Protecting Proprietary Software with Copyright
A departing employee makes a copy of your company’s proprietary software and you think he intends to provide it to his new employer – a competitor.
A departing employee makes a copy of your company’s proprietary software and you think he intends to provide it to his new employer – a competitor. Perhaps your business is software development and you want “insurance” that your customers will stop using your product if you terminate their licenses. Maybe you paid an independent developer to create software for your business and you want assurance that your competitors will not be able to use the same program. For these reasons and more, you want to own the copyright to proprietary software and must register it with the Copyright Office at the Library of Congress in Washington, D.C., to get the protection you want.
A copyright is a property right that protects against the copying of “original works of authorship fixed in any tangible medium of expression.” These works include “literary works,” which includes computer programs. Copyright protection is available for both published and unpublished works. So even if you maintain proprietary software as a trade secret, it can be registered.
1. EXCLUSIVE RIGHTS FOR DECADES
As the owner of the copyright to proprietary software, you have exclusive rights, including:
REPRODUCTION – The right to make copies.
ADAPTATION – The right to prepare derivative works based upon the copyrighted work. A derivative work is a work that borrows substantially from a preexisting work.
PUBLIC DISTRIBUTION – This concept includes sale, lease or other transfer. Except for sound recordings and computer programs, a copyright owner loses this right over a copy of the work that has been gifted or sold to another.
The duration of protection afforded by copyright is far longer than the useful life of any software program. As a general rule, a work created after January 1, 1978, is protected by copyright for the life of the author plus 70 years. The duration of “works made for hire” and anonymous works is 95 years from publication or 120 years from creation, whichever is shorter.
2. WHO OWNS THE COPYRIGHT IN SOFTWARE?
You can only register a copyright if you have ownership rights in the software. Copyright is the right of the author of the work or his/her assignees. A “work for hire” is a work generated by an employee within the scope of his employment, and in that case, the employer is deemed to be the author and it owns the copyright. In the situation where an independent software developer is hired to generate a computer program, the work is generally not a “work for hire” and the independent contractor is the owner of the work. This is true even if you paid for the development and even if the development contract says the program will be a “work for hire.” Because of the legal requirements associated with the work for hire doctrine as applied to independent contractors, any reference in a software development contract to a program being a “work for hire” is illusory. Computer programs simply do not fall under the nine categories of works recognized by the copyright law as “works for hire.” Accordingly, just because the parties call it a “work for hire” does not make it one. The simple solution is to get an assignment. An assignment covers all bases, whether the developer is an employee or an independent contractor, because the assignment transfers ownership.
3. THE KEY BENEFITS OF REGISTRATION
Copyrights exist the instant a computer program becomes fixed in any tangible medium. A work is considered “fixed” when it is in a form that is permanent or stable enough to permit it to be perceived, reproduced or otherwise communicated for a period of more than transitory duration. Theoretically, this means that you immediately own the copyright, and no one may copy, distribute or make adaptations of the work without your permission. Although registration is not a requirement for protection, as a practical matter, it is. If you have not applied for or obtained a registration, you cannot file a lawsuit to stop an infringer. Although the registration process can take a year or more, the registration will date back to the date of application.
The copyright law accords several significant advantages to those copyright owners who register their works. These advantages include the following:
- Registration establishes a public record of the copyright claim.
- In some jurisdictions, registration is a prerequisite for bringing a suit for copyright infringement. Under 17 U.S.C. § 411(a), no action for infringement of the copyright in any United States work may be instituted until a registration of the claim with the Copyright Office has been made or refused.
- If registration is made within three months after first publication of the work or prior to an infringement of the work, statutory damages and attorney’s fees are available to the copyright owner. Statutory damages can range from $750 to $30,000 –“as the court considers just” – for each work infringed.
4. HOWIS A COPYRIGHT REGISTERED?
Registration for copyright protection requires a registration application, a deposit of a copy of the work and a fee – all of which are filed at the Copyright Office at the Library of Congress. Once a copyright is registered, there is no cost for maintaining it. This means there are no maintenance fees or renewal fees, unlike maintaining a patent or trademark.
There is a specific application for each of the categories of works. Form TX is used for literary works, including software. The copyright registration is intended to make basic facts concerning a copyright of public record. The deposit requirements vary for particular works. For example, if the work is an unpublished or published computer program, the deposit requirement is one visually perceptible copy in source code of the first and last 25 pages of the program. For a program of fewer than 50 pages, the deposit is a copy of the entire program.
If the applicant is unable or unwilling to deposit source code, he or she must state in writing that the work, as deposited in object code, contains copyrightable authorship. A copyright registration for a computer program, in source or object code, will cover all of the copyrightable expression embodied in the computer program, including the user interface and screen displays. For computer programs containing or consisting of trade secrets, specific deposit requirements exist to protect such programs.
5. IS THERE AN INTERNATIONAL COPYRIGHT?
There is no such thing as “international copyright.” Several multilateral treaties, however, have extended copyright protection to U.S. authors in foreign countries. Perhaps the most significant of these treaties is the Berne Convention for the Protection of Literary and Artistic Works (“Berne Convention”), which the U.S. signed on March 1, 1989. Currently, 166 nations have signed some form of the Berne Convention.
The Berne Convention has two central principles. The first is the rule of “national treatment.” Under this rule, works either from foreign nationals of a Berne Convention country or first published in a Berne Convention country receive the same copyright protection that a country affords either its own nationals or works first published in that country. Although foreign copyright owners are entitled to the same treatment that a nation gives its citizens, each Berne Convention nation can individually determine the scope of copyright protection it provides.
For example, computer software written in the United States by a U.S. citizen would receive the same copyright protection in France that a program written by a French programmer in France would receive. French law would determine the scope of copyright protection, subject to some minimum protections required by the Berne Convention. Consequently, if France chose not to recognize copyright protection for software written by its citizens, then software from another Berne Convention country would not receive protection either.
The second central principle is the rule of “no formalities,” or that copyright protection should not rest on formalities. Regardless of the level of protection afforded by a Berne Convention country, copyright protection will not depend on whether it includes some formality, such as the presence or absence of “© 2001 John Doe.”
6. DAMAGES AND ATTORNEY’S FEES IN COPYRIGHT INFRINGEMENT LITIGATION
Lawsuits for copyright infringement may only be brought in federal court. Although there are some criminal provisions for copyright infringement, the vast majority of cases involve civil liability. Injunctive relief – an order from a court requiring a party to cease its infringing activity – is a remedy afforded by the Copyright Act. If infringement is proven, the copyright owner may elect between “statutory damages” and the copyright owner’s actual damages, and is awarded the defendant’s profits attributable to the infringement.
Statutory damages, which range between $750 and $30,000 – “as the court considers just” – are only available if the infringement occurred after the copyright was registered or within three months of the date of first publication. If the infringement was willful, the copyright owner may be entitled to damages of $150,000 per work.
Actual damages are the actual damages suffered by the plaintiff copyright owner as a result of the infringement. For example, in the case of software, actual damages could be based upon what the software cost to develop. In addition, the copyright owner can also be awarded the defendant’s profits attributable to the infringement.
In proving a defendant’s profits, the copyright owner need only present evidence of the defendant’s gross receipts from all activities related to the infringement. This is a major advantage for the copyright owner. For example, if a former licensee, who is now an infringer, is using the software as a major component of his online travel business, the copyright owner could claim all profits from travel bookings using the software.
There is a statutory presumption that an infringer’s revenues are attributable to the infringement. The copyright owner need only prove all of the defendant’s gross revenues – information easily obtained in discovery. The defendant must then prove all deductible expenses (for example, the cost of servers or employees) and elements of profit attributable to non-infringing factors (for example, additional services provided by the travel business). Any doubt as to the computation of costs, expenses or profits must be resolved in favor of the copyright owner. Also, damages for the infringement can be enhanced if willful infringement is proven.
In addition to damages, anybody who infringes the works of another ought to be particularly concerned about being sued for infringement because of the threat that attorney’s fees may be awarded. The copyright law allows the prevailing party to be awarded its attorney’s fees. Thus, even if the monetary value of the infringement is small in terms of statutory or actual damages, the attorney’s fees awarded to the prevailing party for having to enforce its rights in court can amount to many times the amount of damages awarded.
7. REGISTRATION: CHEAP INSURANCE
Not all the benefits of prompt registration relate to litigation. In fact, early registration can help keep you out of court. An infringer who knows that your work is registered also knows that you can recover damages and, more importantly, your attorney’s fees if you prove infringement. As a result, the infringer should be more willing to negotiate and settle out of court if you have registered your work. Since registration is a relatively simple process and provides significant benefits, it is one of the greatest insurance deals of all time.
8. MARKING YOUR COPYRIGHT
A copyright notice – the familiar © – is not required on works first published on or after March 1, 1989, but is highly recommended. A notice can prevent a defendant from claiming “innocent infringement.” If a defendant is successful in claiming innocent infringement, there may be a reduction in damages. Further, notice may deter potential infringers.
The elements of a proper copyright notice are:
- The symbol © and/or the word “copyright” or the abbreviation “copr.,” for the purpose of informing the public that the work is protected by copyright.
- The year of first publication of the work.
- The name of the copyright owner.
The phrase “All Rights Reserved” should also be placed in a copyright notice. This phrase is unnecessary in the U.S., but is necessary for protection under some international treaties.