Identify And Protect Your Intellectual Property
IDENTIFY AND PROTECT YOUR INTELLECTUAL PROPERTY
In grasping the fundamentals of significant economic change in the midst of transforming changes is difficult for most people. Certainly, the broad outlines of the move of our economy to an "information economy" are apparent to most businessmen. However, the particular fundamentals and the new dynamics for the creation and measuring of the value of technologies and productive capacity are not so easily grasped. Indeed, the difficulty of the switch from the paradigm of measuring value by tangible assets to measures of value based upon ownership of intangible assets is difficult for many businesses. A managing partner with Arthur Anderson recently commented:
"Fully 76% of the fortune 100's total market capitalization is represented by intangible assets, such as patents, copyrights, and trademarks. Yet, corporations still focus their attention on tangibles."
On a macro scale, it is apparent the American economy for the last decade has generated substantial increases in productivity which have been, if not unprecedented, almost unprecedented. Reasonable assumptions are that the application of new high technology has been the well spring for the advances and improvements in economic productivity. These increases in productivity have been sufficient to create tremendous new wealth, and at the same time, squash inflationary pressures.
The more interesting story, however, lies not with the rise of dot com phenomena, but is seen in the applications of new technologies by small and medium sized businesses to dramatically increase efficiencies, improve the quality of production, increase the availability of information to manage production more efficiently, and in other ways. A review of circumstances with clients confirms many of you in business have made tremendous strides in the application of new available technology to improve efficiency and productivity. Unfortunately, our review of situations also indicate to us that on occasion insufficient legal resources have been brought to bear to defend the ownership of new technology and proprietary business property which has been so painstakingly acquired by corporations in recent years. A better explanation of uses of intellectual property law in the exercise of rights to protect your intangible business property may be useful to help defend your ownership of these typically intangible assets.
INVENTORY YOUR VALUABLE INTANGIBLE ASSETS
As a first step to protecting your ownership, it is important to determine what specific intangible assets you may own that are significant and important to both your production and the efficiency of your production. Proprietary intangible assets can include inventions which are paten table, patents, works which may be copyrighted, copyrights, trademarks, and trade secrets. I will not attempt to illustrate the possible uses of each of these types of intellectual property, but will rather give one or two illustrations of the type of intangible assets, which might be protectable.
In a review of what intangible property may exist, you should pay particular attention to your use of specially-created and unique software programs you have developed to assist in production. You should attempt to measure the degree to which these programs improve your efficiency through performance of time-saving calculations, data retrieval, etc. Typically, in circumstances reviewed with clients, we find our business clients well understand the value and efficiency achieved through software applications they have developed in differing manners. These should be thoughtfully inventoried and described to take the necessary steps for protection of your ownership of these assets.
DEFEND YOUR OWNERSHIP THROUGH WORK-FOR-HIRE AGREEMENTS WITH EMPLOYEES AND INDEPENDENT CONTRACTORS
While our clients typically have a thorough understanding of the value of the efficiencies they have achieved through the creation of software applications, we find there have been less thorough attempts to protect and defend ownership through the use of legal tools. While it is understandable that the achievement of the efficiencies is the first order of the day, clients should view the protection of their property as an item of necessary follow through to protect ownership and, thereby insure realization of the value of the creation. We have reviewed many circumstances where an employee's involvement in the creation of software programs and applications or where independent contractors have been utilized in manners giving rise to potential claims by the employees or independent contractors to ownership of a software application. In the first instance when dealing with the creation of software and computer programs, it is important to realize that the ownership of the copyright to the work is generally the author, that is, the individual who created the work. Obviously, it is easy to see the possibility for ambiguity as to ownership where an employee or independent contractor has substantial involvement in the creation of the computer contract.
Copyright law recognizes the doctrine of "works made for hire" which can be applied to eliminate the claims for ownership by employees or independent contractors to ownership under certain circumstances. Works created by employees in the scope of employment is automatically deemed as a "work for hire" (without need for any written agreement or document) and the employer is deemed the "author". However, in application, even what at first blush might be thought to be clear can quickly become gray where the employee brings the idea to the employer, works after hours, is instructed not to work on company time on the creation or development the creation, which is later thought to have been work within the scope of the employment. Therefore, execution of the written assignments and acknowledgements of the ownership by the employer for works created during the employment of the employee should be routinely utilized with employees who have substantial involvement in the creation of software applications, programs and base codes. Typically, an employer's best interests are served by the obtaining of these agreements as part of the terms and conditions of the employee's initial employment. In other circumstances, such agreements can also be supported by other considerations extended to the employee, e.g., bonuses for successful completion.
With respect to software created by independent contractors, the less the parties agree in writing that work is to be treated as "work made for hire", the independent contractor is considered the "author" and owns the copyright. The engaging party obtains only a copy of the work and an implied license to use the work. In certain instances, the engaging party and the independence contractor can agree in advance in writing that the work will be treated as a "work made for hire". In such cases, the engaging party will be treated as the author. If the engaging party and the contractor have not made such prior written arrangements, the engaging party must obtain a written assignment if he wishes to own the copyright. Obviously, then written work made for hire agreements or written assignments are key to protect ownership of software specially designed and created for your business application by independent contractors.
Added protection of copyrights can be obtained through registration. Timely registration of copyrights under federal law allows additional remedies for copyright infringement, including statutory damages and attorneys fees. Generally, the term of a copyright for works created on or after January 1, 1978 is either the life of the author plus 70 years or for a "work made for hire" 95 years from the year of first publication, or 120 years from the year of creation, whichever expires first. Obviously, the remedies of copyright make registration a means to enhance the value of the copyright.
Avoid onerous software procurement agreements. Similarly, circumstances we have reviewed in recent months indicate a better job must be done for client in the process of legal review of software procurement agreements. Not only do we see a lack of protection of ownership of the ultimate property, we are also routinely asked to defend rights after problems have arisen where clients have executed agreed, contracts with software vendors containing other onerous provisions. These provisions tend to transfer the development risk of the software, the risk of failure of delay and unreasonable pricing to the purchaser of the software. Here the need is twofold. First, clients should seek to identify and communicate to counsel their goals and intended uses of the software and the services to be provided by the vendor. Counsel should be given an opportunity to review documents tendered by the vendor and to make modifications as necessary for the protection of the software purchaser. To aid in understanding the types of issues that can occur, we are attaching a model questionnaire for a software procurement agreement, which can be utilized to communicate to counsel the uses, development deadlines, pricing, ownership of case codes and other issues that arising in the course of determining items to be included in the contract. At a minimum, the checklists can be utilized to facilitate your thought processes as to the fundamental terms you will need to negotiate in a software procurement agreement.
As an aid to any request our regular corporate clients may have for a review of software procurement agreements, this model software procurement agreement is also available on our web site to be downloaded and then e-mailed or faxed to us for use in reviewing your software procurement proposals. Obviously, completion of the form will not substitute for discussion of your goals, needs and proposed terms, but should allow for a more efficient review of the circumstances, your goals and proposed terms.
Obviously, this article illustrates only a few basic situations and only scratches the surface of the types of intellectual property which you may wish or believe you own, but which should be more carefully protected. Hopefully, at a minimum, this article highlights the need for clients to work collaboratively with legal counsel to identify and protect tangible business assets. I firmly believe upon further scrutiny, you will find these assets are rapidly becoming the "life blood" of your business and simply must be protected. Failure to use appropriate legal tools is akin to leaving the keys in the company car and parked in a bad neighborhood.
I will be glad to discuss with you a systematic approach to better protections of your intellectual property.
MODEL QUESTIONAIRE FOR SOFTWARE PROCUREMENT AGREEMENT
I. Function of Software
Briefly describe what the software will do (functional) and any particular technical specifications for the software (e.g., Windows-95 based):
______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________
II. Uses of Software
A. Internal Use Only? Yes ______ NO ______
If "yes", provide the anticipated number of:
1. Internal users ______
2. Sites/terminals ______
3. Backup copies desired ______
4. Countries in which software will be used:
USA only ______
Non-USA ______
Worldwide ______
Other ______
5. Will the software be used by the company's affiliates and subsidiaries?
Yes ______ No ______
If "yes", provide the information requested for 1-4 above for such affiliates and subsidiaries.
B. To be modified and/or incorporated into products to be sold to customers?
Yes ______ No ______
C. To be directly sold/licensed to customers?
Yes ______ No ______
D. Other dispositions?
Yes ______ No ______
If "yes", please state other anticipated dispositions:
______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________
III. Status of Software/Development Dates
A. Existing Software? Yes ______ No ______
If "no", please advise date by which desired: ______________________
B. To be developed by Vendor? Yes ______ No ______
If "yes" please advise of all intermediate milestones (e.g., completion of demonstration model or prototype, alpha testing) and desired date(s) for completion of each milestone: _______
______________________________________________________________________________
C. To be jointly developed with vendor?
Yes ______ No ______
D. Will testing be necessary?
Yes ______ No ______
If "no", why not?
1. Existing software ______
2. Other (specify) _________________________________________________________
IV. Vendor
A. Has vendor been selected? Yes ______ No ______
If "yes", please advise main reasons why this vendor was selected:
______ No other alternative available
______ Promised delivery time
______ Price
______ Reputation
______ Services to be Provided (training, 24/7 help desk)
______ Other (please specify)
If "no", please advise how vendor will be selected (e.g., RFP)
____________________________
______________________________________________________________________________
Were other vendors evaluated? If yes, which ones? If none, why not?
_____________________
______________________________________________________________________________
V. Pricing
A. Fixed Price/Unlimited Use?
Yes ______ No ______
B. Priced per internal user/terminal?
Yes ______ No ______
C. Per customer user/terminal?
Yes ______ No ______
D. Will/should payments occur upon milestones achieved/successful completion of testing?
Yes ______ No ______
E. Are future modifications/enhancements/new versions included in the price?
Yes ______ No ______
If "no", are there any commitments to pricing for /availability of enhancements?
F. Are any other services included in the price?
Yes ______ No ______
If "yes", please specify:
______ Training
______ Technical support (business hours)
______ Technical support (24/7)
______ Response time commitments
______ Bug fixes (upgrades to correct bugs should generally be included in the price)
______ Upgrades that contain new features
______ Other (specify)
If "no", please advise if any of the above services are available at a firm price commitment (e.g., set hourly rate?
VI. Miscellaneous
A. Do we want the right to the source code?
Yes ______ No ______
Upon default by vendor ________
Are there any readily available competitive alternatives to this product? (This may affect the need for the source code)
Yes ______ No ______
B. Will the vendor receive the company's confidential/proprietary information?
Yes ______ No ______
If "yes", please specify subject matter:
______________________________________________
If there is an existing non-disclosure agreement ("NDA") with this vendor, please note the date:
______________________________________________
C. Do we expect the vendor to warrant product performance (e.g., will perform in accordance with functional/technical specifications)?
Yes ______ No ______
Any special requirements? Please list:
______________________________________________
D. Will the vendor have the right to sell the same/similar products to our competitors?
Yes ______ No ______
Any other exclusive provisions (e.g., customized features, lead time, etc.)?
E. Any other relevant information which should be incorporated into the agreement?
Yes ______ No ______
If "yes", please specify: