more subtle points outlined below.

Work for hire. Many development agreements specify that the work is work for hire. Unfortunately, merely designating a project as work for hire will not ensure that the paying party owns all of the intellectual property. Work for hire is a term specific to the copyright laws and is not relevant to ownership of patent rights.

Under patent laws, absent an express agreement or obligation to the contrary, the inventor is the owner of any patent rights. Therefore, designating a project as work for hire is not enough to secure those patent rights. The agreement must specify that the paying party will own all rights, including all intellectual property rights, in any work developed under the contract. It should also include an express assignment of those rights to the paying party.

Modified versions of the work. Another subtle point arises when a company pays a developer to create a particular application, and the developer later wants to create a variation of that work for another application, industry or company. Even if all the intellectual property developed under the contract is assigned to the first company, the developer may be able to reuse the work in a rewritten form for another firm without risk of copyright infringement. In addition, if the patent applications the first company filed are limited to a particular application or industry, the developer may be able to use a rewritten version of the software in another setting without infringing the patents.

If that happens, the first company would have paid a large sum to the developer for the work only to have the developer reuse the work for the benefit of another company, typically, at a fraction of the cost. In some cases, this may be appropriate. However, it means the original company doesn't own as broad a scope of the intellectual property rights as it thought it did.

To resolve this issue, the initial agreement could specify that all of the initial design documents, such as functional specifications and schema, are confidential and owned by the company. Further, the agreement should prohibit the developer from using any of those documents or any portion, modification or variation of the work. In this way, the contractual provisions can prevent a potentially inequitable situation, even in the absence of an actual infringement.

Open source. Ensuring that the developer does not use certain types of open-source code in the work is another point that companies often overlooked. Under certain licenses, such as general public license, if any open-source code is part of the work, the entire work must be licensed under the general public license. Among other things, the source code must be provided with any distribution of the work. That means the code may be released into the public domain.

Avoiding problems. Many IT professionals and contract managers are aware of high-level intellectual property issues but overlook the subtle ones. To avoid problems that may arise with those subtle points, you should consult an intellectual property attorney to review any development agreement to ensure, to the greatest extent possible, that you own all of the intellectual property you think you own or want to own.

James G. Gatto is an intellectual property partner at Pillsbury Winthrop Shaw Pittman LLP. Rick A. Toering, another intellectual property partner with the firm, contributed to the article. They can be reached at james.gatto@pillsburylaw.com and rick.toering@pillsburylaw.com.

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