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Are you investor/sale ready? Part 2 - Records

Wednesday, June 27, 2012

If your end game is to interest an investor in your business or to sell your business, think about putting in place systems now to ensure you achieve the best possible outcome.  In this 2 part blog we look briefly at some of the issues you need to be thinking about now if you want to sell your business or take on an investor in the future. 

Our first blog focussed on your most important assets – IP and confidential information.   This second blog is essentially about record keeping

Don’t neglect your company records

The law requires all companies to keep certain records.  These include registers of the shareholders and directors and minutes of meetings of directors and shareholders.  You are also required to notify ASIC when certain details about the company and its officers change.  A failure to keep these records and filings up to date is not only a contravention of the law but can also result in fines and personal liability.  But importantly, the perceived value of the company may be reduced as a result.

Having to recreate documentation when a deal is on foot can cause delay, a hefty spike in external (and internal) costs, management distraction and it may simply not be possible e.g. if key people have moved on and are not available to sign paperwork. 

The end result may be that:

  • you cannot get an unqualified legal opinion (particularly if you are looking for overseas investment this may be a requirement)
  • you may be required to give unqualified representations/warranties with unlimited liability under indemnities
  • the entire transaction is delayed or cancelled
  • the price/investment is reduced.

The importance of shareholder agreements

This should not be underestimated.  More and more we see companies of all sizes recognising the need to incentivise employees by giving them a slice of the pie.  If this involves the issue of shares, you need an agreement with the employee and other shareholders – this is critical!  The lack of an agreement can lead to problems if you want to issue or transfer shares or hold meetings to approve the proposed transaction.

When the time comes that you want to sell the company or take on a new investor, you don’t want to be held to ransom by a disgruntled employee or minor shareholder who will not agree to your plans or may even have left the organisation and be hard to track.  A well considered agreement can allow you to get on with business while still keeping the troups happy and motivated.

Are you due diligence ready?

Any serious investor/buyer will want to complete due diligence before doing a deal.  Any letter of intent or heads of agreement is likely to be conditional on this being done to the investor’s satisfaction. 

Due diligence

  • involves a thorough review of all of the documents mentioned in this and our earlier blog [employment agreements, third party licences, moral rights consents, shareholders agreement and so on] plus your financials and all operational aspects of the business. 
  • confirms the investor’s assessment of your business and its value.

How to be ready

Ensure you maintain your records, keep copies of contracts, document all arrangements (particularly any of material importance to the business including any loans from shareholders or directors) on an “as you go” basis.  This will save you time and money and maximise your price.

But don’t forget due diligence is a two way street.  Make sure you take the time to make due and proper enquiries about any potential investor/buyer.  If you are staying in the business, you want to be sure that you can work with the incoming party and your goals are aligned. 

Pym’s Technology Lawyers has assisted many companies with the above issues including preparing for sale/investment, doing due diligence, shareholders’ agreements, capital raisings and IP protection. 

Author: Peta Maloney, Director, Pym’s Technology Lawyers. A member of the Panel of Expert Bloggers on commun-iT and an expert on www.aiia.biz.

Disclaimer: This is general information only. It is not legal advice, and is not a substitute for legal advice. Specific advice should be sought to take into account your particular circumstances. Pym’s Technology Lawyers Pty Ltd is a specialist IT and commercial law firm. It has liability limited by a scheme approved under Professional Standards Legislation.

Are you investor/sale ready? Part 1 - IP and other goodies

Friday, June 22, 2012

If your end game is to interest an investor in your business or to sell your business, think about putting in place systems now to ensure you achieve the best possible outcome.
 
Successful sales don’t just happen.  As with many things in life, from passing an exam to baking a cake, preparation is everything!  Attention to detail will highlight your success not problems.  The earlier you get your affairs in order, the easier it will be to maintain your records and be investor/sale ready.
 
This 2 part blog looks at some of the issues you need to be thinking about now if you want to sell your business or take on an investor in the future.  This blog focuses on your most important assets – IP and confidential information.  The second blog is about record keeping - I see you yawning but it is important!

IP is the life blood

For most companies, especially those in the technology industry, intellectual property is the foundation of the value of the business. Your ability to show an audit trail of the creation of your IP could be critical to finding an investor or buyer or obtaining the best price. 

Some tips to track and protect your IP:

  • keep a register of all individuals (employees and contractors) involved in developing your IP and what specifically they have developed - an excel spreadsheet is better than nothing!
  • have watertight employment contracts
  • get all contractors to assign all IP they create to you in writing
  • obtain moral rights consents from all developers
  • if you incorporate licensed third party IP (including open source software), keep records of this and the licence agreements applicable
  • ensure that any third party licences allow you to commercialise your IP without restrictions
  • be aware of any restrictions on the use of the third party IP
  • record and register any trade marks you use to differentiate your products or services – make sure you check the availability of a trade mark before you use it to ensure you are not infringing.

Are your secrets safe?

  • make sure that any person accessing your IP, confidential or proprietary information (trade secrets) is under strict obligations of non-disclosure that are evidenced in writing.  Trying to put these in place retrospectively can be extremely problematic and sends a worrying signal to a potential investor/buyer 
  • only share company information with a potential investor/buyer once a non-disclosure or confidentiality agreement is in place
  • have a clear policy about the proper use of trade secrets and make sure your people are aware of it
  • clearly mark information “confidential” when it is
  • maintain strict controls over your trade secrets to ensure they are not accessed by unauthorised people or inadvertently disclosed.

Pym’s Technology Lawyers has assisted many companies with preparing for sale and capital raisings including doing due diligence, shareholders’ agreements and IP protection. 

Author: Peta Maloney, Director, Pym’s Technology Lawyers. A member of the Panel of Expert Bloggers on commun-iT and an expert on www.aiia.biz.
 
Disclaimer: This is general information only. It is not legal advice, and is not a substitute for legal advice. Specific advice should be sought to take into account your particular circumstances. Pym’s Technology Lawyers Pty Ltd is a specialist IT and commercial law firm. It has liability limited by a scheme approved under Professional Standards Legislation.

Top IT Contract Misconceptions!

Saturday, November 19, 2011

We continue to be surprised at how often we have conversations with experienced business people who have an incorrect understanding of fundamental legal issues that can leave their business exposed to unnecessary risk.  A few important examples:


Liability: My liability is limited even if I don't sign a contract....

Many businesses enter into arrangements without an agreement.  Example: a small web design project for low dollar value.  Why waste time and money getting an agreement when we can just get the job done quickly?  Because if there is a problem or disagreement and there often is, you have unlimited liability!  Even if you have a contract and it fails to deal with your liability, you have unlimited liability.  Silence is not golden. 

Solution: Consider as a minimum preparing simple terms and conditions to apply to all work you do.  A small investment may save your business from significant risk.

 

Intellectual Property: I paid for it therefore I own it.

Wrong! Example: you have paid to have a website developed.  Despite paying for the work to be done you do not own the website unless this is agreed in writing.  Lawyers call it an assignment of intellectual property.  Without an assignment you may only have an implied licence to use the website.  The developer owns the intellectual property

Similarly if you are a business that uses contractors to work for you rather than employees, you need an assignment of intellectual property or they own the intellectual property in the work they create for you even though you have paid them to do the work.  This has an obvious flow on effect and may mean that you are purporting to pass on ownership to your customer when in fact you are not able to do so.  There may be tricky legal arguments available but who needs to go down this path?

Solution: Even if you do not have a formal agreement make sure that you get all service providers and contractors to sign an IP assignment and a confidentiality undertaking.  It doesn’t need to be complicated!

 

The Sales Pitch: it cant be relied on by the customer....

Whatever you say to your customer in the sales process can come back to bite you.  This is the case even though the customer signs an agreement later that does not include your sales pitch and even if the contract has what we call an 'entire agreement clause'.  This section of the contract might say that the contract is the whole or entire agreement between the parties and any prior representations, documents etc which are not set out in the contract are of no effect.  But they are! If you have misrepresented your product or service, you may be liable including under the misleading and deceptive conduct provisions of the Competition and Consumer Act (formerly section 52 of the Trade Practices Act).  A Director (and others) can potentially be personally liable too.  A disclaimer or exclusion clause in your contract will not necessarily negate your liability.  Although with care a misrepresentation it may be possible in some circusmtnces to have a representation qualified or corrected.  Note in addition that silence can amount to misleading and deceptive conduct.

Solution:  Preferably before contracting carefully review with your sales staff all pre-contract documents (including proposals, emails and presentations) and conversations with the customer.  Record any representations made.  Consider whether any representations need to be retracted, qualified or corrected and if so how best to do it.


Company name: You own it.

No you DON'T! Registration of a company name does not give you a proprietary interest in the name. If there is another company or business using a similar name you could find yourself in trouble if people are confused about who you are.  This is particularly problematic if your company name is similar to a registered trade mark.  You may be infringing the registered trade mark and be liable to the owner.

Solution: Always check trade mark registrations before you decide on a company or business name.  If you are aware of a business using a similar name, check it out.  It is a simple and inexpensive process.  Why waste good money and effort building a brand you may not own and cannot use.  Consider registering a trade mark if you have a distinctive name that you associate with your products or services or a logo.


Pym's Technology Lawyers has provided advice to many IT suppliers on all of these issues and can assist you with advice on any of these issues! 
 
Author: Peta Maloney, Director, Pym’s Technology Lawyers.  A member of the Panel of Expert Bloggers on commun-iT and an expert on www.aiia.biz

 

What risks are you taking if you engage a consultant to create software with no contract?

Monday, October 24, 2011

Consulting is seen as a simple agreement where one party provides consulting services, and one party pays.  So simple in fact, that many consulting engagements are done without an agreement.  In our experience this is a recipe for disaster, and whist things may go well for a few projects, sooner or later the parties will be caught out.  The potential consequences of not having an agreement are likely to far outweigh the benefits of avoiding the cost of having put an agreement signed in the first place. 

And the risks of not having an agreement fall on both parties, not just the consultant.

We have set out below three of the top issues that we see when things go wrong and there is no agreement in place.

There may be arguments as to how much is to be paid for the project.

The key issue here is: Is the work done on a fixed price basis (with a defined specification and defined deliverables) or on a time and materials basis (where the customer is paying the consultant based solely on the time that the consultant spends working on the project)?
 
If the customer thinks the work is being completed on a fixed price basis, and the consultant thinks the work is on a time and materials basis, there is a significant likelihood of a dispute when the consultant invoices more than the 'fixed price'.  It is essential that the 'agreed' basis of providing the work is set out in the agreement, and if the work is being done on a fixed price basis, it is essential to properly define the work, how the deliverables are going to be 'accepted' by the customer, when payment is to be made, what the consultant is rely on the customer to do to assist during the project and what assumptions underpin the price. 

In our experience not having a clearly defined specification and inappropriate acceptance testing are the main points of dispute in fixed price IT contracts.

Without an agreement the customer's right to use the output from the consulting services may be inadequate for the customer's intended use of the software. 

The key issue here is: Who owns the intellectual property rights in the output from the services? And what rights does the customer have to use the output from the services?

It is a commonly held belief that the customer who pays a consultant to develop software for them owns the intellectual property rights in the software that is developed. This belief is usually wrong. 

Software and other 'literary works' are protected by copyright law, and copyright law in Australia provides (with few exceptions) that in absence of a contract to the contrary, the first owner of copyright in software is the author of the software, or if that author is an employee, then the first owner is the author's employer.  Who makes payment is irrelevant to the issue of who owns the copyright in software. 

As a consequence when a customer engages a consultant to develop software for them and there is no written agreement, the first owner of the copright in the software that is developed is the consultant and not the customer.  This leaves the customer with an 'implied licence' to use the software that has been developed.  The courts have been very restrictive in defining the scope of an 'implied licence', and whilst the exact scope of the licence will depend on the circumstances of the case, customers should not assume that an implied licence is broad enough to allow the customer to modify or onward develop the software, nor to licence it to others (including their own related companies or to their own customers). 

Clearly it is essential for the customer to agree the nature of its rights to own and/or use the intellectual property (IP) that is developed by a consultant, and this must be done by an agreement which sets out the rights carefully. 

Without an agreement the consultant (and the customer) have unlimited liability

One of the usual clauses in an agreement for consulting services is a limit of liability.  Usually this clause is drafted to limit the contractor's liability to the customer, although in some cases the clause is mutual.

Accordingly if there is no agreement, then each party's liability to the other is unlimited.  This means that if a party breaches the agreement the other party is entitled to claim all its losses against the other, subject only to the laws relating to the calculation of damages that can be recovered.  From the consultant's point of view, it is a poor business practice to expose itself to unlimited damages, potentially including all foreseeable losses that the customer may suffer as a result of any defective software that is provided. Consultants usually want to have a balanced risk/reward arrangement whereby they are only exposed to an amount of liability for failure to deliver that is commensurate with the income/profit derived from the work.  And indeed most customers now accept it as a standard feature of an IT contract that the contractor's liability for defect product is capped. 

A further complication is the Australian Consumer Law (Competition and Consumer Law 2010) which provides that suppliers have to provide certain statutory guarantees to consumers (and th term 'consumer' includes companies and governments if the supply is worth less than $40,000).  In this case there needs to be very specific language in the agreement to manage the supplier's liability for defective products.


So if you are a supplier why take the risk of exposing your entire company's assets (or if you are a sole trader/individual with no company structure, you are exposing your entire personal assets) to a potential claim from your customer?  A simple agreement could significantly manage this risk.

Getting an Agreement is Easier Than You Think.

As we have shown, there are significant disadvantages to both the customer and the consultant for not having an agreement, so both parties should want an agreement to protect themselves. 

All that is needed is an agreement that is appropriate to the work that is being done.  Pym's Technology Lawyers have provided numerous agreements for consulting engagements, and they vary from a very simple 1 page document (usually in the form of a letter) that deals with only the essential issues, to a a more complex agreement that deals with all the issues associated with a large fixed price project.  In the middle are shorter form agreements of 2 or 3 pages which provide adequate coverage for time and materials contracts.  When drafted in line with 'usual business practice', these agreements are often acceptable to customers without amendment. 

For the sake of getting a short consulting agreement, why you would take the risk of not having one?



Author: Mike Pym, Director, Pym’s Technology Lawyers. A member of the Panel of Expert Bloggers on commun-iT and an expert on www.aiia.biz

Disclaimer: This is general information only. It is not legal advice, and is not a substitute for legal advice. Specific advice should be sought to take into account your particular circumstances. Pym’s Technology Lawyers Pty Ltd is a specialist IT and commercial law firm. It has liability limited by a scheme approved under Professional Standards Legislation.

 

Procure IT is ready to use. The new NSW Government contract for ICT procurement

Thursday, October 20, 2011
The much awaited new standard agreement that is to be used by NSW Government for buying ICT products and services (known as Procure IT version 3.0) can now be used. The publication of the first five Modules means that the benefits that the NSW government and the IT industry hope to achieve can now be realised, though the use of this agreement.

Whilst the 'legal boiler plate' terms and conditions such as liability, indemnity, insurance, ownership and licensing of intellectual property, confidentiality and privacy have been settled for some time, the agreement could not be used because the "Modules" had not been been finalised.  The Modules provide the terms and conditions that are specific to particular types of product or service that is being bought.

Just how important is this?

The IT industry, represented by the AIIA (Australian Information Industry Association) has been working with the NSW Government over the past 18 months to re-draft Procure IT to better reflect the way NSW Government buys, and the IT industry sells, ICT products and services, and to make the agreement fairer to industry.  By making the agreement fairer to industry the government expects to reduce the costs associated with negotiating changes to the agreement on every occasion, increase the competitiveness of tenders through increased industry participation, encourage industry development and innovation, and reduce prices (through a reduction in the risk premium that suppliers apply to onerous contracts).  NSW Government expects to save 10s of millions of dollars each year through the implementation of Procure IT version 3.0. Industry expects to save even more!

The Resellers' Business Model is Included: a Government First 

In addition Procure IT will include clauses which provide for resellers to provide hardware and software to NSW Government customers in accordance with the "reseller business model".  This means that resellers will be able to provide hardware and software using one of the following business models:
  • by supplying the hardware or software with full warranties and indemnities, in the same way as the Original Equipment Manufacturer (OEM) would provide the products and services; or
  • by supplying the hardware and software with "pass-through" warranties only; in other words the reseller is only obliged to give the Customer the warranties that it obtains from the OEM under the distribution agreement between the OEM and the reseller; or
  • by simply providing a "introduction and facilitation service", with the Customer entering into an agreement for the supply of the hardware or software directly with the OEM.
Of course whilst it is acknowledged by all that the different agreement profiles come with different prices, the flexibility of this approach will allow an entire industry sector to a participate in NSW Government procurement.  NSW Government is the first Australian government to acknowledge and embrace the reseller business model in its standard IT contracts.

Open Source Software

Procure IT also facilitates the supply of open source software and support for open source software, whilst acknowledging the primacy of the Open Source License. This is also a major improvement in the contract, enabling the supply of hundreds of open source solutions to NSW Government, under appropriate contact terms.

Which Products and Services can be Purchased under Procure IT Now?

The five Modules that have been approved for use are Hardware Acquisition, Hardware Maintenance and Support, Software Licensing, Software Development and Software Support Services.  It is expected that Modules for Data Management Services, IT Personnel (IT Recruitment and contractor/body shopping services) and Professional Services will be published in the next few months.  Additional Modules dealing with managed services, telecommunications services, hosting, SAAS, IAAS and PAAS are expected to follow laster this year.

Will Procure IT apply to current contracts?

NSW Government will use Procure IT for new tenders as they are issued. There is no expectation that Procure IT will apply retrospectively to existing agreements that have already been entered into.

Where can I find the version of Procure IT version 3.0

The new version of Procure IT version 3.0 is published on the NSW Government Procurement website at:http://nswprocurement.com.au/Tenders/Goods---Services-Standard-Form-Documents.aspx 


Pym’s Technology Lawyers has been the primary legal adviser to AIIA during the discussions with NSW Government on Procure IT.

Author: Mike Pym, Director, Pym’s Technology Lawyers.  A member of the Panel of Expert Bloggers on commun-iT and an expert on www.aiia.biz

Disclaimer: This is general information only. It is not legal advice, and is not a substitute for legal advice. Specific advice should be sought to take into account your particular circumstances. Pym’s Technology Lawyers Pty Ltd is a specialist IT and commercial law firm. It has liability limited by a scheme approved under Professional Standards Legislation.




 

What are Moral Rights? And are they Dangerous?

Tuesday, September 06, 2011
Moral Rights are the rights of the author of certain "works" (which includes software and documentation), performances and films.  These rights include the right:
  • of attribution of authorship (i.e. to have your name stated next to the work as being created by you);
  • against false attribution (i.e. the right not to have someone else credited with creating your work);
  • integrity of authorship (i.e. the right not to have a work subject to derogatory treatment that is prejudicial to the author's reputation or honour).

These rights were created in 2000 by amendments to the Copyright Act 1968.  Importantly, they are owned by the individual author and cannot be waived, assigned or transferred.  They are not usually owned by the same entity that owns the underlying work!

Can Moral Rights be Dangerous?

Although there has only been one decided case on Moral Rights (Meskenas v ACP Publishing Pty Ltd [2006] FMCA 1136), it is clear that an author potentially has a very powerful right that can be exercised in circumstances where many people would not contemplate that a problem could arise.  If an author's Moral Rights are infringed, not only is the infringer likely to be liable to pay damages on a similar basis as for other infringements of copyright, but also the infringer may be prevented from completing its project as intended.

Examples of where Moral Rights have been asserted include:

  • the principal architect of the National Gallery of Australia, Col Madigan, objected to an extension to the front entrance of the NGA.
  • the landscape designer of the Garden of Australian Dreams, Richard Weller, objected to proposed alterations and additions to various parts of the garden, claiming they infringed his Moral Rights.
  • similarly Harry Seidler took legal action over the proposed changes to the Pig 'n' Whistle pub in Brisbane, claiming that the changes were offensive to the geometry of the building and the new signage was 'vulgar'.
  • where a painting was attributed to the wrong painter by a magazine (the Meskenas case above). 

[Note:  An architect/designer usually owns the copyright in his/her plans and drawings, and so also owns the copyright in the building, as the building is a three dimensional representation of those plans or drawings.  Accordingly any change to the building would be subject to the architect's/designer's Moral Rights in the underlying building].

In each of these cases, the parties either agreed a settlement (or in the Meskenas case the infringer was found liable and had damages awarded against it), or the project was varied or abandoned. So yes, infringing Moral Rights can be dangerous!

How to Avoid Infringing Moral Rights

It is not easy to avoid infringing Moral Rights, particulary as these rights belong to individuals, and are seperate to the copyright in the work.  In other words, whilst you can usually deal with the copyright in a work by getting a licence or a transfer of ownership from the company that owns the work, you also should get a legally valid consent from every author of the work, consenting that the author will not assert his or her Moral Rights to your use, modification or exploitation of the work.  There is a defence to infringing an author's rights of attribution or integrity (but not to false attribution), which is that it was "reasonable in all the circumstances" not to attribute the author or performer or to subject the work or performance to derogatory treatment, but this defence is subjective.  What you may consider to be acceptable treatment (simply building an extension to your own property) may not be seen in the same light by the architect who designed your property.

However there are a number of practical steps that you can take to minimise the risks of infringing a person's Moral Rights, including:

  • understanding the law on Moral Rights, and being aware of when Moral Rights need to be a consideration.
  • considering when the defence of "reasonableness" may be used.
  • obtaining legally valid written "consents" from those who have Moral Rights at the time that you engage the author to create the work. 

 

Pym’s Technology Lawyers has provided advice to many IT suppliers on the issues associated with Moral Rights, IP ownership, licensing, copyright and assignments.

Author: Mike Pym, Director, Pym’s Technology Lawyers. A member of the Panel of Expert Bloggers on commun-iT and an expert on www.aiia.biz

Disclaimer: This is general information only. It is not legal advice, and is not a substitute for legal advice. Specific advice should be sought to take into account your particular circumstances. Pym’s Technology Lawyers Pty Ltd is a specialist IT and commercial law firm. It has liability limited by a scheme approved under Professional Standards Legislation.

 

Do you really own your own Software?

Wednesday, August 10, 2011
 "Of course, we have been developing this code for years, it is all ours", I hear you say, a little offended at the suggestion.

So what is my point? Why the Blog?

Well, we know from experience that many companies who think they own their own software, in fact do not own it at all. Often someone else owns it, usually an ex-contractor.  If you don't own your software then you have some serious problems, including:
  • you may not have the right to copy it or enhance it, and possibly you may not even have the right to correct errors in it!
  • you may not have the right to license it to third parties, so if it is forms part of your product that you license to your customers, you may not have the right to do that!
  • if, as is normal in commercial software licenses, you provide your customer with an indemnity that you have the rights to allow your customer to use your software, your may be liable under the indemnity (and you are likely to have unlimited liability under that indemnity).
  • if you come to sell your company (or your software product), you will find it pretty hard to do if you can't prove that you own your own software.
  • you might have to pay damages or pay all the profits you made to the real owner of the copyright in your software, including for all past uses.
  • it is possible that the use of the software is an offence.  The Copyright Act (section 132AC) makes it an offence for commercial scale infringements which prejudice copyright owners, and this offence carries fines of up to $60,500 and/or up to 5 years in jail. 

How is it possible that my company does not own 'its own' Software?

Software is protected as a type of intellectual property known as 'copyright' by Copyright Law in Australia and around the world.  Under the Australian Copyright Act 1968 (Cth) the general rule is that the first 'owner' of the copyright in software is the individual who creates the software, except where that person is an employee and creates the software in the course of their employment (unless there is an agreement to the contrary.)  

Generally this means that where software is created by your employee in the course of his/her employment with your company it belongs to your company (unless there is an agreement to the contrary).  And the opposite is also true; where the software is not created by an employee in the course of the employee's employment with your company, the copyright in the software does NOT belong to your company, unless you have an agreement to the contrary.

When might my company not own 'its own' Software?

The typical examples of when the copyright in software may not belong to your company, or may not be freely used or exploited by your company, are:

  • when the software is created by a third party contractor.  In this case there must be a formal agreement signed by the contractor and your company to assign the copyright in the software from the contractor to your company before the copyright will belong to your company. (And note that if the software is created by an individual who is an employee of another company (including a $2 shelf company that the individual is using to provide his/her services.  In this case the individual who writes the software will own the copyright in it, and provided that the software was created in the course of his/her employment with the $2 shelf company, then that shelf company will own the software (assuming no agreement between the individual and the $2 shelf company to the contrary). In this case, your company should take an assignment of the copyright from the $2 shelf company).
  • when the software is created outside of the scope of your employee's employment.  This is a much more difficult situation for both parties, as the law on when someone is creating work in 'pursuance of the terms of his or her employment under the terms of a contract of service or apprenticeship' is not clear.  Be very careful when software is created 'at the employee's home' or 'in the employee's spare time'.
  • if the software is an 'adaptation' of a work that is owned by someone else.  This is because the Copyright Act provides that one of the exclusive rights of the first owner of a copyright work is the right to make an adaptation of the work, so unless you have the consent of the first owner of the original work, making the adaptation of the work is infringing the first owner's exclusive rights. 
  • if the software is created jointly with third parties (i.e. this may be other co-developers and/or employees of your customer).  In this case the software will belong to your company and the third parties jointly, and each joint owner must obtain the consent of all other joint owners before exercising the exclusive rights in the work.
  • if the software is based on, or includes, open source code.  In this case you must read the open source license that accompanies the open source code to determine not only who owns the code, but how it can be used.
  • if the software is created under an agreement with a third party, e.g. if your company creates the software under an agreement with a customer, then you must check to see if the agreement contains any assignment of the software to the customer or other restrictions on your use of the software.

Is it only copyright that I have to worry about?

No, I am afraid not.  Copyright is but one of the issues associated with the ability to freely use a software program.  Other issues include patents rights (software can be subject to patents), moral rights (which belong to individual authors and not their employers and so cannot be 'assigned' by agreements that assign the copyright) and the right to keep confidential information confidential.

Solutions

Fortunately all these issues can be managed easily.  The best way to mange the issues is simply to ensure that you have good legal advice, and good contracts in place with your employees, contractors and business partners/customers, before you engage with them.  In this way you will prevent the problems arising in the first place.

If you do find yourself in the situation of not owning your own software, then this can be fixed retrospectively, with a series of agreements between the relevant parties.  However, if you can't find the relevant owner, or you don't have a good relationship with the owner, or the owner actually believes that he/she is the rightful owner of the software and he/she only granted you a limited use license, you can expect a costly negotiation or legal battle.

And, of course, if you are trying to license your product to a customer, or sell your software or your company, that is not the time to be discovering that your company does not own its own software!



Pym’s Technology Lawyers has provided advice to many IT suppliers on the issues associated with IP ownership, licensing, copyright and assignments.

Author: Mike Pym, Director, Pym’s Technology Lawyers.  A member of the Panel of Expert Bloggers on commun-iT and an expert on www.aiia.biz

Disclaimer: This is general information only. It is not legal advice, and is not a substitute for legal advice. Specific advice should be sought to take into account your particular circumstances. Pym’s Technology Lawyers Pty Ltd is a specialist IT and commercial law firm. It has liability limited by a scheme approved under Professional Standards Legislation.

 


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    Our Expert Bloggers


    Mike Pym

    Mike is an entrepreneur and lawyer who leads two SMEs, one in the IT software industry, and a firm of lawyers specialising in IT law.


    Peta Maloney

    Company and commercial law, shareholder agreements, constitutions, directors’ duties, setting up companies, IT contracts, outsourcing, government procurement and privacy.

     
    Peter Nolle

    Government Grants from start up to export ready


    Alex Bodnar

    General insurance advisory for commercial & industrial risks, 
    Information Technology & Telecommunication exposures. 


    David Scott

    Investments, Superannuation,
    Life Insurance, Income Protection Insurance, Key Person Insurance, Debt Management, Gearing,
    Retirement Planning


    Mike Pym

    IT contracts, government procurement of IT, distribution agreements, outsourcing, contract management & dispute resolution.

     
    Nick Stevens

    Enterprise Agreements,
    Employment Contracts,
    Unfair Dismissal, EEO, 
    Workplace Surveillance & Privacy, OH&S

    Industry Associations

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    Level 6, 60 Pitt Street
    Sydney NSW Australia

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