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

[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

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.