Software dos and don’ts

Introduction

When raising the subject of intellectual property (IP) with software developers, we often hear statements such as:

• copyright gives sufficient protection for our code
• we make extensive use of open source software and aim to be first to market. IP is not relevant to us
• you cannot patent software

This article provides some simple dos and don’ts, seeks to provide a starting point for considering how software developers can navigate the IP world and considers how true the statements above may be.

1. Don’t think that IP is not relevant to your business

IP can be particularly valuable when the cost of creation is high (in time or money) relative to the cost of copying. The development of pharmaceutical drugs is a classic example of this. The ease with which software can be copied arguably makes this concept relevant to software developments. At the very least, it is a topic that deserves informed consideration.

2. Do consider all types of IP

There are many types of IP that can be used to provide protection for software developments, including copyright, trade marks, registered designs, know-how and trade secrets. Which are appropriate depends on the circumstances.

Limitations to copyright protection include the requirement to prove ownership of copyright and the requirement to prove that actual copying (e.g. of your code) has taken place in order to prove infringement. Documentation and ownership are often key here. Can you prove who developed what and when? Do you have formal agreements in place with whoever worked on the code?

Registered designs protect the outward physical appearance of a product. Registered designs are rarely used by software developers but can be useful, for example graphical user interfaces can potentially be protected using registered designs.

An advantage of registered designs is that they are relatively cheap and easy to obtain, particularly compared with patents. Many software developers think that patents are not available in their field, but if you are addressing a technical problem, then patenting may be a viable option. Patents protect technical innovations, so, for example, software products that provide better systems (e.g. better image processing or more efficient data storage or error correction) can certainly be patented (if they are novel and inventive).

A final IP category that is often overlooked is know-how and trade secrets, which can be valuable in this field. Trade secrets are, of course, only secret whilst they are secret. They can also be difficult to trade.

3. Don’t think that IP licensing doesn’t apply to you

Businesses need to trade – this is the basis of licensing. IP can be traded (e.g. sold or licensed) and many software companies rely heavily on such licensing income.

The use of open source software (OSS) invariably involves IP licensing. ‘Permissive’ OSS licences typically give the freedom to use, modify and share software, but with the right to develop proprietary derivative works. On the other hand, ‘restrictive’ OSS licences typically give the freedom to use, modify and share the software, but with a requirement to provide a licence on the same terms. It is important to understand the obligations that you are signing up to when entering into an OSS licence (particularly a restrictive OSS licence). As with any licence, it is critical that you understand what you are giving as well as what you are getting by agreeing to the licence.

4. Do align your IP strategy with your short-term business goals

All businesses need income. Software developers obtain income in many different ways, e.g. selling/licensing products or services, providing consultancy services, developing apps, providing customisations or add-ons to existing products, etc.

How you are planning to make money in the short-term is relevant to your IP strategy.

If you are planning to sell or licence products or services, then IP is likely to be of some importance. For example, it may well be the IP itself (especially copyright) that you are trading. Trade mark protection for product names might also be worth investing in.

For developers providing consultancy services, brand and reputation may be your most valuable asset, in which case trade marks could be a good investment. Independent software contractors are also typically in possession of trade secrets and know-how – giving these away will make such know-how (and you) less valuable. Also, do consultants own the IP in any products or services they develop for their clients? This should be made clear in consultancy contracts.

A common strategy for developers to make money in the short -term is simply being first to market. If this is your strategy, your own IP may be of limited relevance, but it may be worth considering whether you might infringe the IP of others. One question to consider is what will you do if others (e.g. larger competitors) enter the market? If you plan to leave the market at that stage, might it be possible to sell your IP to those competitors, enabling you to make some money and the other company to own some IP (which could be a win-win)?

5. Do align your IP strategy with your long-term business goals

Although short-term business goals are important, IP is perhaps even more important to the long-term goals of the business.

Two broad longer-term goals are: continuing with your existing business in the longer-term or selling the technology that you have developed (typically to a larger player).

If you are planning to continue with your existing business in the longer-term, then IP may be of crucial importance. Successful products and services will be taken up by other companies and your IP may help you to compete. If this is your strategy, patents and designs may become more relevant (to restrict the ability of others to provide similar products), and trade marks in product/company names and logos should probably be obtained. Also, trade secrets developed over time may give an advantage over new entrants in the market.

If you are looking to sell your technology/business, then your IP portfolio may be a substantial part of the value of a business to a potential buyer. Copyright, patents, trade marks, designs and trade secrets can all be of value to a prospective buyer of your technology. Restrictive OSS can reduce the value of technology to a potential buyer, so if your long-term strategy is to sell the business, then avoiding restrictive OSS licences may make sense.

If your goal is to develop longer shelf-life or complex products, then you will probably need to interact with other businesses, e.g. customers, funding agencies or collaborators for joint developments. You may need to disclose important details of your products and services before significant income can be obtained. Here, IP (particularly patents and designs) may assist you to stop ‘freeloading’. IP can, in some circumstances, level the playing field with larger entrants to the market. Trade secrets can also offer advantages in more complex areas.

6. Don’t forget to consider what investors want

Both your existing and potential future investors will want to see a return on their investments. Depending on the investor, they may be looking for short-term, medium-term or long-term returns. The ownership of IP that protects the key developments made by a company can be a significant asset that enables returns (particularly long-term returns) to be secured. Conversely, the usage of restrictive OSS can have a negative impact on future returns on investment.

Investors want to have confidence in a company that they are investing in. Protecting key assets of the company through IP can increase this confidence.

Investors expect to see a coherent and realistic strategy. For some investors, IP strategy is a key part of such a strategy.

7. Do ask questions and share experiences

IP is a specialist field and expert advice can be extremely valuable when developing an IP strategy. You should also consider discussing this topic with your peers – others will have addressed the same issues that you are facing. We often speak at industry events on this topic. If that would be of interest to you, please get in touch.