You Paid for the Software—But Do You Own It?

A blast of cold, wet wind whipped my face as I opened the door to leave my client’s office. It felt like the whipping we had just received from his software engineer. The sky was grey like the mood I was in, and the raindrops that hit my face were the perfect cover for the tears threatening to spill from my eyes, brought on by the fatigue, frustration, and anger I was carrying on my client's behalf. I opened my passenger door, threw my briefcase on the passenger seat, slammed the car door shut, and rushed around to get into the driver’s seat as fast as I could before the skies opened up.

I rested my head on the steering wheel as I sank into the driver’s seat and turned the engine on. The soothing vibrations of the car seeped through my tailbone and up my spine as the motor warmed up. Yet, they did nothing to dispel the disappointment I felt. My client’s eleventh-hour meeting intended to convince his software engineer to assign the software and its associated intellectual property to him so that my client could file a patent application in time and before the upcoming trade show, had turned into a battle of wills and an absolute disaster.

It began the previous week, when my client suddenly realized he could not attend the trade show without first protecting his intellectual property (“IP”). The prototype had been completed, beta-tested, and enthusiastically accepted by its three test subjects. All bugs had been worked out. The trade show booth had been purchased, the marketing materials looked impressive, and the final travel itinerary was being prepared. Enthusiasm was high, and my client’s future seemed bright.

Then it hit him. The future was not so bright, because in the midst of negotiating budgets, raising funds, building prototypes, preparing marketing materials, and hiring consultants and software engineers, he had made one major oversight, by which, if he did not rectify it quickly, he would deprive himself, his partner, and his company of the only leverage he had to make his future a reality. He had overlooked protecting all the IP generated by the creation of the prototype.

So, he called me. We met, and we talked; a lot. As we talked, we identified all the IP, took inventory, identified objectives and obstacles, and laid out a strategy to be implemented within two weeks, in time for the trade show, to prevent the loss of all his international patent rights.

It quickly became apparent during our discussion that one part of our strategy could not be implemented because of a major oversight. My client failed to enter into a written agreement with the software engineer. As a result, not only had the terms of payment for the engineer’s time and effort not been worked out, but the transfer and assignment of ownership of the software and its related IP rights from the software engineer to my client and his company had not taken place.

This was something that we had to remedy immediately. We began by calling the software engineer. We explained the urgency of the matter, and we convinced him to meet with us the following day, preferably with an attorney. Then we worked hard to put together at least two alternative offers that we believed would be acceptable to the software engineer as consideration for assigning the software to our client. We were optimistic!

But boy, were we wrong! On the day of the meeting, the software engineer walked in without a lawyer. That immediately made it clear to us that the urgency of the matter was completely lost to him. Or, maybe, he walked in alone because he felt he had the upper hand. And then, he zinged it to us. Recognizing that my client was desperate to close the deal as soon as possible, smelling blood, and realizing that this was the only leverage he had, he asked for ten million dollars in exchange for relinquishing control of the software and its appurtenant IP.

To say that my client was stunned is an understatement. Here was this software engineer to whom my client had gone because they were “friends”, with whom he had neglected to enter into an agreement because they were “friends”, and this software engineer was doing this to him? With the trade show fast approaching, my client did not have ten thousand dollars, let alone ten million. The software engineer knew this. How could a “friend” do this to him? I felt my client’s pain, his surprise, his bewilderment, and his anger to the very being of my core.

But it did not faze me. As my client sat there controlling his temper, I jumped into action. Let the negotiations begin! We made a first offer! We made a second offer! We made a third offer! We cut the pie one way and then another. All good offers. We bent over backward to accommodate what we perceived his needs to be. We threatened, and we cajoled. Yet, because the computer software engineer had come alone, without a lawyer, and because he was suspicious and inexperienced in software licensing and IP, he refused everything we presented to him. We met with nothing but distrust, double talk, sarcasm, and disdain. After a full day of negotiation, he left to go home and think about it.

Does this sound familiar? If it does not, it should, because this story is based on real recent events. It is also one of the underlying lessons of the well-known Columbia Pictures movie The Social Network, directed by David Fincher and written by Aaron Sorkin and Ben Mezrich. Is this something that could happen to you? Are you assuming that just because you are paying for that website, or that software, it belongs to you? Well, if you do, you are wrong. More importantly, by the time you realize you are wrong, as my client above did, it might be too late.

My personal fatigue, frustration, anger, and disappointment as I sat in my car that cold, wet, windy, dreary afternoon after the meeting were not the result of the software engineer’s decision to go home and think about the offers. While my client was surprised at that decision, I was not. I expected nothing less. Rather, they were the result of two very important facts: a) once again I was being faced with a business owner who had failed to be proactive and had made assumptions in connection with the protection of his IP; and b) my client was going to spend an awful lot of money trying to correct this mistake. What a waste!

So please, don’t make the same assumptions. Remember! The software engineer you hire to write that software or develop that website is, in accordance with the Copyright laws of the United States, the author of the software or the website you hired them for. As the author, they own all rights, title, and interest in the software or website, even if you are paying for it. Thus, if at the very beginning of the relationship, before (s)he “smells blood” and gets greedy, you don’t enter into an express agreement with such software engineer, a written agreement, not verbal, by which they transfer to you or to your company all rights title and interest to the software or website (or to anything else they create for that matter) it may be you sitting in your car on a cold dreary afternoon feeling whipped.

An ounce of prevention is worth a pound of cure. Please take heed!

*This article is based on an actual matter from our legal practice. Certain facts and identifying details have been changed to protect client confidentiality.