For software developers and programmers, source code is the stock in trade. It is what they get paid for, but who owns the code once it has been written? From ownership of copyright in the code, developers can reuse their code for other projects without having to redevelop that code. Both developers and the clients need to be clear as to what rights they each retain or own at the end of the project.

‘Source code’ and ‘executable files’

Programming is the process of typing a sequence of characters into a text editor. The file is saved as a source code. The sequence depends on the specific programming language being used (for example ‘the C programming language’). That file is then either interpreted or compiled.

Interpreted languages are passed to an interpreter which runs the code immediately without transformation. In contrast, a compiler takes the source code and transforms it into something else. In most cases, the product of compilation is an ‘executable binary file’ which runs directly on the computer’s processor.

Source code and executable files are sometimes referred to as the before and after versions of a compiled computer program. Source code is more human readable than the machine code that makes up an executable file, and allows programmers to easily convey their instructions to the processor.

Who owns the source code?

Generally, the programmer will own the source code they create. However, there are complexities around ownership that programmers should be aware of.

It is common for programmers to utilise pre-existing source code (known as ‘open source code’) by way of license. GPL and MIT are some of the commonly used licenses in open source projects which set out the scope of authorised use for an open source code. For example, the GPL license permits programmers to use, share, modify and publish the software, so long as they provide an explanation of any modifications, expansions or innovations to the software before they distribute it.

So, while ownership generally vests in the programmer, the programmer’s work may include pre-existing source code subject to licenses. Therefore, if a programmer publishes their work online or agrees to license their source code to a customer, this should be subject to a new license that acknowledges and complies with licenses for any pre-existing codes they have used.

Copyright

Software is considered a ‘literary work’ for the purpose of the Copyright Act 1968 (Cth).

Copyright protection arises automatically upon creation of original work that is recorded in material form. So, when new source code is written, copyright vests in the work automatically under the Copyright Act.

Under the Copyright Act, the owner has certain exclusive rights, such as the right to reproduce, publish for the first time, communicate to the public, adapt, and enter into commercial arrangements. The creator will also have ‘moral rights’ under the Copyright Act, which are designed to protect the creator, even if the creator no longer owns the work.

When work is commissioned to a developer on a ‘freelance basis’, who owns it?

In the absence of a written agreement stating otherwise, the author of the code (or their employer) is considered the first copyright owner of the work.

The author is the person or organisation who creates it, and there may be joint authorship or co-ownership if the work is created by two or more authors.

If the developer is an employee, the employer is the first owner, (subject to any agreement to the contrary between the employer and employee). The court looks to whether the employee was working under a contract of service (employment contract), or a contract for services (freelance agreement/independent contractor).

Commissioned work – who owns it?

Works created under a contract for service is ‘commissioned work’, so in this case, the contractor would own the work.

However, the contractor may not own the source code if there’s an agreement stating that the source code will be owned by the entity commissioning its development.

When a customer prepares an agreement, they will generally seek to own the source code. If it does not specify who owns it, to displace the default rule (whoever created it owns it) ownership may be decided by terms implied into the contract, which is not ideal.

Implied Licence

Where a freelancer is engaged to develop software for an express purpose and the development is paid for, the law will ordinarily imply a term entitling the customer (paying party) to use the software (that is, by license) as part of the engagement.

The scope of the licence (or entitlement to use the code) will be what’s necessary to give ‘business efficacy’ to the arrangement – that is, its commercial purpose.

So, the customer may use the software for the purposes contemplated between the parties at the time of the agreement. The amount paid can also indicate if it is more likely a license right granted or that ownership was intended to pass to the customer.

The key here for both the customer and the developer (or employer of the developer), is to make it abundantly clear and set out the parties’ intentions as to ownership in the agreement.

Assignment of Copyright

An assignment of copyright is where one party transfers their rights, title and interest in a copyright work to another party (usually, completely and for the life of copyright). Assignment of copyright can be likened to selling a house, whereas licensing copyright is more like leasing a house (with conditions attached).

Unlike an implied licence of copyright, the assignment of copyright must be in writing. Assignment of copyright may be preferable for customers, as it gives them more control over how they can use the work. For example, a license of source code is likely to state (or imply) that the customer is not to change/modify/adapt the code. Whereas the complete assignment of copyright would allow the customer to exercise all the exclusive rights of a copyright owner which includes being able to change/modify/adapt or engage third parties to do so.

Programmers should be careful to only assign copyright to customers subject to any third-party licenses attached.

Summary

Where there is any uncertainty or ambiguity as to ownership of copyright, the party who owns it is decided by reference to what was contemplated between the parties at the time of the engagement, and not afterwards based on their knowledge as that the date of a contract.

For developers and customers, we recommend:

• Carefully review any software development agreement and check the terms. Is it a license only? If so, is it limited in some way? Who will own the source code?
• If there is no contract, is there an implied license?
• Look for references to intellectual property and copyright and ensure the rights are clearly spelt out.
• If the contract does not address ownership, the developer will own it (the default position) or their employer.
• If the work has been commissioned specifically for the customer, it is likely that the customer will want ownership rights, particularly if they are paying a commercial cost for its development.
• If the customer wants exclusive rights, they will want ownership. Developers should carefully consider assigning copyright in their code to customers, as this will restrict them from using that code for other projects and customers.

So, the devil is in the detail for both developers and customers. You should ensure you have properly drafted agreements or have any agreement reviewed by an experienced IP Lawyer so each party knows what they are getting and what they may be giving away.

Get in touch with us at Sanicki Lawyers for a free 15-minute consultation if you require legal assistance.

Robert Toth, Accredited Commercial Law Specialist, [email protected] or 0412 673 757

Chelsea Donoghue, Intellectual Property Lawyer, [email protected] or (03) 9510 9888