Vicki Ballou, The Daily Record Newswire
It’s hard to remember what life was like before software permeated every aspect of business management — from inventory control, marketing, point-of-sale transactions and shipping to human resources, sales analytics and customer relationship management. Businesses today are purchasing software or contracting with software developers to support virtually every function of their enterprise.
Any buyer of software — or photos, text, graphics, music, video or other copyright-protected work — needs to understand that the rules governing ownership and use of such material are different from the rules governing other types of personal property. Typically, one who buys inventory or equipment and takes possession becomes the owner. However, people who assume that the same rule applies to copyrighted material often learn the hard way that it is a different animal.
Consider the following typical example.
Company A pays a developer to create an enterprise software program tailored to the company’s unique business processes. The company comes up with the functional requirements and other ideas, and the developer writes the code implementing those ideas. The documentation for the deal consists only of the company’s purchase order and the developer’s invoices.
A few years down the road, the company has the opportunity to sell its assets for a princely sum. One of the company’s crown jewels is its custom software. The buyer wants the company and its owners to warrant that the company can transfer ownership of, or at least a license to use, that software to the buyer.
To its surprise, the company discovers that even though it had paid the developer to write the software, not only does the company not own it, but the buyer won’t have the right to use the software after the sale. To make matters worse, the buyer discovers that the developer is now licensing similar software to the company’s competitors. A key asset that made the company an attractive acquisition is no longer available to the buyer.
Copyright law is clear: If a work is covered by copyright, the person who created it owns it and has the exclusive right to control its use, reproduction, modification and distribution. That’s true even for material posted on the Internet — regardless of whether the material has a copyright notice or has been registered with the United States Copyright Office.
There are a few exceptions.
If material was created by an employee in the course and scope of employment, the employer owns the copyright. This is known as a “work made for hire.”
Ownership of the copyright can be transferred if the creator signs a written document.
The person who paid an independent contractor to create the work has an implied license that allows use of the work in that person’s business. However, those usage rights cannot be transferred to anyone else.
Some instances are “fair use” — as in commentary, satire and some other situations that do not deprive the copyright owner of the ability to make money from the work.
The consequences of ignoring another person’s copyrights can be devastating. Not only can copyright infringement be a crime, but if the owner registered the copyright with the U.S. Copyright Office before the infringement occurred, the infringer could be liable for up to $150,000 for each work that is infringed plus, in certain cases, attorney fees.
The bottom line is that people should know what they’re paying for. Be sure to secure a written contract that gives the company ownership, or at least rights that are tantamount to ownership such as the right to modify, copy, distribute, sublicense and assign the work to others (such as a buyer).
Be clear about ownership interest and rights up front. Get it in writing before any work begins. If an RFP is being issued for the development or use of copyrighted works, be explicit about copyright ownership, and ask the creator to warrant that he or she owns the copyright and other intellectual property rights, and that one’s use of the work won’t infringe any other person’s rights.
This will be especially important if the company is put up for sale. Prospective buyers will want the company to own the intellectual property rights it is using and be able to gain them via transfer.
—————
Vicki Ballou is a partner in the intellectual property practice group at Tonkon Torp. Contact her at 503-802-2028 or at vicki.ballou@tonkon.com.
