Cracking the ownership of codes

Businesses today may think—erroneously—that some of their proprietary software systems are assets that they own the rights to. This can cause problems down the track, as Bruce Goldner and Benjamin Howard of Skadden explain.

Many companies possess valuable proprietary software but are not aware that they may not own it. This is particularly true for historical or legacy software or systems that were developed by a consultant, contractor, or part-time employee at a time when business and legal sensitivities about the value of, and need to own and protect, intellectual property, were not as great as they are today.

For example, in the 1990s and early 2000s, many companies did not have in place formal employee and consultant IP assignment agreements, or internal or regular outside IP counsel, to the extent that they do today. A company that received a copy of source code during software development or delivery, developed and upgraded it and then assumed that it owned the software, may in fact never have been assigned the copyright in the code.

A possible misunderstanding regarding software asset ownership is potentially significant because under copyright law ownership confers certain important rights to development and exploitation. Moreover, this lack of understanding can present contractual issues, as a company that later attempts to license or sell such software will typically be required to state that it owns and possesses all rights in the software. This software may have become a significant asset following its use, improvement and customisation over time—perhaps being essential to the company’s operations or providing an appreciable competitive advantage. Frequently, the issue regarding ownership of business software systems may not be discovered until a critical moment in the life cycle of a business—when a company is preparing for, or is going through, the process of being sold.