COMPUTER LAW ASSOCIATION IT MEETS TELECOM. Munich 13/14 November 2003 INTELLECTUAL PROPERTY ISSUES IN SOFTWARE/MULTIMEDIA DEVELOPMENT AGREEMENTS

Transcription

1 COMPUTER LAW ASSOCIATION IT MEETS TELECOM Munich 13/14 November 2003 INTELLECTUAL PROPERTY ISSUES IN SOFTWARE/MULTIMEDIA DEVELOPMENT AGREEMENTS by Stéphane Gilker Fasken Martineau DuMoulin LLP Barristers and Sollicitors Patent and Trade-mark Agents Stock Exchange Tower Suite 3400, PO Box Place Victoria Montreal, Canada 1

2 1. INTRODUCTION This text focuses mainly on provisions regarding intellectual property ( IP ) ownership and licensing in software, websites and multimedia product development agreements ( Development Agreements ) governed by United States or Canadian laws between independent providers of IT development services ( Developers ) and clients for which such products are developed ( clients ), normally based on a project initiated by the client. Development agreements in information technology ( IT ) raise interesting - not to mention complex IP ownership and licensing issues. Other than perhaps clauses that relate to deliverable requirements, IP provisions are certainly the most important and hotly debated provisions found in Development agreements because they touch on questions such as price, scope of exploitation by the client and the capacity to generate income from the deliverables. Errors or omissions in negotiating such provisions may have dramatic consequences for contracting parties (and their attorneys). A client may ultimately realise that it has received far less than expected for the price paid. A developer may end up having assigned to a given client all IP rights in pre-existing material customarily used by the developer in almost all of its projects. That developer may be in fact practically unable to pursue its normal business activities at the risk of infringing the client s rights. In the following pages, we will consider the legal concepts used in the negotiation of IP provisions in IT product development agreements and possible ways to allocate IP rights between parties based on the nature of the products (software, website or multimedia products), while emphasizing the consequences of such choices and possible alternatives. 2. INTELLECTUAL PROPERTY ISSUES IN DEVELOPMENT AGREEMENTS Before considering how intellectual property in software, websites and multimedia products could be allocated between developers and clients, let us first look at the concepts, both legal in nature or specific to the deliverables themselves, normally used in the IP provisions of development agreements. 2.1 Concepts used for the allocation of intellectual property rights in software, websites and multimedia products Two types of concepts are essentially used to negotiate the allocation of IP rights in deliverables -- the legal concept, which deal with the legal nature of the deliverables and the rights granted therein by law, and the more practical concepts centred on the source and nature of the deliverables Legal concepts Legal concepts used to negotiate the allocation of IP rights usually relate to the distinction between the legal qualification given to the deliverables themselves ( Intellectual Property or Confidential Information ) as opposed to the rights granted therein ( Intellectual Property 2

3 Rights and Confidentiality Rights ), and the context of development or the initial statutory attribution of ownership in such intellectual property ( Background, Foreground or Third Party intellectual property or Confidential Information). (a) Intellectual Property vs. Intellectual Property Rights An intellectual property rights is any right that is or may be granted or recognized under any legislation regarding patents, copyrights (including neighbouring rights and moral rights), protection of trademarks, industrial designs and integrated circuit topography as well as any other statutory provision or common or civil law principle regarding intellectual and industrial property, whether registered or unregistered, and including rights in any application for any of the foregoing. intellectual property, however, refers to the subject-matter protected by intellectual property rights, such as works (including computer programs), performances, discoveries, inventions, trademarks, industrial designs and integrated circuit topographies. Different types of intellectual property are treated in different ways. For instance, the developer may want to retain ownership of all rights under patents applicable to a patentable software functionality made as part of a project but be ready to assign the copyrights in the specific implementation of such invention (that is, the actual program itself) together with a nonexclusive licence in the patent for the purpose of allowing the client to use, make and sell that specific implementation without infringing upon the developer s patent rights. (b) intellectual property rights vs. Confidentiality Rights Confidential information could be defined as any information that is not, as a whole or in the precise configuration and assembly of its components, generally known among or readily accessible to persons that normally deal with the kind of information in question, that has actual or potential commercial value because of its confidential or secret nature, with respect to which reasonable steps have been taken under the circumstances to keep same confidential or secret and that is disclosed or furnished by or on behalf of such a party to the other. Parties may often try to protect technical, financial or business information, data, ideas, concepts or know-how as confidential information 1. 1 See definition of Trade Secrets in Article 1711 of Part VI, Chapter 17 (Intellectual Property) of the North American Free Trade Agreement: Each Party shall provide the legal means for any person to prevent trade secrets from being disclosed to, acquired by, or used by others without the consent of the person lawfully in control of the information in a manner contrary to honest commercial practices, in so far as: (a) the information is secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons that normally deal with the kind of information in question; (b) the information has actual or potential commercial value because it is secret; and (c) the person lawfully in control of the information has taken reasonable steps under the circumstances to keep it secret. 3

4 Confidentiality rights refer to rights that a party may have under law or by contract to prevent another party from disclosing or otherwise using confidential information disclosed to such other party. IT development projects normally generate not only copyrighted works or patentable inventions but, also, valuable ideas, concepts, functions and features that may be protected as confidential information. Protection and allocation of such Confidential Information shall, therefore, be dealt with by parties to the same extent and with the same degree of care as with other forms of intellectual property. Confidentiality rights are valuable legal tools that protect ideas, concepts, functions and features underlying software, websites and multimedia products. Remember that software is not easily protected by patent. In addition, while copyright is useful to protect software against unauthorised reproduction, a software s value sometimes resides as much in the ideas, concepts, functions and features underlying the code, as in the actual code itself. As compared to traditional copyrighted works, such as a painting or poetry, where value lies more in the expression of an idea than in the underlying idea itself, the actual code used to implement the ideas, concepts, functions or features may have less value to the user than the actual functions or features of the software. While the protection afforded by law to trade secrets or confidential information falls within the general concept of intellectual property rights, most of the time, parties to a development agreement will have already entered into a non-disclosure agreement or a confidentiality agreement with respect to information they want to protect through confidentiality rights, or will have included a specific provision regarding the protection of confidential information in the development agreement. Such a provision would aim at comprehensively and exhaustively deal with all the parties rights and obligations regarding the protection of their confidential information. Where confidentiality rights are governed by a specific provision of the development agreement (or of another applicable agreement), provisions regarding allocation and protection of intellectual property rights do not contradict the rules already agreed upon with respect confidentiality rights. The best way to make absolutely sure that no such conflicts arise is by expressly excluding the concept of confidential information from the concept of intellectual property, and expressly excluding the concept of confidentiality rights from the concept of intellectual property rights. There is much debate over the nature of confidentiality rights: some view such rights as proprietary in nature, 2 others would rather protect confidential information on the basis of either a contract, whether express or implied, or the principles of trust or confidence. 3 Because confidential information cannot be the subject matter of proprietary right, it is somewhat difficult to deal with such rights in the same manner as, for example, copyright that can be owned and, 2 R. v. Stewart (1983), 42 O.R. (2d) 225; reversed by the Supreme Court of Canada [1988] 1 S.C.R Matrox Electronic Systems Ltd. v. Gaudreau. [1993] R.J.Q

5 hence, assigned or licensed. This simple fact, in itself, should justify that such a right be treated differently than intellectual property rights. This separate treatment does not mean that harmony will not be preserved. The functional equivalent of an assignment of a proprietary right (or of an exclusive licence therein) may be achieved with respect to confidential information as follows: - Disclosure, by the developer to the client, of the confidential information with unrestricted right of the client to use or disclose the same, and - Contractual commitment, by the developer, to refrain from using such confidential information in any manner and from disclosing same to any third party. The functional equivalent of a non-exclusive licence in a proprietary right may be achieved with confidential information as follows: - Disclosure, by the developer to the client, of the confidential information; and - Contractual commitment, by the client, to refrain form using or disclosing such confidential information, except in the manner and for the purposes allowed by developer. (c) Background vs. foreground intellectual property or Confidential Information Most development projects involve the use of background intellectual property, that is, with respect to a given party, the intellectual property or all or part of the intellectual property rights owned by such party prior to or independent of any services being provided by the developer to the client under the development agreement, and the use of background confidential information that is, with respect to a given party, confidential information which is known or developed by such a party prior to or independent of any services being provided by the developer to the client under the development agreement. For instance, at least some portion of the software, website or multimedia product developed under the Development Agreement will usually be based on a developer s background intellectual property, such as the developer s software modules, routines or subroutines existing prior to the execution date of the development agreement. The developer may want to reuse, as part of the development project governed by the development agreement, such pre-existing modules, routines or subroutines provided they will meet the requirements of the project. On the other hand, the client may provide the developer with intellectual property developed or owned by the client. Take, for example, website development projects where the client will usually provides texts, images and logos associated with the client or with its business activities, and the products or services to be integrated into the website s graphical user interface. 5

6 Foreground intellectual property refers to any intellectual property developed by the developer for the client as part of the project, meaning, in principle, most of the material developed for, and paid by, the client under the development agreement, While foreground confidential information, for its part, can be defined as any new, additional or improved confidential information developed by the developer for the client as part of the project. A client will most take for granted that most, if not all, of the deliverables provided under the development agreement will be in the nature of foreground intellectual property and foreground confidential information, and that the client will be the owner thereof. Such assumptions are, usually, factually and legally false. Factually, at least some part of what is normally provided by a developer will be either the developer s and a third parties background intellectual property and confidential information. Legally, as we will see in paragraph 2.3 below, ownership of intellectual property developed by a developer under a development agreement with a client will most of the time be initially granted to the developer, not the client, by applicable laws. In order to ensure that the client will at least get some rights in the deliverables, assignment or licence provisions (or their functional equivalent with respect to confidential information) will have to be provided for in the development agreement. (d) Third Party Intellectual Property Third party intellectual property means any intellectual property and all or part of the intellectual property rights owned or controlled by a party other than developer or the client. There are essentially two types of third party intellectual property to examine in connection with a development project: Third party intellectual property included or embedded in the deliverables ( embedded third party intellectual property ) and, third party intellectual property that, while not included or embedded in the deliverables, are necessary for the modification, support, maintenance or use of the deliverables ( accompanying third party intellectual property ). This may include a software development kit (SDK), tools used to develop the customisation or runtime software that must be executed (or run ) simultaneously with the deliverables in order for the deliverables to be executed properly. (e) Compilation Compilation is a copyright-related concept. Section 101 of the US Copyright Act defines compilation as a work formed by the collection and assembling of preexisting materials or of data that are selected, coordinated, or arranged in such a way that the resulting work as a whole constitutes an original work of authorship. Section 2 of the Canadian Copyright Act defines compilation as a work resulting from the selection or arrangement of literary, dramatic, musical or artistic works or of parts thereof, or a work resulting from the selection or arrangement of data. Compilations are thus protected by copyright, in the US and in Canada, to the extent that they result from an original selection or an original arrangement of preexisting material or data, including works protected by copyright. Rights in a compilation attach not to the individual 6

7 components but to the compilation as a whole, that is, to the original selection or arrangement of the components. Hence, the creation and exploitation of a compilation obviously requires the authorization of the owners of any work included wholly or substantially in the compilation. In other words, these creations and exploitations involve the reproduction, or other acts the exercise of which is subject to the authorization of the copyright owner, in the works included as part of the compilation. The author of the compilation would acquire no rights in these individual works others than those granted or assigned by the owner of the works?? copyright. Rather, he would be the first owner of the in the compilation. Thus, no one, including the owners of copyrights or components of the compilation, would be entitled to reproduce or otherwise exploit the compilation or a substantial part thereof without permission of the author of the compilation. Consequently, subject to the rights of the compilation component s owners copyright, the owner of the copyright or the compilation enjoys the same rights as any other copyright owner in such compilation. As can be seen, the concept of Compilation can become a very useful tool in negotiating the allocation of ownership in software, website or multimedia products. Even if the developer were to retain all rights in the background and foreground intellectual property, he may agree to grant exclusive rights or, even, to assign to the client all copyrights related to the compilation made up of a selection or arrangement of any background, foreground and third party intellectual property embedded in the customized software Practical Concepts While the legal concepts referred to above are, in many cases, sufficiently flexible to allow parties to agree on a mutually acceptable attribution of ownership in purely technical projects (software development), other concepts may become useful, not to mention necessary, when allocating ownership of projects involving the creation of both software and content, such as websites and multimedia products. (a) Content/Software The concept of content essentially covers anything that may be seen or heard by the user of the deliverable, such as text, images, photography, data, characterizations, scripts, plot, animation, music, audio and audiovisual recordings. If deliverable includes recorded performances of actors, content will also include such performances and their recording. It could also include photographs or recordings of a person s image or voice. This concept may differ from the concept of Software, which deals specifically with instructions directed at an equipment processor in order to operate, direct, manipulate, access or otherwise affect the functioning or operation of a website or multimedia product, or the content of both. It may thus include things such as HTML, JavaScript, CGI, CSS and, where applicable, similar codes or scripts underlying the display or interactivity of a website. These concepts could be very useful tools in attributing of ownership of website or multimedia products where a developer sees no real value in retaining any right in the content yet wishes to 7

8 use, and retain the right to use, all underlying software components, and where a client sees no real value in owning the rights in the software, yet is anxious to ensure that the content will not be used by and for anyone but itself. It is in just such a situation that parties would agree that all intellectual property rights in the content be assigned to the client, together with a non-exclusive and perpetual license authorizing the client to use the software in association with said content. The developer, for its part, would keep all intellectual property rights in the software. (b) Generic/Specific content The software/content distinction may sometimes not be sufficient to satisfy parties requirements: A website developer may, for instance, use standard web page templates 4 developed in prior projects that it intends to retain for future projects. The Developer may also have developed standard instructions, help menus, menu icons or other material that it intends to use in future projects. Clients might in some cases find it acceptable that the developer be entitled to retain ownership of generic content, in other words, content that is not specific to the client or to the product developed, while insisting that any content specific to the client or to the product developed be assigned (or at least licensed on an exclusive basis) to the client. Specific content can include such things as content containing the name of or other references to the client, (a trade mark value for the client) or referring to the client s business activities, products or services. In the case of gaming applications, specific content could include the storyboard, scripts, characters, scenery, music or other similar content of the application. Generic content can include standard webpage templates, standard text, instructions and help menus, standard menu icons and, in the case of gaming applications, standard individual elements such as generic trees or buildings or other scenery or landscape elements, standard noises or sound effects and anonymous characters and costumes not specific or customized to the client s application. If a client wants to reuse content in future projects, be they sequels, prequels or other aspects of a multimedia game, make sure that intellectual property rights over copyrightable elements such as characters or scenery elements, created by the developer based on the mere ideas or concepts proposed by the client, are assigned, or at least licensed on an exclusive basis, to the client under terms allowing such uses. (c) Generic/Specific Software Parties may want to distinguish between software elements on the basis of their specific or generic characters, as is done with content. 4 Such as presentation templates proposed by applications as PowerPoint. 8

9 Hence, many developers will insist on preserving their ownership of intellectual property rights in any software element that could be reused in future projects. This is sometimes referred to as routines, subroutines or software tools of general application. On the other hand, the client might insist on owning specific software components that have been developed for and paid by the client, such as functions made available on a website that might be based on ideas proposed by the client or that may give some competitive advantage, or applications (or engines ) underlying the development or execution of a multimedia application that may give the client some competitive edge or be reused in other projects. As can be expected, negotiations could become extremely difficult where both parties have serious and legitimate interests at stake. In such cases, a few possible solutions would be to reserve exclusivity to the client for a certain period of time, for certain applications and/or for a certain territory, to revaluate the price or to consider the payment of royalties to allow the developer to reuse the specific software. (d) Residual Knowledge Another concern frequently raised by developers in negotiating intellectual property and confidentiality provisions is their ability to legitimately pursue their business activities without running the risk of infringing the rights of clients by unintentionally or inadvertently recreating or reusing intellectual property assigned (or exclusively licensed) to a client, or by reusing or disclosing confidential information developed for or learned from a client or, even, learned from a client in the course of a project. There may be a sound basis for such fears. Take, for example, a software programmer who has to solve the same or similar problem or the same or similar functions for two clients. He may well end up writing programs substantially similar in expression. Firstly, courts have recognised that there are some species of information that may not be appropriated, such as the experience and general knowledge that an individual develops or gathers throughout his professional activities; these may be legitimately brought with him and used for his own benefit or for that of others retaining his services. Any provision trying to overcome that principle may well be invalidated by courts, should they be imposed under terms (territory, duration and scope) not normally considered acceptable in the context of noncompetition provisions. Secondly, courts have not gone so far as to allow, under the abovementioned exception, any act that would amount to an infringement of an otherwise applicable intellectual property right, such as copyrights or patents. It thus seems fair to say that this exception would only apply in the realm of confidentiality law. While it may be unnecessary to provide for such an exception in places where courts do not prevent the use of such types of know-how or knowledge, the law may well vary from country to country (not to mention from state to state or province to province). 9

10 Furthermore, a developer may well try to expand that exception to cover matters that may not be suited to such an exception, or even, extend it to allow acts that would constitute infringement of intellectual property rights. clients should carefully consider any such request and impose at least the following limitations on a developer s right to use or disclose residual knowledge: - The residual knowledge was only be used or disclosed through the performance of services relating to or embedded in a product; - No such use or disclosure shall involve or be made to any competitor of the client; - No such use or disclosure of residual knowledge shall extend to the client s background confidential information; - No such use or disclosure shall extend to foreground confidential information based on or derived from the client s background confidential information; - Any authorized use or disclosure shall exclude any explicit or implied references to the client or to its business activities, products or services; - Such authorized use or disclosure shall not result in the infringement of any of the client s or third parties intellectual property rights, and - Such authorized use or disclosure shall not prevent or otherwise jeopardize the client s or other third parties right to apply for or be granted any intellectual property rights, such as patents, with respect to all or part of such residual knowledge. 2.3 Initial Attribution of Ownership Before considering how intellectual property, or intellectual property rights therein, should be allocated between parties, it is necessary to know which party is the initial owner of such rights and how such rights could be transferred. For the purposes of this paper, we will limit our discussions to copyrights and patents Copyright Under US and Canadian copyright laws, the author of a work is the first owner of the copyright therein. A notable exception arises where the work created is a work made for hire as defined in Section 101 of title 17 of the United States Code ( US Copyright Act ), or a work made by an author in the course of his employment under a contract of service or apprenticeship under Section 13 (3) of the Copyright Act (Canada) 5 ( Canadian Copyright Act ). In both these cases, 5 R.S. 1985, c. C-42 10

11 the first owner of the copyright will be the person having employed or retained the services of the author. US law goes farther than Canadian law as regards the concept of work made for hire. This concept covers not only works made as part of an employer-employee relationship (as understood under agency law 6 ) but also works specially ordered or commissioned for use as a contribution to a collective work, as a part of a motion picture or other audio-visual work, as a translation, as a supplementary work, as a compilation, as an instructional text, as a test, as answer material for a test, or as an atlas, if the parties expressly agree in a written instrument signed by them that the work shall be considered a work made for hire. Under US law, therefore, works made for hire could include works created by independent contractors where such works fall within one of the categories of works listed in the definition and there is a written agreement between the parties recognizing that the work is a work made for hire. According to MacLean Associates, Inc. v. Wm. M. Mercer-Meidinger-Hansen, Inc,. 7 a computer program does not fall under the categories of work listed in the definition. A computer program therefore would only constitute a work made for hire where it is created within the course of employment (as is the case in Canada). When the time comes to negotiate ownership of copyrights in software, website and multimedia products developed by an independent contractor under a development agreement, it is recommended to presume that, absent a formal written assignment of the intellectual property rights in such a development, 8 the developer, not the client, will own all copyrights in such software, website and multimedia products Patents Under US and Canadian laws, the inventor is the person who is entitled to file an application for the granting of a patent with respect to an invention. 9 6 According to the Supreme Court in Community for Creative Non-Violence et al. v. Reid, 490 U.S. 730 (1989), the following non exhaustive criteria shall be used to determine whether an employer-employee relation, as understood under agency law, exists: (1) Work done at the employer s location, and provides equipment or other means to create work); (2) Control by employer over the employee (e.g., the employer controls the employee s schedule in creating work, has the right to have the employee perform other assignments, determines the method of payment, and/or has the right to hire the employee s assistants), and (3) Status and conduct of employer (e.g., the employer is in business to produce such works, provides the employee with benefits, and/or withholds tax from the employee s payment) F 2d Section 201 (d) and 204 (a) of the US Copyright Act; Section 13 (4) of the Canadian Copyright Act 9 Section 111, United States Code, Title 35 Patents; Section 27 (1) Patent Act ( R.S. 1985, c. P-4 ) 11

12 While the law may differ to a certain degree in the USA and Canada, it seems fair to say that, except where an inventor is expressly hired for the purpose of inventing, there is no specific assignment provision in the employment agreement, the inventor-employee, not the employer, will be entitled to file an application for a patent and be granted the patent for such invention. 10 Therefore, as between a developer and client, the rights in any invention developed by the developer in the course of the development agreement would in all likelihood belong to the developer. Parties to a development agreement should therefore base their negotiations on the principle that the developer is entitled to obtain patents and holds all rights under patents granted with respect to any invention conceived and reduced to practice by the developer within the performance of the development agreement. 2.3 Allocation of intellectual property rights in Software, Website and Multimedia Products Criteria used for the allocation of intellectual property rights in Software, Website and Multimedia Products Many considerations must be taken into account when negotiating the attribution of intellectual property rights in software, website or multimedia products made by a developer for a client. while some considerations will be peculiar to a situation, others are common to most situations. They are: - The assumption of development costs by the client or the developer - The novelty of the ideas or concepts underlying the deliverables - The originator of the ideas or concepts underlying the deliverables - Ownership of any background intellectual property or confidential information underlying the deliverables - The competitive advantage brought by the software, website or multimedia products for the parties, and - The value of the deliverables for competitors of the client Allocation Matrixes 10 Comstock Canada v. Electec C.P.R. (3d) 29 12

13 (a) Software (i) clients Background Intellectual Property Typically, developers will need a non-exclusive licence from the client authorizing the use 11 of all of the client s background intellectual property it needs to comply with their development obligations. (ii) Third Party Intellectual Property For its part, the client must insist that no third party intellectual property be used in the development of the deliverables nor be required to use 12 the deliverables unless it is informed of that fact and is satisfied it will be able to obtain all necessary rights, upon acceptable conditions, in order that the client may use the deliverables to the full extent it expected. (iii) Developer s Background Intellectual Property The client shall also insist that no developer s background intellectual property be used in the development of the deliverables nor be required for the use 13 of thereof unless the client is informed of the fact. where the developer s background intellectual property is included as part of the deliverables, it will typically be licensed on a non-exclusive basis for use as part of the deliverables in which it is integrated, as the same may be modified from time to time. To the extent that licences may be legally presumed to be specific to the licensee and non assignable, clients who want to be able to exploit the deliverables without any restrictions as though they were the owner thereof, must insist on adding terms to the effect that their licence is assignable and may be sublicensed to any third party. (iv) foreground intellectual property The client should remember that, unless there is a formal written assignment, the developer remains the owner of the foreground intellectual property. It is not uncommon for developers to assign intellectual property rights in at least some parts of the foreground intellectual property to the customer. However, such assignments are sometimes strongly resisted by the developer who prefers to retain the ownership and instead grant an exclusive or non-exclusive licence to the client. The more the above-mentioned considerations point in favour the client, the greater the chances that the client will be able to obtain an assignment of the intellectual property rights in the foreground intellectual property. 11 The term Use shall be construed as covering any act which, if committed without the proper authorization of the owner of an Intellectual Property Right, would constitute an infringement of such an Intellectual Property Right. 12 See definition of use at note See definition of use at note 11 13

14 One possible way to resolve disagreements regarding ownership of foreground intellectual property is to consider making a distinction, such as allowing the developer to retain some foreground intellectual property elements, such as modules or routines that may be of value to the developer in other projects, and only granting a non-exclusive licence thereon to the client. As well, where ownership of the foreground intellectual property is assigned to the client, the developer may be granted a non-exclusive licence to reuse all or part of the foreground intellectual property that was assigned to the client, which licence the client may restrict to uses that will not result in providing the foreground intellectual property to the client s competitors, at least within the client s operating territory. such a licence may even be granted in return for the payment of royalties based on the exploitation of the assigned foreground intellectual property or for a reduction in development costs. If, on the other hand, the client agrees to limit its rights in the foreground intellectual property to a non-exclusive licence, it will attempt to craft such a licence in a way that would allow all forms of use or exploitation that the client would have been able to make as owner of such foreground intellectual property, and this in a way that would at least cover all forms of use or exploitation anticipated by the client. The client will also insist on adding terms allowing such a licence to be assigned and sublicensed to any third party. Allowing a developer to grant licences to third parties may sometimes be valuable to the client: this may substantially reduce support and maintenance costs as the deliverables would otherwise probably be supported on a time and material basis. A reduction of (or, even, free) support and maintenance in return for the developer s retention of the intellectual property in the foreground intellectual property may also be an acceptable compromise for the client. (iv) Compilation To the extent the software may, as a whole, be protected as a compilation, an acceptable compromise may be for the developer to grant a non-exclusive licence with respect to the foreground intellectual property in such software but to agree to assign to the client all intellectual property rights in such compilation or to grant to the client an exclusive licence with respect to such compilation. The grant would ensure that, while the developer remains free to exploit each component of the software on an individual (non-compiled) basis, the software, as a whole (as compiled), would never be licensed to any third party. (v) Moral Rights Certain countries like Canada and apparently, though not clearly, the United States recognize the existence of moral rights for the benefit of authors of copyrighted works. In Canada, these rights are limited to the attribution of authorship, preservation of the integrity of the work prevention of the work being used in association with products, causes, services or institutions. Such rights may not be assigned but can, in Canada, be waived. 14

15 The client should thus make sure that the developer has obtained from the author of the software an irrevocable waiver of all moral rights such author may have over the software in all countries where such waiver can be obtained. (vi) Confidentiality Rights Finally, parties may refine their rights in and to the deliverables by allocating their confidentiality rights therein. For instance, while a developer may agree to assign or grant exclusive rights relating to the specific implementation of an idea, concept, feature or function included in the software, he may worry that, in so doing, he will be prevented from making any non-infringing implementation of such idea, concept, feature or function. The best way to attain this objective is by treating copyright and confidentiality rights differently. For example, copyrights in the specific use of an idea, concept, feature or function included as part of the software may be assigned to the client. The parties may then agree that the developer should not be prevented from using said idea, concept, feature or function in a way that does not infringe the client s copyright in such software ( non infringing implementations ), provided that neither the non infringing implementations nor the underlying ideas, concepts, features or functions, may be disclosed or provided to a third party unless the third party agrees to confidentiality obligations towards the developer at least as stringent as those undertaken by the developer for the benefit of the client under the development agreement. The client may also consider allowing the developer to use residual knowledge as part of its business activities, subject to the restrictions set forth in (d) above. (b) Website and Multimedia Products (i) clients Background Intellectual Property As for software, developers of website and multimedia products will need a non-exclusive licence from the client authorizing the use 14 of all the client s background intellectual property and confidential information they need to comply with their development obligations. Corporate website projects will almost always require reproduction of the client s name, logo, trademarks, texts and sometimes other copyrighted material in order to populate the site. Multimedia products developed on the basis of the client s requirements will, in virtually all cases, be based on some properties such as characters and/or scripts developed or acquired by the client. 14 See definition of use at note 11 15

16 (ii) Third Party Intellectual Property The client will again insist that no Third Party Intellectual Property be used in the development of the website or multimedia product or be required for the Use 15 thereof unless the client is informed of the fact and satisfied that it will be able to get all rights needs, under acceptable conditions to Use 16 the website or the multimedia product to the full extent expected. Issues regarding use of third party intellectual property in websites or multimedia products may also take the form of: - So-called neighbouring rights for the benefit of performers or producers of sound recordings; - So-called personality, publicity rights or privacy rights for the benefit of individuals whose image, likeness or voice is reproduced on the website or multimedia products; - Contractual restrictions under collective bargaining agreements with artist unions or guilds that may be applicable to the developer or the client, and - Tariffs applicable to the synchronization, reproduction or telecommunication of copyrighted material included in the website or multimedia product. Artists neighbouring rights will not normally cause huge problems. In most countries, such rights are restricted to preventing the unauthorised fixation of performances, which will normally not be the case. These restrictions are lifted once the performances are included as part of an audiovisual work, as when audiovisual sequences are included in websites or multimedia products. Such rights entitle their holder to claim an equitable remuneration where published sound recordings embodying their performances are performed in public or communicated to the public by telecommunication, which will not normally apply to the exploitation of the website or of the multimedia product itself. As for rights of record producers, licences or assignments will obviously be needed before the sound recording can be incorporated into the website or multimedia product, or even reproduced. Public performances and communications to the public by telecommunication of such sound recordings will, again, only trigger payment of an equitable remuneration by the persons responsible for such performances, to the extent that they are made from a published sound recording. Valid authorizations, normally in the form of written authorization or waiver, will also be required before a natural person s image, likeness or voice may be incorporated into a website or multimedia product. 15 See definition of use at note See definition of use at note 11 16

17 The client or the developer may be bound by collective bargaining agreements with unions or guilds governing services provided by authors or performers for the development of the website or multimedia product. Such agreements could severely limit the scope of the rights acquired by the client or the developer, or subject them to certain conditions such as payment of royalties or of additional fees. Furthermore, assignment of the rights obtained by the developer to the client (and by the client to third parties) may be prevented or severely restricted under such collective bargaining agreements. Clients may thus want to make sure that the developer, authors or performers retained for the development of the website or multimedia product are not bound by any applicable collective bargaining agreement or that all conditions required to obtain all contemplated rights have been fulfilled. Caution must also always be taken to ensure that the developer is entitled to assign rights acquired from performers under such collective bargaining agreements, because the assignments will almost always be subject to compliance, on the part of assignees and assignors, with certain conditions, including the assignee s obligation to become signatory to the collective bargaining agreement which may not be acceptable to the assignee. Finally, the incorporation of copyrighted material in the website or multimedia product and the reproduction, public performance or communication to the public by telecommunication of the website or multimedia product incorporating such copyrighted material may be collectively managed by copyright collectives or be subject to statutory or administrative tariffs governing the scope of the copyrights available and the conditions applicable to their exploitation. In such cases, the only right available may be restricted to non-exclusive licences. (iii) Developer s Background Intellectual Property The developer must not integrate any of its background intellectual property into the website or multimedia product without first informing the client. As for software, any of the developer s background intellectual property that is integrated into the website or multimedia product will most likely be licensed on a non-exclusive basis for use as part of the website or multimedia product in which it is integrated, as these may be amended from time to time. Clients who want to be able to exploit the deliverables without restriction, as if they were the owner thereof must insist on adding terms to the effect that their licence may be assigned and sublicensed to third parties at any tier. (iv) foreground intellectual property As a rule, intellectual property rights in foreground content that is integrated into a website or multimedia product are usually assigned to the client. Developers may agree to or resist assignment of intellectual property rights in the Foreground Software to the client; prefer to retain ownership of the intellectual property rights therein and grant licences, on a non-exclusive or exclusive basis, to the client. Disagreements over ownership of the foreground intellectual property may also be resolved by distinguishing between certain components thereof by allowing the developer to retain some 17

18 foreground intellectual property elements, such as web page templates, standard text, instructions and help menus, standard menu icons and, in the case of gaming applications, standard individual elements such as generic trees, buildings or other scenery or landscape elements, standard noises or sound effects, anonymous characters and costumes not specific or customized to the client s application and other content that is not specific to the client or to the website or to the multimedia product developed. Clients usually insist that all rights in any content that is specific to the client or to the product developed be assigned to the client, and the same holds for content containing the name of or referring to the client or which has a trade mark value for the client, content referring to the client s business activities, products or services and, in the case of gaming applications, the storyboard, scripts, characters, scenery, music or other similar content of the application. Where the client is assigned ownership of some foreground intellectual property, the developer may be granted a non-exclusive licence to reuse all or part of such foreground intellectual property, which licence the client may restrict to uses that will not result in providing the foreground intellectual property to the client s competitors, at least within the client s operating territory. Such a licence may again be granted in return for the payment of royalties based on the exploitation of the assigned foreground intellectual property or for a reduction in the development costs. Where, on the other hand, the client agrees to limit its rights in the foreground intellectual property to a non-exclusive licence, it shall try to craft the licence in a way that allows all forms of use 17 that the client would have been able to make as owner of such foreground intellectual property and make sure that the licence covers at least all forms of use or exploitation anticipated by the client. The client should also insist on adding terms to the effect that such a licence may be assigned and sublicensed at any tier. Meanwhile, the client should always avoid restricting its rights in any content of a multimedia product that would prevent it from developing sequels, prequels or other follow-up s to the product, such as rights in characters and scenery. (iv) Compilation Websites and multimedia products will, in many cases, be protected as a whole as a compilation. Therefore, the client must always try to obtain from the developer an assignment of all intellectual property rights in such compilations. (v) Moral Rights While waivers of moral rights are more difficult to obtain in the artistic rather than the technical field of copyright, the client may try to obtain from the developer an irrevocable waiver, by all authors of the website or multimedia product, of all moral rights they may have over their works in all countries where such waivers may be obtained. 17 See definition of use at note 11 18

19 (vi) Confidentiality Rights Confidentiality rights may again be used to refine the allocation of parties rights in and to the website or multimedia product through the allocation of the confidentiality rights therein. Finally, the client may consider allowing the developer to use residual knowledge as part of its business activities, subject to the restrictions set forth in (d) above. 2.4 Scope of Assignment or Licences Obviously, not all software, websites or multimedia products perform the same functions or have the same features, nor do they address the same business or other requirements. One would expect differences in software, websites or multimedia products to be mirrored in assignment or licence terms, with each assignment or licence tailored to address the particular functions, features and requirements of the particular product, especially since it is normally in the licensor s interest to limit rights granted under a licence to what is strictly necessary in order to satisfy a customer s needs. It is sometimes surprising to observe that some development agreements, even those proposed by developers themselves, fail to clearly define the scope of the rights that are assigned or licensed to their customers. A surprisingly high number of development or licence agreements will simply grant the licensee the right to use the software without any attempt to define what acts are actually covered by the word use. Qualifications to such right, if any, will usually be directed at the context (such as a designated CPU, computer or premises) or the purpose of the use (such as internal purpose) Does Using Software, Websites or Multimedia Products Require a Licence? Assignments or licences are centred on the question of intellectual property. The raison d être of licence agreements is, in principle at least, to determine the extent to which a licensor of some intellectual property will allow a licensee to commit acts with respect to such intellectual property that would otherwise infringe a licensor s rights, which is the very nature of a licence. 18 Licence agreements may serve both to allow activities that would otherwise be prevented by law (such as by authorizing the commission of an act that would otherwise infringe intellectual property rights in the product) and to restrict activities with respect to the licensed product that would otherwise be permissible under law (by contractually preventing the use and disclosure of 18 See Heap c. Hartley, (1889) 6 R.P.C. 495, 500; A dispensation or license properly passes no interest, but only makes an action lawful which without it had been unlawful ; Murray v. I.C.I. Ltd., [1967] R.P.C [ ] Its effect can best be understood by remembering the different kinds of licence with which we are familiar. An ordinary "licence" is a permission to the licensee to do something which would otherwise be unlawful. 19

20 the product by the licensee on the basis of the protection of trade secrets or confidential information). Rights granted in licence provisions must clearly define to the fullest extent possible, which acts protected by intellectual property will be allowed under the licence using, wherever possible, the terminology of the applicable legislation. Software, websites and multimedia products are appropriate candidates for protection as works under copyright laws. 19 Software protection is historically rooted to, and still substantially depends on, trade secret law. 20 Finally, while the European Union has recently opted to refrain from granting patent protection to inventions embedded in software as such, 21 there is a clear trend in some countries (at least in the USA 22 and, to a certain extent, in Canada 23 ) to apply patent law to aspects of software that meet the requirements of novelty, usefulness and nonobviousness. Each of these bodies of law gives a measure of protection or monopoly over certain definite acts. Copyright allows the owner to authorize or prevent, among other things, the reproduction, public performance, communication to the public by telecommunication of works and, in some countries, distribution of copies of works. Trade secret law allows the person to whom the protection belongs the right to prevent unauthorised disclosure or use of the subject matter of the trade secret. Patents, on the other hand, give the patent owner the exclusive right to make, use and sell the invention. From the above, we notice that copyright does not grant any right over the use of a work, 24 while patent and trade secret laws do Tailoring the Grant 19 WIPO 1996 Copyright Treaty ( WCT ), Article 4 (Computer Programs) Computer programs are protected as literary works within the meaning of Article 2 of the Berne Convention. Such protection applies to computer programs, whatever may be the mode or form of their expression. 20 Adobe Systems Incorporated v. One Stop Micro, Inc., 84 F. Supp. 2d 1086, February 2, 2000; Roditti, Esther, C., Computer Contract, Negotiating - Drafting, Matthew Bender, 3A 01 [1]. 21 Munich Convention, 7 October 1977; Proposal for a directive of the European parliament and of the council on the patentability of computer-implemented inventions, Commission of the European Communities, Brussels, , com (2002) 92 final, 2002/0047 (cod): defined procedure or sequence of actions when performed in the context of an apparatus such as a computer may make a technical contribution to the state of the art and thereby constitute a patentable invention. However, an algorithm which is defined without reference to a physical environment is inherently non-technical and cannot therefore constitute a patentable invention. 22 Diamond v Diehr, 450 U.S. 175 (1981) 23 Wang, Peter, Guidelines on Software and Business Methods Patents, CLA Bulletin, Vol. 16, No 1 24 Time-Life International (Nederlands) B. V. et al. v. Interstate Parcel Express Co. Pty. Ltd., [1978] F.S.R. 251 (Aust. H.C.). 20