IT contracts: what every company providing programming services needs to know

 

“As the IT sector continues to grow, many companies focus on improving technological solutions and serving customers, often forgetting an extremely important area – the legal aspects of intellectual property. When conducting audits of IT companies, it is often observed that even technologically strong companies can face complex situations, suffer financial losses or get involved in disputes if they do not assess in advance how the code, tools or artificial intelligence solutions they use are compatible with contractual obligations.

 

What should you keep in mind when signing contracts?

 

Use of open source. If you use open source programs when providing services, the contract should not contain provisions that oblige you to create a completely unique work and transfer intellectual property rights to it. This may limit your ability to use community-created modules or libraries.

 

Results generated by artificial intelligence (AI). If part of the code or content is created by AI, it is important to clearly state that you cannot guarantee all copyrights to the generated results, since AI is generated content is not copyrighted.

 

Unique product. If the customer requires a unique product and all associated intellectual property rights, you will not be able to use open source, artificial intelligence, or unique parts of the code created by other customers. In addition, you will not be able to reuse the same solution for another customer.

 

Third-party intellectual property. If you plan to use solutions or licensed content from external suppliers, make sure that this is in accordance with the provisions of the contract, and discuss the licensing terms with the customer in advance.

 

Maintaining intellectual property rights for your products. If you use your previously developed code or product when developing a solution for a customer, and you plan to continue to use part of the code in your commercial activities, be sure to stipulate in the contract that these parts remain your property, and that the customer is granted only a limited license to use.

 

Why is this important?

 

Unclear intellectual property provisions in the contract can lead to long and expensive disputes. They can limit your technological flexibility, the ability to continue to use the solutions you have created, and even cause reputational damage. Reviewing contractual obligations is not only a guarantee of security, but also a competitive advantage.”

 

 

To preserve intellectual property rights for computer code, you should use a combination of legal tools and security measures,

 

including copyright registration to protect the code's expression,

 

 applying for patents for novel technical processes,

 

using trade secret protection to keep code confidential,

 

and employing contracts and licenses such as NDAs and software licenses to control use and prevent unauthorized distribution.

Legal & Contractual Protections

 

    Copyright:

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As soon as you create original code, it is automatically protected by copyright. To strengthen this protection and have irrefutable proof of ownership, you can register your software with the relevant copyright office.

Patents:

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For software that presents a new and innovative technical process or solution, a patent can be filed. This grants you exclusive rights to the invention, which can be particularly useful for protecting novel algorithms or unique technical features.

Trade Secrets:

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To maintain confidentiality, you can treat your code as a trade secret. This involves implementing strict security measures and enforcing confidentiality agreements.

Non-Disclosure Agreements (NDAs):

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When sharing code with employees, contractors, or partners, require them to sign NDAs to legally bind them to confidentiality and protect your intellectual property.

Software Licenses:

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Instead of selling your software outright, you can license it to users. A well-drafted software license specifies how the code can be used, distributed, and modified, offering protection against unauthorized actions.

 

Security & Procedural Measures

 

    Confidentiality Agreements:

    Have employees and independent contractors sign these agreements to establish their legal obligation to protect your code.

 

Security Protocols:

Implement strong passwords, virtual private networks (VPNs), and enforce Wi-Fi security to protect your networks.

Code Audits & Tracking:

Regularly audit your code and monitor compliance with licensing terms to identify any potential violations.

IP Assignment Agreements:

Ensure that developers, especially external ones, sign agreements that assign ownership of the code they create to you.

Trusted Third-Party Deposits:

In the absence of national copyright registration, depositing your source code with a trusted third party can provide secure, independent, and time-stamped proof of ownership.

 

Here are some of the best representatives of such third parties:

 

    Software Escrow Agents: These specialized companies act as neutral third parties, holding source code in escrow under agreements that define conditions for release to a beneficiary, typically in cases of vendor bankruptcy or failure to provide support. Examples include:

        Codekeeper: Emphasizes integration with development workflows for automated deposits and comprehensive escrow solutions.

        Escode (NCC Group): A global leader with extensive experience, particularly suited for large enterprises and those requiring broad regulatory compliance.

        Software-Escrow.com: Focuses on developer-friendly solutions with automated deposit capabilities and strong security.

        Escrow London: Specializes in servicing the financial services sector with tailored escrow solutions.

        PRAXIS: Offers flexible and secure source code escrow, known for its verification services and emphasis on business continuity planning.

    Other Potential Third Parties:

        Intellectual Property Lawyers: Some intellectual property law firms specialize in software and can assist with source code deposits and other intellectual property protection measures, including potential registration with relevant authorities if available. Fish & Richardson is one example of such a firm.

        Public Notaries (in some contexts): While less common for source code, a public notary might be used in some jurisdictions to officially record the date and time of the deposit of a physical or digital copy of the source code, providing a basic level of dated proof of existence.

 

In situations where a notary public is used for this purpose, their fees for a typical in-person notarization of a document can range from $5 to $20 per signature or document depending on various factors such as the type of document, complexity, location, and the notary's experience.

 

In New York, the maximum fee a notary public can charge for services like administering oaths or affirmations, taking acknowledgements, or proof of execution is $2.00 per signature, according to the New York State Senate (.gov). There are certain exceptions for specific services, and some locations (like Suffolk County, NY) may have different specific fee schedules for certain actions like issuing certificates of official character or authenticating documents.

 

 However, this method might be less comprehensive than using a dedicated escrow service.

 

Considerations

 

    Escrow agreements: Carefully define the conditions under which the source code can be released and the beneficiaries of the escrow in the agreement with the chosen third party.

    Verification: Ensure the escrow agent offers verification services to confirm the completeness, accuracy, and functionality of the deposited source code.

    Security: Verify the third party's security measures to safeguard the confidentiality and integrity of your source code.

    Updates and Maintenance: Confirm how the third party handles updates to the source code to ensure the escrow remains current.

    Legal Advice: Consult with a legal professional to ensure the chosen method of protection aligns with your specific needs and the relevant legal framework.