With the rise in multinational technology companies, including startups, it is increasingly common for those companies to use software developers located in countries around the world. Securing an assignment of all intellectual property (IP) rights from contractors involved in the development of software is essential to ensure that a company owns all rights and has full control over its proprietary software.
When it comes to obtaining rights from a worldwide development team, companies should be cautious of the “one size fits all” approach offered by template agreements, sometimes known as Confidential Information and Invention Assignment Agreements or Proprietary Information and Invention Assignments (in the U.S.), and Intellectual Property Assignment Agreements (in the U.K.). The reason? The IP rights a contractor is able to assign to the company vary from jurisdiction to jurisdiction. The same is true of the rights a contractor may retain under the law where the contractor is located and the formalities required for an effective assignment of IP rights.
Without including language specific to the country where a developer is located, a purported transfer of IP rights may be ineffective, and a company risks not owning its software or allowing the developer to assert rights to the software years later, especially once the company is successful.
Here are some key provisions companies should consider including in assignment agreements – along with the potential risks that the company could face without including those provisions – for developers in these four countries:
France
Germany
United Kingdom
United States
France
Under French law, intellectual property rights created by most third parties (e.g., contractors, freelancers, and service providers) or corporate officers do not automatically vest in the company that commissioned or paid for the work. To ensure ownership of the copyright subsisting in software developed by third parties or corporate officers, these individuals must expressly assign their rights to the company pursuant to an assignment agreement that satisfies the requirements of the French Intellectual Property Code. With limited exceptions, only physical persons may be authors of works subject to copyright. In assignment agreements between two legal entities, the assignee should ensure the assignor has first obtained a valid assignment of the rights from the human author.
- Specific Description of the Rights Transferred Along With Territory and Duration. The validity of a broadly drafted, sweeping assignment of “all rights and title” in software produced by a contractor may be subject to challenge under French law. To minimize that risk, a company should mention each assigned right separately and detail the field of exploitation of the assigned rights as to its extent, destination, place and duration. Partial assignment of rights is possible under French law, so a company should verify that all rights necessary for the use, commercial exploitation, adaptation, representation, translation and distribution are fully described. Companies should also specify whether the assignment is exclusive or non-exclusive.
- Description of the Software and Consideration. The object of the contract (i.e., the software) should be clearly identified or identifiable. The consideration received by the assigning party (the developer) is also subject to specific rules. Normally, the developer will be entitled to receive a proportion of the revenue generated by the exploitation of the work. However, it is possible to pay a flat fee in circumstances specified in the Intellectual Property Code, such as when the basis for the proportionate revenue cannot be determined (which is a frequently relied-upon basis). Some case law has held that an assignment of copyright without remuneration may be considered a donation and thus subject to additional formal requirements (e.g., a witness must sign the agreement).
- Legal Guarantees. French law implies a right of title or non-infringement and, in the context of a sale or software development agreement, an absence of hidden defects. These guarantees can in some cases be excluded by contract, but this is not recommended from the acquiror’s perspective.
- Assignment of Future Rights. The French Intellectual Property Code states that the assignment of future rights is null and void. Some case law suggests it may be possible to draft workarounds to preserve the assignment of works not yet created. For greater security, we recommend that any agreement relating to work not yet completed contains an obligation of the parties to execute any such further assignments to give effect to the intention of the agreement (e.g., the assignment to the company of software to be developed by a contractor).
- Formal Requirements. The assignment agreement should be in writing.
- Moral Rights. Moral rights cannot be waived or assigned under French law.
These considerations do not apply when an employee or intern develops software subject to an employment contract as part of their functions or following their employer’s instructions, since the French Intellectual Property Code provides for automatic assignment of such software and associated documentation.
Germany
Under German law, software is generally subject to copyright as provided for by the German Copyright Act (Urheberrechtsgesetz). The copyright holder is the individual developer who has authored the software, regardless of whether a third party facilitated, commissioned or paid for the development. Accordingly, whenever a company engages a software developer subject to German copyright law, the company should ensure through suitable contract language that all rights in the software will vest in the company.
However, copyright in software cannot be assigned as such under German copyright law. It is only possible to grant exclusive rights of use (i.e., licenses) in respect of the copyright-protected work. Therefore, in lieu of copyright assignment clauses known from U.S.-style agreements, German software development agreements should contain licensing-type provisions. If properly drafted, the economic result of those provision will be same as a “full” copyright assignment permissible under other laws. The agreement between the software developer and the company should expressly include the following:
- Grant of Rights. The agreement should provide for the exclusive, perpetual, irrevocable, transferable, sublicensable, and worldwide right of the company to use and exploit the software (developed or to be developed) without limitation.
- Contemplated Uses. The agreement should set forth the relevant types of uses as defined by the German Copyright Act (e.g., the right to reproduce, publish, distribute, adapt or translate the software), and expressly include any future, presently unknown types of use. In drafting this language, companies should be both reasonably specific and comprehensive because, by statutory default, any type of use not expressly mentioned will be included in the license only if and to the extent necessary to achieve the purpose of the overall agreement as understood by the parties at the time of agreeing to the license terms.
- Payment. The agreement should state that the license granted is fully compensated and paid up by the developer’s fixed remuneration set forth in the agreement. In other words, the company will not owe any additional royalty or other license fee for its receipt of the rights or exploitation of the software.
Some software development agreements include clauses providing for a waiver of the developer’s moral rights, but such waivers are generally impermissible and unenforceable under German law.
There are generally no formal requirements for copyright licenses under German law, with one notable exception: A license to unknown future types of use will only be valid if made in writing. That means the agreement must be signed by hand (wet ink) or so-called qualified electronic signature (a requirement which most common electronic signature tools do not currently satisfy).
Finally, for software developed by an employee for his or her employer, the German Copyright Act provides that all rights of use and exploitation vest in the employer as a matter of law. Accordingly, employment agreements with software developers do not necessarily require the more specific license language that is essential in agreements with contractors.
United Kingdom
Under English law, employers own the intellectual property rights in software developed by an employee in the course of their employment. The opposite is true for contractors and other third-party developers. In those cases, the starting position is that the developer – not the hiring company – will own the intellectual property rights in the software. For title in the intellectual property rights to transfer to the company, the contractor must assign their rights under an intellectual property rights assignment agreement.
For the assignment to be effective, the agreement must meet certain formalities, as set out in the Copyright, Designs and Patents Act 1988 (CDPA 1988):
- Simple Contract or Deed: An assignment of copyright must be in writing and signed by the assignor. The written assignment must be in the form of a simple contract (with consideration) or a deed (in which case, consideration is not required – however see comment below regarding assignment of future copyright). A deed is also required if the document includes a power of attorney.
- Present Assignment Language: An agreement by the assignor to assign intellectual property rights to the assignee will not itself constitute an effective assignment of rights. It will merely demonstrate the intention of the assignor for the rights to be transferred to the company. See “Present Assignment Language” in the United States section below for further details.
- Assignment of Future Copyright: Under English law, it is possible to assign copyrights that have not been created as of the date of the assignment agreement (i.e., future copyright). The drafting of section 91 of CDPA 1988 implies that consideration will be required to effectively transfer future copyrights, and that a deed without reference to consideration may not suffice. Further, the document assigning future copyrights must include certainty of terms and clearly identify the subject of the assignment (e.g., the software and/or other relevant works).
- Moral Rights: The CDPA 1988 provides that authors of copyrighted works (excluding works created by employees and computer-generated works) will have moral rights in respect of such works, including the rights to be identified as the author and to object to derogatory treatment of the work. Such rights cannot be assigned, but they can be waived by the author. Intellectual property rights assignment agreements typically include a provision by which the third-party author waives their moral rights in and to the relevant works.
United States
For employers engaging software development contractors located in the United States, intellectual property assignments are fairly standard. However, U.S. copyright law, which covers software, assumes the contractor owns all intellectual property rights in the developed software unless the contractor assigns rights to the company in writing. (This presumption is opposite for employees, where in most cases the employer is deemed to own all intellectual property rights in works employees develop.) As a result, intellectual property assignments for U.S.-based contractors should include the following provisions:
- Present Assignment Language. Each agreement should include a present assignment of intellectual property rights from the developer (e.g., “Developer hereby assigns to the Company all of Developer’s right, title, and interest in and to the developed software.”). A statement that the developer agrees to assign intellectual property rights means those rights are not necessarily transferred, since under U.S. copyright law, all assignments must be in writing. An agreement to assign intellectual property rights in the future does not satisfy this obligation and the company could risk having to go back and obtain another assignment from the contractor in the future, potentially for additional consideration.
- “Work Made For Hire.” It is a best practice to designate the software developed by the contractor as a “work made for hire” (as defined by U.S. copyright law) for the company’s exclusive ownership and use. Companies should know that not all works created by a developer fall into the enumerated categories of “work made for hire” under U.S. law. Any agreement should combine a “work made for hire” provision with a present assignment for any work that does not (or may not) fall into one of those categories.
- Moral Rights Waiver. U.S. copyright law permits an individual to waive moral rights, including the rights of attribution and integrity. A complete intellectual property assignment should include this type of waiver. Without a waiver, the developer may be able to require the company to identify the developer as a contributor to the software source code or even prohibit the company from destroying or significantly modifying that code.
Conclusion
Securing all intellectual property rights from developers is one of the most important steps a company can take to protect its proprietary software and ensure it owns all rights in that software. It is important to recognize that country-specific requirements and formalities applicable to the country where the developer is located should be properly addressed in any assignment, even where the governing law is of a different jurisdiction. Otherwise, the assignment may not be valid, the contractor may be able to assert individual rights in the future, and/or the contractor may even be able to bring a claim of intellectual property infringement.
Understanding how the transfer of intellectual property rights can vary from country to country and ensuring that any assignment includes the necessary specific requirements, is essential for software companies operating globally.
Want to learn more? Contact one of the authors.