In-house software deserves protection

Software used internally should still be protected even if there's less risk, and companies should know limitations of copyright law and create holistic regime to safeguard intellectual property, say observers.
Written by Jamie Yap, Contributor

Companies usually utilize copyright to protect software it develops and intends to market, but lawyers and analysts note it is equally important to safeguard software developed and used internally, even if the risk of infringements or theft is lower.

Melvin Pang, senior legal associate at Amica Law, said that software developed for internal use is no less important than commercial software products. This is because for some companies, their in-house programs might comprise the majority, if not the whole value of its business. Google's algorithms for its search engine is one such example, he pointed out.

Elle Todd, a partner at law firm Olswang, similarly said copyright is important for all types of software even though the risk of infringement for those used solely for internal purposes may be lower.

It is how valuable, confidential or sensitive that piece of software is that will determine the implications, and the protection it requires, she added.

Their comments come after an ex-Goldman Sachs programmer had his prison sentence overturned, after a U.S. federal appeals court ruled that he did not steal part of the company's trading software source code.

Sergey Aleynikov, who was convicted in 2010 for stealing trade secrets, had served 11 months of an eight-year sentence, when the court ruled that he did not commit a crime as the code did not qualify as stolen goods under federal law, Reuters reported then.

Efforts should be justified
Charles King, principal analyst at Pund-IT, highlighted that one of the key issues at hand was objectively determining the value of the internally-developed software in question, and whether it is worth the potential legal battle.

"Copyrighting software is a relatively trivial process that helps formally establish ownership. But the protection copyright it affords is often modest," he said.

Rob Enderle, principal analyst at Enderle Group, said while copyrighting the software may give a strong signal prohibiting theft of source code, there is little need to do so--unless the organization plans to eventually market its in-house software or "make a habit of litigating against departed employees", which can be a waste of resources.

Still, he noted: "Companies may feel departing employees are traitors and want to punish them. If they are that kind of a firm, copyrights are a useful tool."

For organizations thinking about protecting their home-brewed software, these industry insiders shared the following pointers:

Copyright comes automatically
Unlike trademarks, which require a registration process, copyright is automatically conferred to the developer of the software, Olswang's Todd noted.

As such, it is good practice to ensure that employment contracts clearly state that the rights to the software developed by employees for the company belongs to the latter, she urged, adding that such terms should also be stated to temporary staff and contractors.

Confidentiality clauses a must
Amica Law's Pang said besides getting copyright protection, companies ought to consider inserting confidentiality clauses in contracts for their staff and third-party vendors with access to the proprietary software.

Todd agreed, saying that these confidentiality agreements must be "robust" so that should a breach is found, it provides the basis for a contractual claim against the offender even when criminal or statutory action is difficult to establish.

Know copyright benefits, limitations
Pang pointed out that copyright for software is only limited to the source code, and does not cover the program's functionality. As such, should another company get a hold of the source code and reverse engineer the software to create its own program to achieve the same functionality, there will be no infringement to the original copyright, he explained.

Hence, companies need to understand the pros and cons of copyright and decide when patents are better used to protect their interests, Enderle advised.

If a company wants to protect the end-function of a software, then it should explore the option of applying for a software patent instead. "Often, a patent is more useful at protecting a unique idea and providing stronger recourse than copyright; however copyright is generally more effective in cases of an outright theft of anything written," he explained.

"If [the software] does have a unique way of doing something, then a patent may help protect the software and provide companies with a stronger asset. That way, if an employee steals it or another company uses the idea with rewritten code, you can get compensated," he said. Thus, top executives need to know the difference between both protection regimes as it can "go a long way" toward defending the company's IP portfolio.

Create holistic protection regime
Businesses should not just rely on the law for protection, both lawyers said.

Pang noted that in the Goldman Sachs' case, Aleynikov was only caught because the company's system noticed a surge of data leaving its server. Hence, "draconian" legal safeguards will not prevent such thefts or infringements from taking place, if companies do not institute comprehensive internal systems checks to begin with, he warned. Intellectual property (IP) education for employees can also be conducted, Pang added.

Todd suggested practical steps be taken as well, such as limiting access to the software's underlying code to within the office, which allows administrators to keep track of the people entitled to view or use the code. This ensures all documents relating to the code are kept confidential and used securely.

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