Copyright vs Exclusive License?

cdanzig asks: "My company recently hired a development house to do some contract work for us. They did great work, but they are claiming that they now own the copyright on the code and are issuing us a permanent and exclusive license. My bosses are concerned that this will hamper our ability to make changes to the code or prevent us form being able to claim the software as a company asset. What is expected protocol between a client and a development house? What is the long-term difference between owning a copyright and owning an exclusive license? If we paid for the development of the code, is it fair for us to demand ownership?"

Comments

This is an Ask Slashdot FAQ

[Bruce Perens]

This kind of question pops up on Slashdot quite often. It's usually of the form "I should have had a lawyer when I started this, now what do I do?"

If your company didn't negotiate this when you hired the development company, it's your company's fault. But all is not lost. You may be able to prove that the software is a work-for-hire. Get a lawyer. Your laywer might be able to negotiate in a way that you can not, because it will be clear when the lawyer calls that you would consider a lawsuit. Tell the lawyer you want the other company to provide the copyright, and your legal fees.

Next time, have a lawyer work with you before you sign a contract with any company.

FYI: I am an expert witness. I get paid to testify in lawsuits when engineers don't call laywers before they accept a license or sign an agreement.

Bruce ~

Re:This is an Ask Slashdot FAQ

[Bruce Perens]

I think they need a lawyer to at least explain to them what they signed. They may have explicitly signed their rights away, in which case they may have little recourse. If they did not sign their rights away, they need to have the lawyer explain that, too. They might actually be right. And even if they are not right, they get to play "which side blinks first". A lawyer can look at the other company and tell them the probability of that game being successful or not. Also, the development company might not have much in the way of grounds for a counter-suit, and may prefer to have repeat business and good references to having a lawsuit on their record whenever anyone else checks up on them before choosing their company.

Bruce

Re:This is an Ask Slashdot FAQ

[Anonymous Coward]

if they have any objections to you modifying the code for internal use, which they probably wont

It is very likely that that is exactly why the developers want to retain copyright. If they can forbid modifications by the customer or people hired by the customer, then they have a monopoly on the supply of further development, with the cost of the first version as a barrier to entry into the market for anyone else.

Re:This is an Ask Slashdot FAQ

[Maximalist]

I don't know that getting a strongarm monopoly is the only reason that these guys would desire to maintain some rights in the copyright to the code they created. They may very well recycle snippets of code from project to project, and don't want to be put in a position where a former client finds out that they do so, and then claims that they're infringing on a copyright for code that they themselves wrote. I'd certainly not want to find myself in that position.

There has to be an agreement to share rights in the code. The best position to be in would be joint ownership of the copyright. That way, both parties can do whatever they want with it. IF this isn't a simple work-for-hire situation, that seems quite fair, unless the customer is willing to pay a lot more money to the developer for sole ownership of the copyright, who then be saddled with the need to reinvent the wheel on future projects.

Re:This is an Ask Slashdot FAQ

[Bruce Perens]

That's a really charming line of reasoning. For all the complaining people do about Big Evil Corporate Lawyers, I've never heard one say anything even close to the sleazy cynicism of that comment.

Hm. This is pretty basic material about negotiation, something I'd expect any manager to know, not just a corporate attorney. A while back I had some stockholders in a small business of mine threaten to bring suit. Not because they had a real complaint, but really just to get more stock out of me. It turned out they were playing "who will blink first". My side won. But it taught me that this is not limited to corporate attorneys at all.

Bruce

Re:This is an Ask Slashdot FAQ

[Timesprout]

Of course they should get a lawyer to examine what if anything they signed and clue them in. They may be fine or as you point out if they did not request copyright in a written contract then (a) they are naive and (b)in a difficult position. Trying to immediately legally intimidate (I am assuming the initial agreement was a lawyer free mutual one) and pass on the costs of their mistakes to the developer will most likely immediately kill all good will and unless the developer is poverty stricken eliminate all chance of future business. Furthermore it may in fact cause the developer to reexamine their licensing terms and enforce them to the very letter with suits for anything and everything they consider a breach. Again as you say consulting a laywer should clue them in to this possibility.

Look at the screaming hysteria that takes place round here if an OSS project gets a nice C&D letter from a lawyer. I would agree with your suggestion that they seek legal advise and based on this approach the developer in the same manner as the initial negotialtions, seek suitable agreement and _then_ get the lawyers to sign it off to everyones satisfaction. Failing mutual agreement the legal approach can be tried but thats an approach that works both ways and the developer may in fact be in a far stronger legal position in this case and could potentially cause all sorts of problems and embarassment for the company.

Re:This is an Ask Slashdot FAQ

[Anonymous Coward]

You may be able to prove that the software is a work-for-hire.

Obviously, a lot depends on what they did sign. But assuming they paid the company to write the code, that would clearly seem to fit the definition of "Work for Hire", and the contractor would need to prove that it wasn't by the wording of the original contract, and if the person who signed that contract did not realize that clause was there, thats potentially reason to nullify the contract.

Most likely the author now wants to resell his work to someone else, and needs to assert ownership of the code to make sure your company doesn't come back and lay claim to all subsequent works based on that code he wrote. He needs to compensate your company for that right, though it could be as simple as a lifetime of free upgrades/rights to new code.

Contracts aside, what would help make it not a work for hire:
* It was extended from earlier work (ie he produced widget-plus off his pre-existing widget, where widget is a significant part of widget plus)
* He charged under market rates for its development (ie you knowingly did not bear the full cost of development)

Re:This is an Ask Slashdot FAQ

[B'Trey]

IF this isn't a simple work-for-hire situation, that seems quite fair, unless the customer is willing to pay a lot more money to the developer for sole ownership of the copyright, who then be saddled with the need to reinvent the wheel on future projects.

If this is the company's standard method of operating, it's quite likely that they reused a few wheels in this project. Turning over the copyright may require extensive rewriting to remove code that's already in other projects to which they retained the copyright.

Re:This is an Ask Slashdot FAQ

[BobPaul]

If you tell a Lawyer "These guys won't give us our copyrights like they were supposed to! Sue them and make them pay our legal fees to." The first thing the lawyer is going to say is, "Ok, but it's $100/hr and you have to pay me for the time being. You'll get a "rebate" if we win legal fees" The next thing the lawyer will do is examine the contract and size up the opponent. This results in "Contract is in our favor, we should sue," "Contract is not in our favor, but they'll probably blink first" or "Contract is solid and they're not likely to budge. You should pay me and drop this."

If you ask a lawyer to sue, they'll tell you if you're an idiot long before they file proceedings.

Re:This is an Ask Slashdot FAQ

[Bruce Perens]

My own company often negotiates to own the copyright to something it creates. But we make it very explicit when we do that, and we would be loath to even sign a contract in which the other party had no lawyer participating, because we would have little assurance that there was a "meeting of the minds". I don't really approve of a vendor who does that. In this case it sounds as if the customer thought they were buying more than the vendor thought they were selling. Is the vendor taking advantage? Maybe. Contractors very often try to sell the same work multiple times, it's a basic play in how to leverage your consulting business. I think it's fair for the customer to negotiate from a position of strength rather than be a dupe, which is what they've been doing so far. What I suggested was that they get a lawyer to call the other company. If the other company knows they've been playing fast and loose with the customer, they'll give in at that point. If they haven't, they will probably hold the line.

Bruce

Re:This is an Ask Slashdot FAQ

[cdanzig]

Hey Bruce (and everyone else), Thanks for the reply! In this particular situtaion we enterered into a very informal agreement (largely verbal) in an effort to expedite the start of development (and appease aq crunched development timeline). As a result there was no contract that made specific reference to ownership of the deliverable. In retrospect this would have been a worthwhile use of time! So all things being equal. If Party A agrees to pay party B for development of new/unique code - without any mention of ultimate ownership/copyright/license - to whom does the code belong by default? -cdanzig

Re:This is an Ask Slashdot FAQ

[cpt kangarooski]

But assuming they paid the company to write the code, that would clearly seem to fit the definition of "Work for Hire"

No, that's not really enough. Generally, it needs to be made in an employee/employer relationship. There's a whole laundry list of factors that go into that. CCNV v. Reid has a good summary of them.

What does the license include?

[tepples]

There isn't much of a difference between a copyright assignment and an exclusive license. But exclusive licenses may have some gotchas that may affect your situation. Before you go on the clock with an attorney, you'll want to familiarize yourself with the text of the license and see which of the following apply:

1. Does the license include the right to prepare derivative works? If so, then you can continue to maintain the code.
2. Does the license include the right to sub-license the work? If not, the development studio probably excluded sub-licenses in order to keep you from selling copies and competing with the studio.
3. Is the license perpetual? If not, then you have a rental.

Re:What does the license include?

[rossifer]

If the development company isn't assigning the copyright, they probably aren't giving that, either, and plan to leverage upon this software with other customers. This is a game that most contracting developers play.

Of course, the licensing of code used in a contract is more sophisticated than you're letting on, so it's more serious than a game.

When I've done contract software development in the past, I've brought a common library of foundation code that gets me started very quickly. I wrote this library after completing projects for two clients and realizing that I started each project with the same two months worth of work. So in the next downtime, I wrote a more flexible/reusable version based on lessons learned.

I'm perfectly happy to license this code to my clients and allow them to maintain it themselves once I'm out of the picture, but I don't want to lose the ability to use that library for the benefit of my next client.

IMHO, the best option is to negotiate the licensing terms of all of the parts of the project up front and in good faith. This means being clear that the contractor is bringing code written elsewhere to the project and wants to retain ownership of that code. This means being clear that code written specifically for this client (embodying confidential and domain-specific knowledge) will not be owned or re-used by the contractor. This also means being crystal clean about billing of time spent maintaining the outside library (*). There are a few ways to clearly differentiate between the three kinds of time. I find that a "domain-specific" test is generally enough to leave both parties satisfied that their interests will be protected.

* If we expect significant expansion of the non-domain-specific code I've brought, I'll ask for a lower rate when working on that part of the system. Otherwise, if the maintenance take more than an hour in a week, I'll eat the time, less than an hour in a week and I'll bill the time. This has usually been acceptable to my clients and acknowledges that we both benefit from that time.

Playing games just means a lot of hard feelings, a lost reference, no assistance maintaining the project, and nobody is happy at the end of the day. Be clear, be honest, and negotiate from shared goals instead of trying to screw every penny or minute of time from the other.

Ross

Not enough information.

[amper]

You didn't specify the terms of the license agreement. It's great that it's permanent and exclusive, but if you want the copyright transferred to your company, be prepared to pay for that privilege. This is a fairly common practice.

In increasing order of expected value:

1. Temporary, non-exclusive right
2. Permanent, non-exclusive right or temporary, exclusive right
3. Permanent, exclusive right
4. Copyright transfer

The author has the right to expect greater compensation for greater value delivered. Perhaps you should try to negotiate a transfer agreement before you get too up in arms about this matter.

As a feelancer

[miyako]

IANAL but... From the perspective of someone who has done a lot of freelance work, both development and graphic design, retaining copyright is not unheard of, but it sounds like someone screwed up in the negotiation process. When doing freelance work, it's common to retain copyright, even when offering an exclusive license, because it allows the developer to create derivative works. This allows the freelancer to re-use code modules in other projects without having to worry about being sued by clients. From the perspective of a business, this doesn't necessarily hurt you. Depending on how your license is written, you may still have the right to modify the source for your use internally. You'll really need to get a lawyer to work out the details of your rights.
Whenever I have done freelance work, I have always stated up front where I stand on retaining copyright. In general, I retain copyright for projects unless stated otherwise - but I let the client know that upfront and that it is open to negotiation (in general, I charge the lowest rate for clients who want a non-exclusive license, more for clients who want an exclusive license where I retain copyright so I can use modules in future projects, and the most for transfer of copyright).
As for work for hire, as a rule of thumb, a project is work-for-hire if the project is created using company resources, so if the contractor used your companies computers and office space, then it could reasonably be considered work for hire, whereas if you gave them specs and they came back with a disk, it might be harder to make the work-for-hire argument. Once again, you'll have to talk to a lawyer about that, since there are all kinds of subtleties and differences from state to state, country to country, etc.
I would say, get a lawyer and try to work out your situation in this instance, and consider that you may have to chalk up a lesson learned. In the future, discuss this with contractors before hiring them.

Re:As a feelancer

[Skjellifetti]

IANAL but...

That's obvious. The relevant law:

Works Made for Hire. -- (1) a work prepared by an employee within the scope of his or her employment; or (2) a work specially ordered or commissioned for use as a contribution to a collective work, as a part of a motion picture or other audiovisual 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. 17 U.S.C. sec 101

This seems to be the problem faced by the questioner: They hired a company to do the work for them, not an individual so 1) does not apply. Software is not one of the 9 categories listed under 2) for which such a contract may even be written so 2) does not apply. Therefore the development company owns the copyright.

Re:As a feelancer

[cpt kangarooski]

They hired a company to do the work for them, not an individual so 1) does not apply.

Whether it's a company or not doesn't matter. 1 can apply, but it's very dependent on the details involved.

Maybe they didn't write all the code

[Maximum Prophet]

Perhaps they bought a salable license to a library that they used to build the code they are selling you, thus they can't sell you a copyright they don't own. Double check that their coders wrote 100% of the code.

Re:It would be nice to know...

[IcyWolfy]

As one of the contract negotiators for a software development house, there is a big difference between permanent exclusive, and transfer.

A permanent exclusive license states that you have the right to use the code indefinitely. And (in our contracts anyhow) state that you also have the right to modify, and reuse the code in other internal projects. This is the cheaper option for the client, as it means the development house can also do the same -- create derivatives, alter and reuse the components in other projects to other clients -- we just cannot resell the software as a whole to someone else.

On the other hand, transferring the copyright means that the client now owns the code. Period. We are unable to reuse the code, nor create derivatives. This costs the client a hell of a lot more, as any R&D, and modules can not be used in future projects for the development house to improve efficiency in future projects.

In the end, the poster really should have a lawyer, or just have an experienced (meaning burned) persons look over the contract, and ask the questions that need to be asked before anything is signed.

From the other end...

[itsdapead]

So does anybody have a magic solution that gives the client the right to use the original work that they've paid for, without the developer having to give up the rights to every last generic utility class they wrote, and consequently having to clean-room their next project, lest the original client sells out to a litigation-only troll company?

(Yes, but apart from that, Dr Stallman...)

The amount of dilligence that can reasonably be expected from a developer rather depends on the length and scale of the project - if its a 5 year project to write a new operating system that's one thing, but if its just a 6-week website job the client can hardly expect to pwn your browser-sniffing code...

Non-exclusive license . . .

[Dausha]

This sort of thing happens enough among uneducated (legally speaking) developers and companies that there's a term for it---non-exclusive license of copyright---which is essentially a contract issue. This is an equitable issue (unjust enrichment) which falls under state law. The long and the short of is is that they cannot prevent your using it, redistributing it, or even selling it to another software house; but neither can you stop them.

The normal rule is the author of the work owns the copyright. However, when the work is done by an employee for an employer, or when the contract explicitly transfers ownership, we typically have a work-for-hire. When the contract is silent and the author is not an employee, we can have a non-exclusive transfer of license. Since the author did the work and was compensated, then the compensating party has the right to use the property free of any license control. The _Foad_ case is a good example of this. (http://www.ivanhoffman.com/nightmare.html)

The author cannot prevent you from using the software because you paid for its development. Heck, the author cannot prevent you from giving the software to a third party for them to improve it. Foad involved an architecture firm creating plans of a shopping mall for a contractor who sold the construction project to another contractor. The second contractor then gave the plans to its outsourced architecture firm who removed all references to the original firm and essentially copied it. The Ninth Circuit said the nature of the relationship between the original parties created a non-exclusive license which allowed for this. In law, this is grounded in equitable principles of quasi-contract or unjust enrichment. The court in _Foad_ split in two directions (2-1) on the underlying cause of the transfer, but were unified in the existence of the transfer.

This is a state law issue because Congress implicitly ignores non-exclusive transfers, and the occurrence of these transfers is contractual in nature. Contracts are usually governed by state law.

I think they can revoke the license; but only by paying you back all that you spent. When the grant is made "for compensation" (usually money), the grant is irrevocable. In two circuits, the revocation can only happen when the license is between 35 and 40 years old!

Get thee to a good IP attorney and stop asking /. We are not lawyers, and this is not legal advice.

As an aside, the Open-Gaming License put out by WOTC (Hasbro is it now) is a explicit non-exclusive license grant.

Get it in writing beforehand.

[jonadab]

Get the terms of the agreement in writing before you pay anything. Duh.

Verbal agreements, basic quotes, and general practice are one thing if you're talking about off-the-shelf stuff, but when somebody's doing custom work for you -- of any kind, whether it's software dev or landscaping or advertising or business consulting or whatever -- you want everything spelled out in black and white before you pay them a dime. Things you want spelled out include, but are not limited to, the following:
  * exactly how much you are going to pay them up front (hint: no more than half the total)
  * exactly how much you are going to pay them on completion
  * exactly what they are going to do for you and provide you with
  * exactly when they have to have it completed, and what happens if they don't
  * what the secondary deadline is when they owe you back even the up-front money if it's not done
  * exactly what it means for them to have the job "completed"
  * the terms under which it is decided whether there will be an ongoing relationship
      (e.g., maintenance contract)
  * what you have to do to back out of the deal at any given stage, and what they
      have to do to back out of it, and what happens if either of you do back out
  * what kind of warrantee you have from them, and for how long

If you pay large amounts of money for custom work without getting in writing what you're paying for and when it must be delivered and so forth, you've been had. If you have a good lawyer you *might* be able to get some of what you wanted ex post facto, but then again you might not, and in any case your lawyer's time is worth money too, and going after them after the deal is done is not an efficient use of that time, compared with getting things in writing up front.

Don't be stoopid. Get it in writing.

Standard Engineering Practice is for Licenses

[Cassini2]

My local engineering association recommends only giving out licenses for all engineering works. The reasons are fairly obvious. Firstly, you can design a building (or a software program) for a client to use, without owning all the copyrights associated with it. For instance, suppose the consulting company used some example source code from Microsoft in the production code. They are allowed to do that. They aren't allowed to give the client the copyrights to Microsoft's example source code. It doesn't take long to realize that all those subsidiary libraries, code snippets, etc., are very difficult to get full copyright ownership on. However, using them in a piece of code is allowed and often encouraged. A license that ensures the client has the rights to use the software, and sidesteps the complexities of the copyright issues.

The other reason engineers stick to licenses is that portions of the engineering work may be in proprietary libraries used on a variety of client's projects. Again, this is okay, as long as the exact same piece of code isn't being sold to multiple clients with each client understanding that they have sole rights to "custom" code.

Finally, if you are dealing with engineers, a critical issue is who holds the liability insurance on the contract. If your software house has liability insurance, you are going to have a hard time proving "work for hire." Specifically, it isn't work for hire if you try suing them for non-performance of contract. That's a liability. It is only "work for hire" if you as the customer are absorbing all risks and pay all costs, and the software company is set up accordingly. Similarly, "work for hire" will be difficult to prove if the software house provides its own software, laptops, and/or offices.

Re:It would be nice to know...

[vux984]

Unless I'm missing something...

First off, its historically very common in photography. And usually represents an arrangment where the the photographer agrees not to resell a photo to any other customer, but the buyer can't go and start reselling it either, except for maybe a one-time transfer where the buyer transfers the permanent/exclusive/transfer license that they have to another 3rd party.

The idea is that if you were buying a photo to resell, the photographer would probably want a royalty component. But if you are buying an image to use in marketing, and you don't want anyone else to be able to buy that image and use it a permanent/exclusive license is a middle ground between licensing a copy, and buying the copyright right. It also tends to be priced between the two.

In software its even more common.

For example, I do database design, and over the years, like anyone I've built up a library of common functions, scripts, procedures, libraries, techniques, and so forth that I tend to re-use. I don't want to assign you copyright because then I can't reuse it other projects.

In fact, I can't assign you copyright to that stuff, because its already used in other projects. If I had to sanitize your project so that it wasn't using my copyrighted stuff, and only used stuff that I could assign to you that would take considerable effort and time and undermine the value of the body of work I've built as an independant developer - ie it would cost you a lot more and waste a lot of my time. So I'd prefer to just agree to let you have permanent exclusive license to the final product, but I retain copyright.

I'm not being an 'ass' about it. In fact I tend to be very flexible. Even if you wanted to resell the final product I wouldn't object; I'd be happy to license it to you with that right. Hell, I'd probably even license it to you under the GPL or a BSD-style license if you wanted it that way.

Naturally, if I'm licensing the code for you to resell, I'd probably want royalty or a larger initial cheque, but thats beside the point. The more rights you get the more it costs.

But I'd still need to retain the copyright for two reasons:

1) The project contains code that has been used or will be used in other projects I've worked on. And I'm not assigning you any ownership of those. I can't really. Plus, if I can avoid it, I don't want to be forced to build everything from scratch every time I need something I've already built.

2) The last thing I need is your successor/boss/assistant to sue me for copyright infringment when he finds out some module in your application, to which "you have copyright" was derived from or reused in another project I worked on. I don't want to be prevented from reusing my own personally developed code base.

If you simply must have copyright on every byte of source, than I'll work under that condition too, but it'll take more time, and cost more.