I was contacted recently by a potential client who has been working on a software product in his free time with a friend. The software would assist his current employer, but he did not develop it at work. In this situation it is important to take several steps.
1) Ensure that you own all rights to the software
Because this software is somewhat related to the work of the Client's current employer, it is very important to confirm that the Client's employer has no rights to the software. I would check the Employment Agreement or offer letter that the Client was given when they were hired. The Employee Handbook may also clarify what rights the employer would have. It will be important to document that the Client did not use any software, code, or other resources or equipment of the employer when developing the software. This is important to confirm for the other person working on the software also.
2) Create an Entity
It is very important to create a Nebraska entity like a limited liability company (if you live in Nebraska or want to base a company here) to limit liability of the individuals involved in creating the software. For more information on why entities are important, check out our earlier blog post here. You can see our earlier post on the steps required to create an entity here.
3) Assign the software to the Entity
The software itself should be conveyed to the Nebraska entity by the individual owners. This is important so that any liabilities and rights related to the software are held by the entity and there is clarity on how profits and ownership rights are held.
4) Create an Operating Agreement
Because two people are involved, it is very important to clarify that the entity owns the software (and any inventions, rights, or moneys that result from it). The entity would be the one to enter into any contracts to commercialize the product. For more information on the key provisions in a Nebraska Operating or Management Agreement, and why they are important check out our earlier blog post on this topic here.
5) Protect the Invention
Software may be protected by a Copyright or Patent.
Madathil Law Office LLC can assist Nebraska software developers with taking the right steps to protect their software. Contact us today for a free consultation.
Angela Y. Madathil
Madathil Law Office LLC
angela@madathillawllc.com
1104 S 76th Ave
Omaha, NE 68124
T: 402.807.3174
https://www.madathillawllc.com/
Angela Madathil is a Nebraska business attorney, who can help create Nebraska entities, and draft Nebraska operating agreements, and assist Nebraska software developer.
DISCLAIMER: The information in this blog post (“post”) is provided for general informational purposes only, and may not reflect the current law in your jurisdiction. By visiting this website, blog, or post you understand that there is no attorney client relationship between you and Madathil Law Office LLC and website publisher. No information contained in this post should be construed as legal advice from Madathil Law Office LLC , or the individual author, nor is it intended to be a substitute for legal counsel on any subject matter. No reader of this post should act or refrain from acting on the basis of any information included in, or accessible through, this Post without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the recipient’s state, country or other appropriate licensing jurisdiction.
1) Ensure that you own all rights to the software
Because this software is somewhat related to the work of the Client's current employer, it is very important to confirm that the Client's employer has no rights to the software. I would check the Employment Agreement or offer letter that the Client was given when they were hired. The Employee Handbook may also clarify what rights the employer would have. It will be important to document that the Client did not use any software, code, or other resources or equipment of the employer when developing the software. This is important to confirm for the other person working on the software also.
2) Create an Entity
It is very important to create a Nebraska entity like a limited liability company (if you live in Nebraska or want to base a company here) to limit liability of the individuals involved in creating the software. For more information on why entities are important, check out our earlier blog post here. You can see our earlier post on the steps required to create an entity here.
3) Assign the software to the Entity
The software itself should be conveyed to the Nebraska entity by the individual owners. This is important so that any liabilities and rights related to the software are held by the entity and there is clarity on how profits and ownership rights are held.
4) Create an Operating Agreement
Because two people are involved, it is very important to clarify that the entity owns the software (and any inventions, rights, or moneys that result from it). The entity would be the one to enter into any contracts to commercialize the product. For more information on the key provisions in a Nebraska Operating or Management Agreement, and why they are important check out our earlier blog post on this topic here.
5) Protect the Invention
Software may be protected by a Copyright or Patent.
Why Is Software Patent or Copyright Protection Important?
A software patent or copyright is a legal way to protect your software source code, idea, or invention.
Every software developer or company has to choose between patent and copyright. Some decide they want both. To make the choice, you have to think about what you're protecting. Are you protecting the code itself, or are you protecting the software idea and the process? Getting a patent versus registering a copyright are very different processes and might also change what you want to do with your software.
Software counts as intellectual property (IP.) IP is an original work that isn't tangible, but that is valuable. Lots of avenues, including copyright and patent, exist under the law to protect IP.
Both patents and copyrights protect software from theft under the law. Each one protects a different part of the software. Patents protect the idea, while copyright protects the written code. The advantages and disadvantages of both go beyond simple legal protection. Software patents, for example, are difficult to get. Copyright, on the other hand, might not protect your software the way you need.
The difference between copyright and patent is an old conversation. The Supreme Court has been dealing with this since 1879. The Baker v. Selden case of 1879 dealt with that difference. The court's decision described the difference between these two legal protections.
In 1976, the House Committee on the Judiciary wrote a report that went with the Copyright Act passed in the same year. In that report, the committee said that copyright doesn't prevent people from using the ideas you talk about in your copyrighted work. That includes the process that results from using computer code.
Copyright is for original works, like songs, books, and software code. A copyright protects what's known as the "expression" of your work. Copyright protects your software code from someone else copying it and using it without your permission. The U.S. Copyright Act details how this protection works.
When you hold the copyright to a work, you can:
- Make copies
- Distribute the work (like selling it)
- Make "derivative works" (like translations or abridgment)
- Share or perform the work in public
The Copyright Act of 1976 adds an exception to these rights. If someone wants to use a copyrighted work for educational or nonprofit purposes, they can.
Original software is automatically copyrighted under international law. Software counts as a "literary work" under U.S.C. § 101 of the Copyright Act. Whoever created the software has the copyright. You don't have to apply for anything or file anything for that to be true.
A copyright lasts for the lifetime of the author, plus 50 years in many countries, and 70 years in others, including the United States. As soon as your work is in "fixed and tangible form" it is automatically copyrighted.
However, officially registering copyright with the U.S. Copyright Office and the Library of Congress is a good idea. It gives you more legal protection in case someone tries to steal your software or use it without your permission. It usually only takes three months, and is $500 or less to have a lawyer do it for you.
Registering your copyright is inexpensive (much less than $1,000) and usually takes only a few months.
Copyright doesn't protect the idea behind the code. Title 17 U.S.C. §102(b) of the Copyright Act says that copyright doesn't protect "any idea, procedure, process, system, method of operation, concept, principle, or discovery."
Patent and Software Protection
A patent protects an invention or an original idea. Patents keep others from using or selling your invention, even if they haven't plagiarized actual parts of your software code. Copyright law's limitations has pushed many developers to seek patents for their software. The uptick in software patents began in the 1990s, and has escalated since.
Patents can be used to prevent other people from:
- Using your software
- Importing your software
- Selling your software
Large U.S. lawsuits resulting in millions or billions of dollars have happened over software patents. Big companies like Apple have sued for patent infringement and won.
The U.S. Patent Act gives Congress the ability to grant patents through the United States Patent and Trademark Office (USPTO). Software developers and companies more and more are using patents to protect their software from theft.
To qualify for a patent, your software needs to:
- Be new and original
- Be useful
- Have a "non-obvious" piece of code or function
Software patents are usually utility patents (instead of design or plant patents). That means they have to qualify as:
- A process
- A machine
- An "article of manufacture"
- A "composition of matter"
- An improvement on an existing utility
A patent lasts for 20 years. After that your software goes into the Common Domain. When you apply for a patent, you have to disclose the invention. That voids other ways you might protect yourself, such as keeping your source code a trade secret.
Considerations Outside of Patent Protection
If you decide not to apply for a patent, using NDAs (non-disclosure agreements) and other methods of secrecy help protect your software. You can have contractors, vendors, and employees sign NDAs.
Applying for a patent is very expensive. It can cost thousands to tens of thousands of dollars. From the day you file your patent application, it can take up to two years to receive your patent.
A good article with more information on the legal nuances between the two is available here.Madathil Law Office LLC can assist Nebraska software developers with taking the right steps to protect their software. Contact us today for a free consultation.
Angela Y. Madathil
Madathil Law Office LLC
angela@madathillawllc.com
1104 S 76th Ave
Omaha, NE 68124
T: 402.807.3174
https://www.madathillawllc.com/
Angela Madathil is a Nebraska business attorney, who can help create Nebraska entities, and draft Nebraska operating agreements, and assist Nebraska software developer.
Nebraska Software Attorney
DISCLAIMER: The information in this blog post (“post”) is provided for general informational purposes only, and may not reflect the current law in your jurisdiction. By visiting this website, blog, or post you understand that there is no attorney client relationship between you and Madathil Law Office LLC and website publisher. No information contained in this post should be construed as legal advice from Madathil Law Office LLC , or the individual author, nor is it intended to be a substitute for legal counsel on any subject matter. No reader of this post should act or refrain from acting on the basis of any information included in, or accessible through, this Post without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the recipient’s state, country or other appropriate licensing jurisdiction.
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