Ownership rights — and wrongs

It is easy for businesses to encounter legal problems in connection with software development and use. Here are some steps to help minimize such problems.

1. Control the use of software by employees.

A business should prohibit employees from copying software licensed for one computer and using it on another. Such use violates federal copyright laws and, if the infringement was willful, could subject the business to fines of up to $150,000, plus attorney fees. Infringement can be willful under the law if the business exhibited a reckless disregard for the rights of the copyright holder, whether or not the business owner actually knew of the infringement.

Courts “award an amount that will put the defendant on notice that it costs more to violate the copyright law than to obey it.” Recently, a business was found to have improperly distributed software, and the company — as well as its president — were found liable and ordered to pay Microsoft $140,000 in statutory damages, plus attorneys fees, for seven infringements of copyrights.

In another case, a U.S. district court awarded a copyright holder, Dream Dealers Music, statutory damages of $20,000, plus attorneys fees, against a radio broadcaster for unauthorized broadcasts of copyrighted songs, an amount the court said was almost three times as much as it would have cost the station to acquire licenses.

2. Watch downloads from the Web.

The decision of the U.S. Ninth Circuit Court of Appeals in the Napster case confirmed that downloading music files from the Web can violate copyright laws, even though the person downloading files paid no money for them. Advise employees that downloading material, including documents, from the Web can violate copyright laws in certain situations.

If there are questions about whether downloading in a particular situation is prohibited, the employee should ask counsel or management familiar with copyright issues.

3. Get software development deals in writing.

Generally the person developing a copyrightable work is the owner of that work. An exception is a work-for-hire situation. If a business asks an employee to develop a computer program, and the work is within the employee’s scope of employment, generally the resulting software is owned by the employer under the work-for-hire statute.

Questions frequently arise, however, about whether software development is within the scope of employment and whether the employee is actually an employee in the eyes of the law — or an independent contractor. Although not required, to protect against confusion, a business should put into writing details of a software development arrangement with an employee and have the employee sign the statement.

The work-for-hire doctrine also applies to independent contractors, but with a more limited scope: The work must be “specially ordered or commissioned” and can only be for limited categories of works, including “a contribution to a collective work, as part of a motion picture or other audiovisual work … as a supplementary work, as a compilation ….” Further, the parties must “expressly agree in a written instrument signed by them that the work shall be considered a work made for hire.”

Thus, if a business asks an outside consultant to develop software, the business should make sure that:

* The work fits within one of the categories that can be considered work for hire when developed by an independent consultant, and

* The business has a written agreement with the consultant signed by both parties stating the software is to be developed on a work-for-hire basis and the business will be the owner of the software.

If the work does not fit within one of the categories, the business should obtain a written assignment of all the developer’s rights in the software.

We recently had a case in which a developer alleged that a client, the company contracting for source code, infringed upon the copyright of the developer by using the source code provided by the developer without fully paying for it. The developer sued in federal court, but the development agreement had specifically stated the source code would be a “work made for hire” and that the contracting company would own the copyright.

As a result, the court denied the request of the plaintiff for an injunction. Putting the development agreement in writing and specifying ownership is crucial.

4. Don’t allow developers to copy from Web page or other designs.

The design of Web pages can raise separate copyright issues. Even though one computer program may not be substantially similar to — and therefore may not infringe upon a second program — the first program may nevertheless produce screen displays which are substantially similar to the displays of the second program and infringe the copyrights for its displays. Trademark law — as well as copyright law — can protect screen displays.

When a business has a consultant develop a Web site, not only should the business identify in the contract who owns the software used to generate the screen displays, but also who owns the screen displays. Moreover, in the contract, the developer should assure the business that the program and screen displays will not infringe upon anyone else’s copyright or trademarks.

Considering such issues will not eliminate legal problems, but can minimize the likelihood and severity of any ensuing difficulties. Douglas L. Rogers ([email protected]) is a partner in the Columbus office of Vorys, Sater, Seymour and Pease LLP where he practices in the areas of copyright, trademark, intellectual property, computer, Internet, antitrust and general commercial litigation.

A matter of law is presented by Vorys, Sater, Seymour and Pease LLP in cooperation with SBN Magazine.