Joint Ownership
Another alternative, but one that is less attractive, is to have the licensor and licensee jointly own the custom software. “Joint Work” is “[w]ork prepared by two or more authors with the intention that their contributions be merged into inseparable or interdependent parts of a unitary whole.” 17 U.S.C. § 101. Authors of joint work may independently exercise all rights of a copyright owner.
Joint ownership, however, often creates more issues than it resolves, as copyright law imposes a number of restrictions on co-owners. Co-owners of a copyright are treated as tenants in common. Davis v. Blige, 505 F.3d 90 (2d Cir. 2007). Subject to certain limitations, each “owner” is free to license and use the work as it sees fit, as well as transfer its limited rights in the work to a third party. 1 Melville B. Nimmer & David Nimmer, Nimmer on Copyright § 6.11 (Supp. 2006). A co-owner has standing to bring an action for copyright infringement, Isbell Records v. DM Records, 2009 WL 3386546 (5th Cir. Oct. 22, 2009), but cannot grant an exclusive license without the consent of all other co-owners, Sybersound Records v. UAV Corp., 517 F.3d 1137 (9th Cir. 2008) and cannot grant a retroactive license. Davis v. Blige, 505 F.3d 90 (2d Cir. 2007). Each co-owner must also provide an accounting to all other co-owners for any profits. Davis, id. at 98.
Joint ownership allows each party to market the software to whomever it chooses, while at the same time having the right to make modifications and enhancements. This alternative may be detrimental to the licensor because the licensee may license the software to the licensor’s direct competitors. Under joint copyright ownership, however, each owner has a duty to account to the other. 1 Melville B. Nimmer and David Nimmer, Nimmer on Copyright § 6.12[A] at 36.6 (2005); see, e.g., Oddo v. Ries, 743 F.2d 630 (9th Cir. 1984). While the right to an accounting exists for jointly owned copyrights, there is no right to an accounting for a jointly owned software patent. 35 U.S.C. § 262. This dichotomy could likely lead to confusion, and potentially litigation, if the jointly owned software is protected by both copyright and patent. At the same time, this approach is probably unrealistic as most likely the custom portion is of little value unless it is licensed in conjunction with the rest of the software.
If the resulting work product will contain pre-existing intellectual property owned by the vendor and intellectual property owned by the customer, the work product should contain a copyright notice to the following effect:
This contains material which is the confidential, unpublished property licensed to Customer. Receipt or possession of it does not convey any rights to divulge, reproduce, use or allow others to use it without the specific written authorization of Customer and use must conform strictly to the license agreement between user and Customer.
Copyright © 20__ [Vendor Legal Name]. All rights reserved
Copyright © 20__ [Customer Legal Name]. All rights reserved
For a discussion of joint ownership, see Johnson, Avoiding Joint Pain: Treatment of Joint Works of Authorship Conditions, 43 Md. B.J. 13 (May 2010).
Potential resolutions to the challenges of joint ownership include:
– Assigning sole ownership of the jointly developed intellectual property to one party, with the second party receiving a perpetual, royalty-free, irrevocable, unlimited license to the jointly developed intellectual property. This solution may be acceptable if one party’s contribution was significantly greater than the other party, or the second party is willing to accept cash consideration for relinquishing its ownership rights.
– Each party retains joint ownership without an obligation to account to the other party, with one party granting the other an exclusive license to the intellectual property in return for a royalty payment. This structure may or may not include minimum revenue and marketing commitments.
Model Language for Joint Ownership:
All Intellectual Property Rights to the Developed Intellectual Property will be jointly owned by Customer and Vendor in equal undivided interests, with no duty to account to either party, with each party retaining the unrestricted unilateral right and ability to use, develop, disclose, license, modify, enhance, extend, and otherwise exploit the Developed Intellectual Property without the consent or participation of the other. Either party may, in its sole discretion, unilaterally and without the consent of the other party, defend, institute, maintain, and prosecute at its sole expense any lawsuit, action, or proceeding in its own name to prohibit, restrain, and recover damages for any infringement of the Developed Intellectual Property, provided that neither party shall be obligated to provide any assistance to or participate in any such lawsuit, action, or proceeding.
Model Language for Joint Ownership with an Exclusive License:
All Intellectual Property Rights to the Developed Intellectual Property will be jointly owned by Customer and Vendor in equal undivided interests, with no duty to account to either party, with each party retaining the unrestricted unilateral right and ability to use, develop, disclose, license, modify, enhance, extend, and otherwise exploit the Developed Intellectual Property without the consent or participation of the other.
Notwithstanding the foregoing, Customer hereby grants Vendor a [fully paid-up, royalty-free,] worldwide, exclusive license to use, sell, offer to sell, import, reproduce, perform, display, modify, improve, extend, make derivative works of, distribute, disclose, and sublicense the Developed Intellectual Property. Customer will not at any time license, sell, convey or distribute, or offer to license, sell, convey or distribute the Developed Intellectual Property, initiate any enforcement actions, or pursue claims against infringers of intellectual property rights in the Developed Intellectual Property, or interfere with any such actions or claims brought by Vendor. Upon Vendor’s written request at Vendor’s expense, Customer will provide reasonable cooperation and assistance to Vendor in furtherance of such actions or claims.
Other Alternatives
Other alternatives include having the licensor give the licensee a significant price discount to recognize the intrinsic value the licensor will receive by retaining ownership of the custom-developed software or have the licensor pay the licensee a royalty on future sales of the module.
For a general discussion, see Porter, Negotiating Rights to a Customer’s Improvements and Modifications, 15 Corp. Couns. Q. 14 (April 1999). For a discussion of the licensor’s point of view, see Gard & Bullock, What’s Wrong With the ‘I Paid For It, I Own It’ Strategy, 23 ACC Docket 23 (May 2005).