The Consultant and its Client:
Determining Ownership Rights to Systems
By Eric S. Freibrun, Esq.
Suppose you’re a software
development computer consultant or consulting firm and your Fortune 500 client asks you to
design and code a customized software system. The client’s goal is to achieve
business nirvana: the sustainable competitive advantage. The software you develop, the
Request for Proposal warns, will be integral to this task.
Your client has hired you, or your firm,
because of your information technology expertise and your track record of delivering
quality systems on time and on budget.
You get the contract from your client.
It’s their standard form. You reach the "Ownership of Deliverables"
section. Translating from the original eye-glazing Legalese, it says the following:
"We, your valued Client, own EVERYTHING you produce while working for us. You assign
to us all right, title and interest to EVERY conceivable intellectual property right in
your work product, including its tangible expression and intangible contents, i.e., the
IDEAS IN YOUR BRAIN embodied in the work product. So forget about providing a similar work
product to anyone else."
Contract provisions of this type are
often so broad as to potentially have at least the following unintended unpleasant
effects, from the consultant’s perspective:
· the consultant loses its right to use
software development-related ideas and techniques it used before working for the Client if
they are embodied in the work product;
· the consultant cannot add to its pool
of accumulated knowledge the ideas and techniques it may have learned while working for
the Client; and
· the consultant cannot use elsewhere
any code it develops while working for the client, such as macros and other efficiency
tools, even if such use poses no competitive threat to the client.
The Competing Interests of the Client
and the Developer
The client’s objective is to
maximize the value of what the consultant provides. The client doesn’t want the
consultant to develop a system for the client’s competitors that would afford them a
similar competitive advantage. Consequently, the client wants to "own" all
rights to the software and related intellectual property. This includes not only the
physical code (object and source), but the concepts embodied in that code that the
Consultant might otherwise implement elsewhere.
The consultant’s objective is to
preserve its own preexisting intellectual property rights in ideas and techniques, as well
as code, it knew or developed before working for the client, even if they are incorporated
to some extent in the work product for the client. In addition, the consultant wants to be
able to use any new techniques and software tools it may develop while working on the
client’s project.
Relevant Software Intellectual
Property Rights
Development contracts typically speak in
terms of the various intellectual property rights of which the software consists:
copyrights, patent rights, and trade secrets. Copyrights pertain to the tangible
components of the system, the software code and documentation. Most development contracts
will grant the client exclusive ownership of all copyrights to the system. The result is
that the consultant can’t duplicate the code it created for the client and deliver
it, or a modified version of it, to another client.
Copyright ownership doesn’t address
the ideas and concepts underlying the software. Patents and trade secrets are relevant
here. A patent is a 20 year monopoly on the right to make, use or sell the patented
invention. If any aspect of the software delivered to the client is sufficiently novel and
unique to be patentable, the client wants to be the exclusive beneficiary of the
consultant’s creativity. Accordingly, development contracts typically grant exclusive
patent rights to the client.
Trade secrets similarly protect the ideas
underlying software, but are of value only to the extent the dissemination of the trade
secret idea or concept is strictly limited. Consequently, development contracts will
typically prohibit the consultant from disclosing to others any elements of the software
which, if used exclusively by the client, might afford the client a competitive advantage.
Apportioning Rights Fairly
It is certainly fair that the client
obtain value from its system investment. It is equally reasonable that the consultant be
able to build upon its experience and add to it the knowledge gained by developing the
client’s system. From a contractual standpoint, this means drafting language that
enables the consultant to continue to use the techniques and ideas it knew going into the
client’s project, even if they are incorporated into the work product. Conversely,
the consultant should grant the client a license to use these techniques and ideas as
embodied in the work product, as opposed to owning them.
If the consultant develops a new
technique or process reflected in the work product which might be patentable or
protectable as a trade secret, the contract should explicitly state the parties’
respective usage rights, perhaps describing the different purposes for which they may be
used, and in what contexts. A development contract proposed by the client will typically
seek to afford the client exclusive ownership of these rights.
If there are portions of the code that
would be useful to the consultant in other situations, and the contract grants copyright
ownership to the client, the consultant needs to negotiate the right to re-use that code,
perhaps only in situations where the client’s competitive advantage would not be
threatened.
The challenge lies in analyzing the
intellectual property rights comprising a system and fairly apportioning them between the
client and the consultant. The goal should be to enable each to benefit from the
development process in ways most relevant to its respective business. Drafting the
appropriate contract language to accomplish this is a complicated, but essential task.
Attorney Eric Freibrun specializes in
Computer law and Intellectual Property protection, providing legal services to information
technology vendors and users. Tel.: 847-562-0099; Fax: 847-562-0033; E-mail: eric@freibrun.com.
Copyright © Eric S. Freibrun, Esq., Law Offices of Eric S. Freibrun, Ltd. All rights
reserved.
