Software has taken on new dimensions. It has evolved from standalone applications to fully integrated suites that may be accessed through Internet and wireless technologies. The potential and realization of desktop or handheld computer access to critical information are causing many organizations to consider creating software rather purchasing it. Driven by factors such as total cost of ownership, evolving and complex licensing strategies, and shrinking budgets, many companies are rethinking traditional acquisition strategies. As technology advances, traditional licensing models become complex and expensive.

Software has taken on new dimensions. It has evolved from standalone applications to fully integrated suites that may be accessed through Internet and wireless technologies. The potential and realization of desktop or handheld computer access to critical information are causing many organizations to consider creating software rather purchasing it. Driven by factors such as total cost of ownership, evolving and complex licensing strategies, and shrinking budgets, many companies are rethinking traditional acquisition strategies. As technology advances, traditional licensing models become complex and expensive.

Contracting Out Software Development

Often the creation of new software applications may be contracted to third party developers. This contracting out may also identify opportunities to commercialize the developed end product thus encompassing opportunity to recover not only the up-front development costs but also the ability to generate a source of new revenue through the licensing of the use of the software to others. This approach has been applied in Canada with property valuation, tax billing, GIS and other assorted applications.

Software is Intangible

Unlike other assets such as a parcel of land, an automobile or a physical structure, software is an intangible without a title or ownership document. It is made up of sets of instructions that tell a computer what to do, how to do it, and in what sequence to execute the instructions. Unless those instructions are printed out (usually in voluminous portfolios), they reside in the computer’s storage memory or on other media. Typically, the only tangible portion of software is the accompanying documentation and transfer media such as a CD Rom or DVD, floppy, or memory card. Software assets really constitute a combination of know-how and manifestation of the know-how. A different standard must be used to recognize software ownership and rights provided to non-owners to use the software.

Software and Intellectual Property Ownership

In considering software ownership and the provision of rights to others to use the software, we need to consider
· Intellectual Property (“IP”) rights for asserting rights of ownership, in conjunction with the concept of

· “Licensing”, the legal mechanism for providing usage rights to others.
Just what are these rights and how are they acquired and how will they be maintained?

What are the sort of things you need to look at in order to ascertain rights of ownership under the applicable categories of IP law, being
· copyright (expression of the software in some tangible form)
· know-how (sometimes called “trade secret” and that needs to be maintained in absolute confidence and not publicly disclosed) or even
· patent (yes there are instances where software can be patented but that’s for another time)
· trade-mark (there may be a need to maintain the uniqueness of a brand or a logo)

Indicators of IP Ownership

Here is a quick checklist of a variety of issues that need to be addressed – it’s not intended to be conclusive but rather is illustrative of the kinds of issues that need to be considered:

· Are there contracts with consultants or other contractors and if so, do they specifically address IP ownership – it’s important to remember that as a general rule of thumb under copyright law, the consultant or contractor will own the IP in the “work “ unless there is an explicit written transfer to the party contracting for such work? Even though the law favors them, it’s not unusual for consultants or other contractors to emphasize ownership through carefully crafted language. Therefore, contracts must be carefully examined prior to signing to ensure that IP ownership resides where it is intended to reside – if intended to reside with the party paying for the work, the contract must specify this fact with the appropriate language. Sometimes, clarification through amending documentation can be sought after the fact where the contract does not reflect the true intent of the parties.

· Are there any markings (e.g. ©, (C) Copyright, ™, ® etc,) on the software or associated documentation that indicate IP ownership in the party providing the services or in third parties and if so, what is the impact of such markings?

· Are third party software components incorporated in the resulting product and if so, under what authority and what restrictions might then arise that preclude your ability to use, license the use of or transfer rights to others?

· Are there any moral rights that have not been waived (rights of any contributing creator to have a say in how the software may be applied or used)?

· Are the source code and associated technical specifications and related documentation in your organization’s possession?

· Has the confidentiality of software and its underlying components been maintained; if not, there may not be an opportunity to register a patent (if applicable). Also, it’s possible that any applicable trade secret (know-how) protection could be lost if confidentiality has been lost.

· If the software is being provided to third parties as end users or beta test sites, are the proper IP protection policies and associated documentation in place (There’s a need to manage the Intellectual Property to avoid losing rights – this is typically done through a signed licensing arrangement that sets out the scope of the license and associated rights and limitations).

Software Licensing

Typically, software is licensed from its owner under a document called a “license”. The license is intended to be legally binding between the “Licensor” (the owner of the software) and the “Licensee” (the user of the software). It sets out what the permitted use the software is to be and specifies which users are authorized to use it as well as which standalone computers, network workstations, and servers it may be installed upon.

The License typically specifies other compliance requirements expected of the user and contains quite comprehensive statements that all ownership in the software and associated IP rights belong to the provider Licensor and not to the customer Licensee. Typically, the customer contracts with the provider by signing the license although licenses may not in all circumstances are signed between the parties. With enterprise and widely available software, the use and rights are governed by “shrink-wrap” licenses that are packaged with each copy of the software or by “click-me” licenses that typically cover software downloaded from Internet-based providers.

Rights of ownership to changes to the software or in new creations that flow from the baseline products and that arise as a result of customer requests are typically owned by the Licensor – but that is not always the case.

In Summary

Prior to determining opportunities to commercialize internally developed or contracted for software, there is an inherent requirement to first determine what IP rights the organization has in such software. Prior to entering into any new development contracts for software or database applications that may have commercial viability, there may be a need to negotiate that such rights reside with the customer and not the provider. There may be opportunities to package and market the software through the same provider or other strategic partner. Under any such arrangement, the strategic partner that would take on full contractual responsibility for promoting, marketing, licensing and supporting the specific application. This concept may make good sense if real product opportunities are matched with the right partner.