Monday, 30 November 2009

Can Bespoke and Generic Software Dance at the Same Software Party?

One of those "better not asked" questions is how to deal with the issue of ownership of bespoke software that relies on the generic platform of the developer. Stated otherwise, consider the situation where Party A commissions Party B to develop a piece of software. Party B is delighted to do so, but in fact the commissioned software relies in some way on non-bespoke, reusable software that also belongs to Party B, for which Party A will need a right of use. The parties reach the moment at which they need to settle on a contract that sets out their relationship.

The initial thought, at least of the commissioning party, is to demand that ownership in the bespoke software be assigned to it. At the most basic level, the typical thinking goes something like this: "I paid for it, so it should be mine", or, "It is my policy to own all of my software." Such a position makes some sense. It is true that ownership of the bespoke software itself, without more, will not enable the commissioning party to make use of it (see below). At the least, however, ownership will enable to commissioning party to dispose of it more easily in the event of a sale or acquisition. Whatever the reason, it would be an unusual circumstance in which the commissioning party would allow the developer to continue to own the bespoke software.

That is fair enough. But how does the commissioning party deal with the generic portion of the software that is necessary for the bespoke software to run? From the developer's point of view, unless the commissioning party is willing to simply buy him out--hook, line and sinker--he will will insist that ownership of the generic software remain with him. If so, that means that the commissioning party will likely receive a non-exclusive license to use the generic software.

Under that arrangement, the commissioning party should take special care to protect itself against the insolvency of the developer, especially if insolvency could lead to termination of the licence in bankruptcy. As well, provisions for escrow deposit of the source code with appropriate release instructions should be included. Moreover, a free right of assignability of the license is essential if the commissioning party is able to dispose of the bespoke software in a way that makes commercial sense. Whether all such clauses can be successfully drafted from the position of the commissioning party is far from certain.

Then there is the issue of overlap between the bespoke and generic software. While it is rhetorically easy to describe the situation in simple dichotomous terms, the reality may well be more complicated. Try as it may, the developer may not be able to completely separate the bespoke portion that belongs to the commissioning party and the generic portion that remains with the developer.

Finally, there is a related issue in connection with trade secrets. If the developer is required to disclose to the commissioning party proprietary knowledge related to the software--either bespoke or generic--how does the developer ensure that such trade secrets are not disclosed in an unauthorized fashion? Disclosure might not be critical if it is tied specifically to the bespoke software but, if the trade secret straddles the bespoke/generic divide, then the developer must be especially careful to protect its interests in this regard.

The upshot is that, in these circumstances, there is a degree of uncertainty that seems to be built-in. How readers have dealt with this uncertainty would be most edifying.


Robin Fry said...

One way forward is to secure a assignment of the copyright in the commissioned software and to couple this with a licence of the generic software. That licence should be perpetual and royalty-free but restricted to use of that software alongside the commissioned software.

There is of course the question as to whether that licence is assignable or permits a wider group of users beyond the commissioner. In truth the major issue is use by the commissioner alone but it could include for instance a single successor to the business. Provided however that the commissioner's position is covered off that is the major factor and will cover most situations.

A refinement can be that the commissioner also licences back the commissioned software for the developer for it to use and exploit but subject to a sharing arrangement on any royalties obtained. This may not necessarily be drafted to cover all situations but it does offer the possibility of a windfall return and gives some comfort to the developer.

Unknown said...

There is another dimension to this debate when you consider traditional copyright law in continental European countries. It's not possible, for example, in Germany to pass the ownership of a copyright-protected creation to another party. Ownership remains with the creator(s) - in this case the programmers. It is merely possible to assign exclusive rights of exploitation (with the right to sub-licence, etc.).

This concept sits rather uneasily with the European Software Directive which has been incorporated into German law which is very much based on anglo-saxon notions of copyright ownership. Just to take an example - for non-software copyright protected creations their needs to be a licence given from an employee to an employer (which is, of course, normally in their employment agreement) whilst software is deemed by law to be licensed to the employer. So what happens with software manuals? Well, the copyright needs to be licensed (and is often forgotten...) and then what happens to web-based manuals (well.....don't ask because we did not think about that in 1992 during the deliberations of the software directive).