Ownership vs licence: a common contractual battleground for software developers and their clients
Intellectual property is a generic term that refers to several laws protecting creations and innovations. There is not one intellectual property law. There are many laws that offer different levels of protection to different creators, innovators and users of such. Trademarks, design rights, and patented rights are all examples of creations which have laws in place to regulate them.
The key intellectual property right in software is copyright, and the law is complicated. Software developers who create software automatically own the software they develop – even if the client pays them UNLESS the contract says otherwise.
Ownership of intellectual property in software is a common contractual battleground in software transactions, and it often comes from the end client’s belief that payment buys the right to own the product that the developer is developing. In some instances, that may well be the case – we do act for clients who hand over source code and ownership rights (as far as they can – see point 3 below). However, in many instances, that most definitely is not the case, and here are three good reasons why:
The core code of the developer is the developer’s core business asset.
Many software developers have a core product or core code that they have spent time and resources developing that they continuously improve and add to.
This core code is often used as the starting point for development projects.
If the developer transfers ownership of this core IPR to one end client, it is essentially deprived of re-using the IPR to develop other products for other clients (licencing back a core asset is not an option!).
The price of buying those rights and, ultimately, the business is a very different price to buying a product.
The project price does not reflect the “start from scratch” position.
Starting with a core product or code means that the end client gets the benefit of the often years’ worth of time and resources ploughed into that product/ code, and the project’s price most definitely does not charge back that entire cost.
A lot of developers make pragmatic decisions (like we do). If there is anything that is a little tricky, requires a bit more thought, or if there are benefits to ploughing that code back into the business, it may take that into account when pricing a project.
A developer cannot sell what it does not own.
Software is often made up of different pieces of software from a variety of third-party sources. Whilst the developer will have ownership rights in the code it has developed in-house, if it is relying on third-party licences or open-source software as part of its product architecture (as is often the case), then it would not be able to “sell” those aspects of the product as it does not own them.
This is usually dealt with in agreements with various licencing provisions.
Ownership and licensing are very complex and essentially have to be driven by the developer’s commercial model. Ultimately, this is about protecting the developer’s assets, which may involve educating the end client.
If you have any questions, please contact tracey@law-point.co.uk or call 01202 729444.