Brooke is the founder of Bruqs, a fashion tech startup. With a pre-money valuation of ₦10,000,000, Brooke is working tirelessly to raise initial capital to bring her vision to life. And it seems her efforts are paying off, as an angel investor has expressed interest in providing the much-needed funds to kickstart Bruqs.
But when the investor asked a seemingly simple question - "Do you own this software?" - Brooke found herself pausing to consider her response. She had outsourced the development of her product to ZY Codes Ltd., and while she was thrilled with the outcome, she wasn't quite sure about the ownership of the software.
Thankfully, Brooke had entered into a software development agreement with ZY Codes Ltd., which included a clause transferring the intellectual property of the product to herself. With this clause in place, Brooke assumes the investor's question is a resounding "Yes!" But she has her doubts.
Let us dissect this and determine whether the question is a necessary one.
As technology continues to evolve and shape the business landscape, it is important for businesses to understand the legal complexities that come with developing software.
Developing an app involves a unique mix of software code and creative content like text and graphics, which are protected by copyright. However, copyright ownership only applies to original works that have been expressed in a permanent medium. This means that a work, such as software, will only enjoy copyright if it has original character and has been expressed in a manner that can be accessed. (See Sections 2 and 3 of the Copyright Act 2020.)
Businesses that commission the development of software must carefully navigate the legal intricacies of copyright ownership. When software code is written, the author immediately owns the copyright (see Section 28 of the Copyright Act). In practice, businesses often demand ownership through a software development agreement or IP transfer agreement.
Ownership gets complicated when it comes to using code from various sources, like open-source or third-party libraries. This is because outsourcing development firms typically use a variety of code, including new code, free open-source code, third-party code, and proprietary code from their code bank. Each type of code has its own legal implications that businesses must consider. For example, if a developer uses open-source code, the software may be subject to certain licensing requirements.
To navigate these legal complexities, a well-crafted software development agreement should differentiate between "background rights" and "foreground rights." Foreground rights are specific to the app and can include graphics and proprietary code that give the app unique functionality. These are typically assigned or transferred to the business. Background rights, on the other hand, are not specific to the app and can include open-source or third-party code. These are often licensed to the business rather than assigned.
To protect their rights, businesses must negotiate for a license of the background rights (open source code, third-party source etc.,) that grants worldwide rights, allows for modification of the software, and permits sub-licensing to other developers or agencies. It is also important to ensure that the licence does not have a time limit and that the business can pursue claims against third parties who infringe on their copyright.
Now, we can appreciate the purport of the question posed to Brooke by the angel investor. Business owners like Brooke must be mindful of the different types of code used in their software and clarify ownership and licensing terms in their software development agreements. This ensures that they understand their foreground and background rights and have the appropriate license to use the codes in the background rights. By understanding the legal complexities of software development, businesses can develop apps with confidence and truly own their intellectual property. The upside to this is that lawsuits that may come up in the future regarding copyright infringement are averted.