IP Considerations for Source Code Acquisitions: Measure Twice and Cut Once | IP harness
Do you or your company plan to spend a considerable amount of money on computer software in the near future? If so, you should consider the caveats and points highlighted in this brief article before finalizing your license or purchase.
Businesses often acquire computer software with little concern – other than the price/cost of the product. This can be a risky approach.
Whether your proposed purchase involves a new operating system, fully automated software that facilitates the sale of products through a website, or even word processing or email client software, there are a number of risks to be taken. into account when acquiring source code that is an integral part of your business. – especially if you pay a significant price for the software. You may not get everything you think you are entitled to, and you may even unknowingly expose yourself and your business to costly litigation and unexpected competitors. You may even be required to offer your expensive new software to others for free.
It’s hard to imagine a scenario where the adage “measure twice and cut once” is more apt. This article highlights for you a handful of issues that should be considered when doing due diligence before purchasing or licensing expensive new software.
Typically, the issues we’ll highlight for you relate to:
- Copyright ownership
- Use of open source code
- Existence of previous licenses
- Other pre-existing third-party obligations
- Risks of Intellectual Property Infringement.
It is absolutely vital that you ensure that the company or person(s) intending to sell you the software owns the copyright in the software. Or, depending on the agreement, has at least sufficient rights to grant you a license to the copyright(s) in the software and source code. If you fail to confirm copyright ownership/control, your right to exploit the software may be significantly affected.
Determining whether the transmitting party has sufficient rights to the copyright(s) in the software code may seem like a simple process. After all, if someone has the code resident on a hard drive or server – ready to be viewed, inspected and purchased – wouldn’t they necessarily own the copyright? The answer is no; not necessarily.” Under U.S. copyright law, copyright ownership arises from “authorship” of a “work”. And, absent a context of “work performed for hire” (see: 17 USC § 101 – “work performed for hire” is often misunderstood and, therefore, will be the subject of a later article), the person(s) who created the code software is/are the owner(s) of the copyright in the software.Thus, copyright ownership is quite a separate matter from mere ownership of the medium on which the software resides, e.g. example, a hard disk or a server.
Additionally, if the transferring/vendor party has employed consultants and/or other third parties to assist in creating the software, but has do not secure the copyrights held by those other parties, then there is a risk that those who have copyrights in the software may assert a claim against you (for money or to prohibit you from using software) for using the software without paying them a fee or obtaining a license or other permission from them.
Thorough investigation of the source code’s development history is crucial in assessing the risk that people other than the seller may own the copyrights to the software you are about to purchase.
Open source issue
During the development process, software coders often rely on open source code written by third parties. True “open” source code is code covered by a license approved by the Open Source Initiative. The license then allows developers to freely use or modify the code, even for commercial purposes. However, the right to use and modify this code comes with chains. In some cases, the strings can be thin, such as including a notice that the code is covered by an open source license. But, in other cases, the obligations can be much greater. For example, some open source licenses require developers who incorporate open source code into a larger proprietary work to provide proprietary work to others free.
If you are acquiring proprietary source code from a developer, you would do well to understand whether the code you plan to purchase or license incorporates open source code components and, if so, case, what requirements and limitations apply to the use of such open source code.
Do you acquire software in the hope of having the exclusive right to exploit it, free from competition from other people exploiting the same code? If so, it’s important to check whether the company selling or licensing the code to you has already authorized others to use the code.
Other Third-Party Obligations
Similar to the issue of prior licenses, it is essential to determine whether the vendor/licensor from whom you are acquiring the source code has any pre-existing obligations to third parties, such as a non-competition agreement, which could prohibit the company from sell or license the software or otherwise limit your right to use the software.
Risks of Intellectual Property Infringement
Even the most thorough due diligence cannot guarantee that you will not be subject to legal action for infringement of the intellectual property of others by using or updating your newly acquired software. For example, there may be a software patent that covers your newly acquired source code, and the party selling you the code may not be aware of the patent. But the past can sometimes predict the future. And, the company or person from whom you acquire the source code may have already been the subject of intellectual property infringement claims or even conducted their own internal studies to determine whether patent or other proprietary issues intellectual surround the code. You should inquire about this, and you should also consider conducting your own internal patent studies/searches and obtaining indemnification from the vendor for any intellectual property claims that arise, before entering into your software acquisition contract. .