New England Biz Law Update
Your company has developed new software and is eager to place it in the market. Management asks you as in-house counsel to create a license agreement that protects the company’s interests fully. Where to start? Paul Cohen, general counsel of Emptoris, Inc., provides the following tips on how to handle issues you’ll likely need to consider. Emptoris, which is based in Burlington, Mass., is a provider of sourcing solutions that support the end-to-end strategic sourcing needs of Global 5000 companies.
* * *
Q. Who might claim ownership in the company’s software and how do you defeat those claims in the licensing agreement?
A. Generally speaking, the law of copyright governs software and copyrights belong to the author of a work with certain pertinent exceptions. The copyright belongs to the company when an employee in the course of his or her employment creates a work. If a company uses independent contractors, the company should have them sign an agreement stating the work shall be “made for hire.” It is important to document that each person involved is either an employee, or is an independent contractor doing the “work for hire.” As a practical matter, you should have all employees and contractors assign all works at the beginning of their employment or engagement, and sign all appropriate documents certifying your company’s ownership. Unlike with copyrights, evidence of ownership in other intellectual property does not flow automatically from the employer-employee relationship.
Q. How can you police your license against it being pirated?
A. Software is difficult to protect because it is very easy to duplicate. You might want to consider these steps:
1. Always distribute the software with a license agreement that spells out ownership of the product and limits on its use. This can be done via a written bilateral agreement for an extensive piece of software or via a shrink-wrap or click-wrap license for mass-produced and distributed software.
2. Depending on the type of software and how it is licensed, you may be able to put a “time out” feature in the software which will not allow use unless fees are current. This is usually controlled by a “key’ which the software publisher distributes when fees are paid.
3. Get involved with an enforcement group such as the Business Software Alliance (BSA, www.bsa.org) or the Software & Information Industry Association (SIIA, www.siia.net). Both organizations represent commercial software developers and educate the public about the ethical and digital security risks associated with unlicensed software use. These groups supply tools and methods to its members help police the use of their software.
4. It may seem a little harsh, but make an example of someone. Statutory civil and criminal penalties exist for copyright violations. If you find your software misappropriated, go after the wrongdoer and make sure other people know about it. This is what the music industry is doing with downloads.
You must be vigilant in protecting your software. Unauthorized copies not only cost millions of dollars in lost revenue, but also can damage a company’s reputation by having its products misappropriated and misused.
Q. Do you need to comply with copyright notice, registration and publication procedures?
A. Yes and no. Copyright law protects “original works of authorship.” In order to be afforded copyright protection, a work must “fixed in a tangible form of expression.” The protection derives form the setting down of the expression not from a notice or registration.
Even though an actual notice is not a requirement, it warns would-be infringers of the ownership. Always make sure that the software has a copyright notice on the physical disk, the opening screen, and the “about” box (or similar location). This is clear evidence of ownership. For example: “Copyright XYX Corporation 2000-2002. All Rights Reserved.”
Registration is also not required but gives additional protection. Publication is a prerequisite for an owner to get statutory damages. It also creates a presumption of validity and ownership in the work.
Q. Do you need to apply for a patent?
A. It’s not necessary, but should be strongly considered. Copyrights protect the actual expression, not the underlying ideas. Patents protect ideas that are novel, non-obvious, useful, reduced to practice, timely filed and sufficiently and properly disclosed to the government. The proper filing and securing of a patent will give the owner a government granted monopoly preventing others from using that patentable idea. In reality, there is huge backlog in the patent office for technology related applications, so many companies need to go out with their products before patents issue rather than wait through a two- or three-year application process. Still, it is important to use the patenting process. A patent can be used both offensively and defensively against rivals to stop them from using a patented idea or to collect royalties. Alternatively, a company may create a patent portfolio to use as negotiating tools in case it is ever accused of patent infringement.
Q. What’s the best form of agreement? Written? Implied through use? Automatic upon breaking the shrink-wrap?
A. It all depends on the type, use, cost and complexity of the software. It wouldn’t make sense to negotiate a license for each $20 piece of game software, but it certainly would for a multi-million dollar corporate-wide license.
