Last month we wrote about investing in new ideas, in companies whose underlying asset is in the form of intellectual property. This month we take a more detailed look at steps those companies can take to protect intellectual property, especially intellectual property in the form of software.
Software companies face a number of challenges in today’s business environment. However, perhaps one of the most significant challenges faced by any software company is protecting the very heart of its business, the source code and object code of its software – its core intellectual property (IP).
So what steps should such a company take to protect this core IP when it is created (whether by employees or external contractors)?
Creating intellectual property
Intellectual property can take a number of different forms – trade marks (pictures, logos or names, e.g. ‘Coke’ or the Nike ‘swoosh’), patents (designs, methods or ways of doing something, e.g. a shoe design) and copyright (written expression of an idea, e.g. a story or film).
So when it comes to protecting IP created in software, copyright is the main form of protection. The Copyright Act is the starting point for determining who owns what. The Act provides that copyright in software created by an employee of an organisation in the course of their employment, or where an organisation pays someone to develop software for them, belongs to that organisation.
But you need to be aware, however, that while this rule operates in New Zealand, the position is different in other jurisdictions. In some jurisdictions, these rules favour the person creating the work rather than the person paying for it (for example, the UK).
Even more importantly, both for employees and for people creating software for others, the Copyright Act can be contracted out of by agreement (for example, in an employment contract or services agreement), so all companies involved in creating software should not leave the issue to chance.
There are three simple steps a company can take to protect any IP created by or for it in relation to software:
1. Be specific in your contracts with your employees and with your contractors about who owns what. Specify that any IP created by an employee or contractor on your behalf belongs to you and that the employee or contractor will do all things that may be required by you to perfect this ownership. Also when will ownership arise?
2. Manage your IP as it arises. Put in place an IP development policy that reinforces your ownership and establishes a process for product development (maintaining development records, version control, confidentiality and backups).
3. Assert your ownership on all products and documents. Labelling and control is as important for IP as any other company asset.
Why is this IP protection important? Because any question over the ownership of your IP will directly impact your ability to exploit that IP – after all, you can’t sell what you don’t actually own! Every licencee of your software is going to want an assurance from you that your software does not infringe any other party’s IP rights. By following the three simple steps above, you can give such an assurance with the comfort that you have taken appropriate steps to own your IP.
Exploiting your intellectual property
Once you have a finished software product and you’ve followed the practical steps listed above to clarify your ownership rights, you need to think about the commercial exploitation of your software. As part of this thought process, you need to think about how you ensure that you retain ownership of the valuable IP that you have created, the licensing framework, and the type of restrictions, if any, that you should impose upon the third parties who license your software.
You should engage with your lawyers who will help you understand the key legal and commercial differences between the different models and will help you choose the model which is best suited to your business. For software companies, this is too important not to get right!