Jack and Jill work at ACME. Jack is the owner of ACME who partnered with Jill to help develop some software. Jack and Jill never had a formal arrangement made in writing…
For various reasons, Jack and Jill are now ready to terminate their relationship. They each want to use the software that they built while working for ACME. So, they’ve compromised – Jack can use the software as a foundation for X while Jill can use the software as a foundation for Y. They now would like to know – What is the best legal arrangement for them?
First, we must determine who actually owns the software? ACME, Jack, Jill, or Jack and Jill? Since there are no documents detailing the terms by which Jack and Jill agreed to venture into jointly building the software for ACME, we can assume that ACME does not have any ownership of the software. It is now a question of ownership between Jack and Jill. For the sake of this example, Jack and Jill have conceded that they each own the software and the question of actual ownership is not an issue.
Accordingly, Jack and Jill are joint authors of the software which, if contains no patentable subject matter, is narrowly protected under copyright law. Joint authors each get 100% ownership of the entire work product. Likewise, joint-inventors for patentable software also each have 100% ownership for the entire work product.
As Joint Authors of the software, they each have 100% rights to the entire software. So, Jack can formally terminate his relationship with ACME and keep his rights to the software. Jill may do the same. In this scenario, Jack and Jill can compete with each other using the same software without any legal claims against each other.
However, since Jack and Jill don’t wish to create more conflict, Jack Inc. and Jill Inc. may then agree to their corresponding use of the software in a royalty free (optional) cross-licensing agreement. Jack would forbear his right to use the software in Jill’s field of business, while Jill would forbear her right to use the software in Jack’s field of business.
This agreement, however, would have a loophole. For example, if the software is not patented, Jack could simply recreate the cross-licensed software using different lines of code. We must remember, copyrights on software code are ‘narrow’ forms of IP protection – it does not protect the function of the software modules or interaction between the software modules. It simply protects the lines of code used to create them.
If Jack and Jill would like to prevent each other from circumventing their licensing agreement in the aforementioned scenario, their license agreement could have a clause prohibiting the use of derivative works without subsequent derivative work cross-licensing agreements. There are many favorable reasons for creating this scenario, as Jack and Jill may continue to cross-license any future derivatives of the software for each other’s mutual benefit (if they so desire).
If you are interested in more detail related to your situation it is best to speak with an attorney.
Yuri Eliezer heads the intellectual property practice group at Founders Legal. As an entrepreneur who saw the importance of early-stage patent protection, Yuri founded SmartUp®. Clients he has served include Microsoft, Cisco, Cox, AT&T, General Electric, the Georgia Institute of Technology, and Coca-Cola.
Source: Smartup Legal