Issues in Software Licensing, Acquisition and

Issues in Software Licensing, Acquisition and Development July 18, 2013 David Jennings

Context  For Our Purposes; What’s a license?

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Fundamentally, it is a “permission” to do something(s).

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A license conveys rights to intangible property created and defined by statute and to technology deriving value solely from proprietary possession to the exclusion of others.  Software Development

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Implicates the creation and/or incorporation of intangible property and technology into a new product.  Software and Product Acquisition

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Both can implicate the acquisition of intangible property and technology .

Technology vs. Intellectual Property  Technology is Tangible and Intangible Things • Processes, techniques, know-how, databases, software, etc.  Intellectual [Intangible] Property = Legal Rights • Patent Rights, Copyrights, Trade Secrets, Trademarks

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Each can contain divisible elements of the overall bundle  Do you need to grant/receive one or both? • Don’t give up more than necessary • Be sure to get what you need

Licenses  What is this “intangible property” that is the subject of a license or acquisition?

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Copyrights ( software , literary works, artwork, musical compositions, etc.)

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Anyone who violates any of the exclus ive rights of the copyright owner as provided by sections 106 through 122, or of the author as provided in section 106A(a), or who imports copies or phonorecords into the United States in violation of section 602, is an infringer of the copyright or right of the author, as the case may be.

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Exclusive rights of the copyrigh t owner—to reproduce, to prepare derivative works, to distribute copies or phonorecords, to perform, and to display

Licenses  What is this “intangible property” that is the subject of a license or acquisition? • Trade Secrets (know-how; patent applications) / State Law

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… a complainant is entitled to recover damages for misappropriation. Damages can include both the actual loss caused by misappropriation and the unjust enrichment caused by misappropriation that is not taken into account in computing actual loss. In lieu of damages measured by any other methods, the damages caused by misappropriation may be measured by imposition of liability for a reasonable royalty for a misappropriator's unauthorized disclosure or use of a trade secret.

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If misappropriation is outrageous because of the misappropriator's evil motive or reckless indifference to the rights of others, the court may award punitive damages.

Licenses  What is this “intangible property” that is the subject of a license or acquisition? • Patents

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35 USC 271(a) Except as otherwise provided in this title [35 USCS §§ 1 et seq.], whoever without authority makes, uses, offers to sell, or sells any patented invention, within the United States or imports into the United States any patented invention during the term of the patent therefor, infringes the patent.

Grant of License Rights (Operative Verbs) Copyr ight Other W o rds Used R epr oduce Copy , Downl o ad , Ins tall Cr eate Der iv ative W o rk s M odify , Integr ate, Enhance, Tr ansl ate, Embed Dis tr ibute S ell , R esell , S u b license, License, Pr ovide Access Pu blicly Per for m N A Pu blicly Displ ay B ro adcas t, A ccess, Ins tall Patent (com pare) Ma ke , have made, use, of fer to sell , sell , im por t

License Agreements  Different Types of Licenses: • Exclusive • Non-Exclusive • Field Limited • Geographical territory / Time limited • Specific customers • Specific applications/products

Transactions & Agreements Associated with Software  End User License Agreements (EULAs) • Shrinkwrap, Clickwrap and the like  General License Agreements • Generally Available Commercial Software  SaaS, IaaS, PaaS Agreements  Reseller Agreements  Development Agreements • Custom Developed; Customer Specific  Other (Consulting Agreements, etc.)

Simple Complex

EULAs (Typical Terms Include)  Run Time version – n o source code  Non-exclusive use only; no rights to modify, bundle, redistribute, or use for service bureau purposes  License Rights and Fees based on extent of use: • Single User / Multiple Users • Enterprise • Transaction  Duration (fixed or perpetual)  Maintenance and Support terms vary

Custom Software Development Agreements  Scope of Development / Product Functional Requirements / SOW / PRD  Project Management and Cooperation Requirements  Change Procedures  Scheduling and Milestones  Payment Provisions  User Testing and Acceptance Procedures  Exclusive rights to developed software (incl. source code): use, modification, distribution and the like  Retention of Rights to Developer’s tools and pre-existing software  Non-exclusive license rights to Developer’s tools and pre-existing software  Detailed Warranties and Indemnifications  Confidentiality  Maintenance and Support terms vary  Escrow Provisions (as applicable)

Development and Consulting Agreements / Work Made for Hire Issues

The Copyright Act defines a “work made for hire” in two parts: •a work prepared by an employee within the scope of his or her employment; or •a work specially ordered or commissionedfor use •as a contribution to a collective work, •as a part of a motion picture or other audiovisual work, •as a translation, •as a supplementary work, •as a compilation, •as an instructional text, •as a test, •as answer material for a test, or •as an atlas, if the parties expressly agree in a written instrument signed by them that the work shall be considered a work made for hire Software Not Included

Work Made for Hire Issues (cont.)

Don’t be caught unawares (without desired ownership rights) as a result of the Copyright Act definition of “work made for hire” Make sure to have the parties expressly agree in a signed, written instrument that the work shall be considered a work made for hire; AND Include catch-all language ‘assignment’ language (for example) •To the extent that title to the [Custom Software] does not, by operation of law, vest in [Client] or the [Custom Software] is not considered works made for hire, all right, title and interest therein are hereby irrevocably assigned by [Developer] to [Client] and •[Developer] has or shall obtain appropriate written agreements from all of its respective employees and contractors, without limitation, and executed at or as of the commencement of employment or engagement, which agreements shall require that all works of authorship, software, discoveries and inventions created by any individual during their employment or engagement shall be promptly reported, fully disclosed, and assigned to [Developer].

Software Development (and Acquisition); Free and Open Source Software or FOSS  What is it? • Generally – S oftware in which, among other things, the source code is made available to the public; others can modify, improve and incorporate the code into other works • Much is free of charge – but ‘free’ does not necessarily mean free of charge, rather, it implies freedom of use

Open Source Software or FOSS  FOSS Subject to Various Standardized License Agreements • These licenses govern how users can distribute the FOSS in both modified and unmodified forms • Examples include:

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GPL v.2, GPL v.3

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LGPL

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BSD

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Mozilla

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Apache

Open Source Software or FOSS  Why Should it be a concern? • FOSS is ubiquitous • Company value can depend on ‘cleanliness’ of IP not only protection of IP • In the context of M&A, company funding and product release, and product purchase agreements uncertainty can:

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Threaten and/or delay deal closure

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Affect software IP ownership (company valuations)

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Result in litigation

Example Asset Purchase Agreement  Software; Computer Systems.

(a)(i) Except as set forth in Schedule 2.10(a), the Software and Documentation therefor are original works of authorship solely of Seller, (ii) Seller exclusively owns all right title, and interest including, without limitation, all patent, copyright, trade secret, and other intellectual property rights in and to the Software, and (iii) no patent applications (or any foreign equivalents) have been filed by Seller, or any third party with respect to any invention relating to the Software, or any part or derivative thereof. (b)Without limiting the generality of Section 2.10(a) above, the Software does not contain any Open Source Software or other software licensed from a third party. For purposes hereof, “Open Source Software” means software that is licensed or otherwise made available pursuant to terms that, directly or indirectly, as a result of any use, inclusion, incorporation, combination or commingling, of such software with other software or any derivative work based thereupon (i) creates, or purports to create, obligations for, or a waiver of rights with respect to, such other software or any derivative work based thereupon, and/or (ii) requires, or purports to require, the licensing, disclosure or distribution of source code or executable versions of (a) software, (b) such other software, (c) any derivative work based upon such software or such other software, or (d) any licensing terms governing or information relating to such software.

Excerpt of Purchasing T&Cs from Large Aerospace Co.

Supplier shall give Buyer at least thirty (30) days’ written notice if it proposes to incorporate in or use Products in combination with any open-source software, whereupon Buyer may require that Supplier, as soon as practicable and in good faith: •provides and discusses with Buyer all reasonable additional information concerning the open-source software including without limitation (except for conditions of confidentiality) the type, proposed use and license terms; •discusses with Buyer any negative potential effects upon the Intellectual Property Rights of Buyer’s products; and •takes such action as may be reasonably instructed by Buyer to minimize any such negative effects or to remove and replace the open-source software. Irrespective of the above, Supplier shall not use open-source software for any reason whatsoever, if Buyer notifies Supplier in writing of its objection to such use.

Open Source Compliance / Duties  Four Essential Steps • Provide approval around use of FOSS in Products

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Absolutely necessary for commercial products • Advise on FOSS Licensing

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License conflicts; IP Issues (proprietary software) • Review and Approve End User Documentation

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Source code release obligations • Contribute/establish Operation of FOSS Compliance

Open Source Compliance / Duties  Areas of Practical Advice for Your Developers • Inclusion of FOSS into Proprietary (or 3d party) software, or vica versa • Linking of FOSS into Proprietary (or 3d party) software, or vica versa • Interaction Methods Between Various Software Components (proprietary, 3d party, FOSS) • License Obligations That Must be Met Using FOSS Components

Open Source Diligence  FOSS Compliance Must Be Applied to All Products Distributed Externally—How Can It Show Up? • Software Developed Internally • Software Developed Externally from FOSS Projects • Software Developed Externally by a Third Party Supplier

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Require Developers to Disclose FOSS components; applicable licenses

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Modifications to FOSS made by Suppliers

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Dependencies and Linkages

Open Source Diligence  Discussions with Supplier’s Managers and Technology Staff May Reveal Orientation and Sensitivities to FOSS Issues  Functionality Can Provide Tips • Communication Protocols; networking; Security; Graphics; Mapping and Imaging; Modeling and Simulation; Database Technology—Higher Likelihood of FOSS  Examination of Source Code ( Scanning) and Examination of Supplier’s Own FOSS Compliance are Complimentary

FOSS Diligence Services and Tools FOSSology

License and Development Agreement; Representations and Warranties  What does the licensee/Vendee want?

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Ownership and/or Control

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No other licenses (past & future)

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No known ongoing infringement of licensor’s rights

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Exercise of rights won’t infringe other’s rights (FOSS disclosure and warranties)

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No outstanding orders, judgments, injunctions

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Technology will work as advertised (or otherwise sufficient)

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Indemnification

 What does the licensor/developer want to give?

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NOTHING

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No other licenses (past & future) [OK]

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No known ongoing infringement of licensor’s rights [OK]

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Exercise of rights won’t infringe other’s rights [ALWAYS AVOID ABSOLUTE IF POSSIBLE]

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No outstanding orders, judgments, injunctions [OK]

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Indemnification / Economics and Character of License

Conclusion  Identified some key characteristic s and issues arising in software licensing and development transactions  Discussed various approaches and pi tfalls associated with these issues  What to take away?

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Be precise in preparation and analysis (Lots of room for problems)

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Contract principles apply as well as statutory and common law governing subject intangible property rights

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Development Agreements are often complex agreements with potential for high risk

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FOSS issues should not be ignored

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These agreements can have material impact on value of the company