Benefits of Copyright Registration

If your company’s core products are original works of authorship — like software, websites, video games, music videos, graphics, photographs, musical compositions, cartoons, on-line publications, articles, books, or even automated databases — you may want to get enhanced benefits by filing a formal copyright registration with the Copyright Office.

There are several important reasons to file a federal copyright registration before infringement.  First, registration is necessary to even get to court. Second, if you win, the court may award statutory damages –- from $750 per infringed work to as high as $150,000 for willful infringement — and attorneys’ fees, which alone can be hundreds of thousands of dollars.

This big statutory hammer is very important when you send a cease and desist letter to an infringer.  If an infringer may face paying hundreds of thousands of dollars (or even millions) to the copyright owner pursuant to the statute, they should be more likely to stop infringing and settle out of court.

And the hammer is relatively cheap.

The registration fee for a simple work filed electronically is $35. (Fees vary depending on the type of work and method of filing.)

To get the statutory benefits, however, you must file for copyright registration before infringement or within three months of publication of the work.  If you file late, you will have to prove the amount of actual damages you have suffered because of the infringement and pay all of your own costs and attorneys fees. In some cases, without registration, the costs of enforcement may be too high to justify going to court.

The difference between statutory damages and actual damages can be astronomical and the copyright litigation in the music industry is illustrative.

Really, what are the actual damages from illegally downloading a song? 99 cents?

In one case, however, a jury found that a single mother who willfully downloaded 24 songs on the KaZa’s file sharing network liable for $1.9 million in statutory damages. Now, that’s a big hammer.

For software developers it’s especially important to note that to get the full statutory benefits you need to file registrations for new versions of your work that may be infringed.  For example, it’s not enough that you have a registration on an original version of your software when the work that is actually infringed is a newer version.  A common defense in a software copyright infringement case and a reason for dismissal is that the registration does not cover the software at issue in the lawsuit.  It can be a very, very expensive mistake to fail to file new registrations when you revise or update your work. (See the article Version Control Blues, about Airframe’s System’s legal woes for failure to register the new version of its software).

Of course, new registrations are a hassle when the copyright is for a work that is frequently updated, like software or a website. But it can be well worth the trouble.

Take Time to Review Your IP Strategy and Protection

As I explained in my last post, January is a great time of year to review your IP protection strategies and see if you need to file additional copyright registrations (and trademark registrations and patent applications)!  You may think this is a simple point but you may be amazed at how many companies screw up protection by not reviewing the status of their filings as their startup grows and changes.  All too often they find out too late that another company has beaten them to the PTO and filed a trademark or patent on a key part of their business. Or they lose in court because they screwed up and didn’t get their registrations up to date for new versions.

Filing with the Copyright Office

The Copyright Office has tried to make things simple.  Go to www.copyright.gov for more extensive information.  They have many circulars and brochures explaining what you need to do to file registrations for your specific type of work. Some brochure examples include:

• Copyright Registrations for Computer Programs
• Copyright Registration for Online Works
• Copyright Registrations for Multimedia Works

Registrations require filing out the proper form, paying a fee, and giving the Copyright Office a deposit of the work – a good copy of what you are registering.  And registrations for many works can be done electronically through the electronic Copyright Office (eCO), saving time, money and a trip to the Post Office.

Filing Considerations

There are several things that give people trouble when filing.

Type of Work. First, people tend to be confused and think they can register ideas, concepts, procedures, methods, short phrases, titles, or software program logic or algorithms.  You can’t.  Make sure you are registering a type of work that can be registered like software source code, literary works, photographs, artwork, text, sculpture, choreography, or music.

Publication.  Second, you also need to identify the first date of publication.  Publication of on-line material is confusing, even to the courts, but it basically means when you distribute copies of the work to the public for sale, rental or lease or an offering to others for further distribution or public display.  Just figure out the first date you sold the work or allowed others to freely distribute or download it.

Copyright Claimant or Author. To file a registration you need to be the author or the owner of the copyright, the Copyright Claimant.  A super common mistake for startups is that they don’t own the copyright to the works created for them.  Remember you must have a signed, written assignment agreement with the proper language from the author of the work – like the logo designer or software developer – before you can register the copyright for the work.  You must also identify all authors of the work even if you are the owner. You must also own all of the rights to the parts of the work you are registering.

Don’t get tripped up when they ask if the work is a “made for hire.”  Unless you have a contract specifying the work as a “work made for hire” or the author is your employee, the made for hire doctrine does not apply.  See related posts.

Deposit. Third, sometimes the deposit requirement trips people up because they don’t know what to deposit or they don’t want to give a deposit.  For example, software is special and the filing is frequently screwed up.  This is why you need to read the circulars carefully and follow the directions.  Generally, for a software deposit of a program with more than 50 pages of source code, you can file the first and last 25 pages of a printout of the source code, which can uploaded electronically in PDF format.

In your software source code deposit, you can black out trade secrets and vary what you file.  But of course, you need to be able to identify a trade secret to block it out.

Ask yourself:   Are there any special sections of the source code for a cool features you want to keep secret because it gives your company a competitive advantage over other programmers who don’t know the code?  Black out those sections with a magic marker.

If you unwittingly disclose a trade secret, you lose legal trade secret protection.  Because some developer’s don’t want anyone to have any of the source code and they choose to forgo statutory benefits of an early filing or file object code.

Short on-line works can be uploaded in the electronic system very simply.  Long on-line works need to be sent in on a CD-ROM with representative paper copies and the length required varies.  Again the Copyright Office has brochures trying to explain what you need to do.

Make sure you use an acceptable file type of electronic submissions like .jpeg or .pdf or logos or art; .wav or .mp3 for audio files; and .pdf for text and .ppt for presentations.  The Copyright Office has a list.  The wrong file format is a common trip up. If you can’t upload the file, check the file format.

Taking the time to file copyright registrations can give your little company a big statutory hammer and help protect its valuable works.  Just remember to update your filings, especially in the new year.

As an IP attorney who has conducted due diligence for VCs, Angels, and acquiring companies, I’m wondering:

Is your startup ready for due diligence?

Do you even know what that means?

Let me explain what IP due diligence is and why your preparation today is important.

If you are very fortunate and a savvy investor or company wants to invest in or buy your company, your startup will likely be subject to a process called “due diligence.” This means that one or more attorneys will carefully examine your IP and company records — its contracts, licenses, assignments, and IP filings.  They will ask a lot of questions about what you have done in the past and they will judge your credibility and IP knowledge.

The attorneys will be trying to find out what you have done right and what you have done wrong. They will be trying to find potential liability and risks for the investors.

Don’t kid yourself.  It is highly likely that the attorneys will find where you have screwed up.

Importantly, the attorneys will be ascertaining whether your startup owns the IP it says it does or whether it has failed to do what is necessary to nail the IP to the company.

• Do you have proper signed, written IP assignment agreements with all founders, key contractors, and employees that transfer all IP to the company?
• Have you used cheap, sketchy foreign contractors to create your key technology with self drafted contracts?
• Do you really have the right to use the IP you say you do or are you missing a critical license from a university or consultant?
• Are former employers of the founders threatening to sue for trade secret misappropriation and ownership of the key technology?

These are just a few of the issues the attorneys will examine.

If the attorneys find problems, like your startup doesn’t own the IP or it’s at high risk for potential liability, your deal may be derailed.

Sometimes the problems can be fixed and sometimes they can’t.

Moreover, it can be a huge headache for you to try and track down what you are missing, like IP assignments from a departed founder or stray licenses to part of your code. For example, if you don’t know who created your software code or where it came from, you can be in big trouble if the code with the questionable genealogy is the foundation for your business. Or if you have an offer for a million dollars for your great website, your deal may collapse because your site is loaded with infringing material and you only have weak implied licenses to the content.

Make sure you do what you need to do to ensure that your startup owns it’s IP or has proper licenses–NOW. It may be simple to do today and impossible tomorrow.

You want to be prepared for IP due diligence and not delay or derail your future deals.

Jill Hubbard Bowman is an intellectual property attorney who helps startups do things right.

Related posts:

Analyzing the Risk: Will My Current Employer Claim Rights to my Startup’s IP

Does Your Startup Own the IP Created by the Founders

Who Owns the IP Rights to Custom Software?

How to Avoid Trademark Infringement When Selecting Business or Product Names

One of the biggest, most frequent mistakes I see as an intellectual property attorney is a startups’s lack of ownership to all of the exclusive rights to the intellectual property created for it.

One of the most damaging omissions is not taking the proper steps to ensure the company owns all of the rights to the IP created by all founders.

You should all sign the IP assignment agreements at the very beginning when everyone is committed to the company’s success.

If your company does not own the rights to the founders’ work, a founder may walk off and take their IP rights with them. This may leave the company in a precarious position if the founder’s IP is central to the company’s key technology.

For the company to own all of the IP rights, all founders must sign an IP assignment agreement that transfers the IP to the company.

And the contract must have a provision that sweeps back and captures work done before incorporation.

Most standard form agreements don’t have this provision. It is special to the needs of startups. If a corporate attorney gives you the IP assignment forms, make sure you ask about this type of retro-provision and get it included in the agreements signed by the founders. Also, beware of do-it-yourself contracts drafted by non-lawyers. They usually don’t have the proper “magic” legal language that transfers the IP to the company despite the attempts to do so.

If you don’t have a written assignment agreement that sweeps back and captures the IP created before and after incorporation, your company won’t own all of the IP rights of the founders.

Lack of proper contracts may have very serious consequences.

If the departing founder created the work on his own before incorporation or when he was not a company employee, he may own all of the IP rights to his work. And when he walks out the company may be left with shallow arguments about fiduciary duties and his obligation to transfer the IP back.

Worse yet, the departing founder may start a new company in competition with the old company and transfer his IP rights to the new company.  Leaving the prior partners with a worthless, empty shell of a company.

Reports say this is exactly what Mark Zukerberg did with Facebook.  The original Facebook company was incorporated in Florida but Mark did not assign the IP rights to the Facebook software to the first company.  And after Mark had a falling out with his partner Eduardo Saverin, Mark hired a real startup lawyer, incorporated Facebook in Delaware (like a savvy startup would do), and assigned the IP rights for the software to the new company.

The resulting lawsuit was eventually settled. But I bet the legal bills were huge.

Similarly, if the work of the founders was a joint work, and the remaining partners assign their rights, the company may have rights to exploit the work. But the rights won’t be exclusive.  The departing founder may exploit the work too, without any obligation to make an accounting or pay the other creators. This scenario makes most investors run scared.

Do your startup a favor. Get all founders to sign a decent contract drafted by a professional that transfers all IP rights to your company. And do it before the founders walk out the door.

Jill Hubbard Bowman is an intellectual property attorney who helps startup companies own their IP.

Savvy investors hire lawyers to conduct IP due diligence before investing in a software startup for a very good reason:

All too often the startup does not own the exclusive IP rights to its software!

Usually the startup doesn’t own the IP rights to its software because of carelessness, a cavalier attitude toward contracts, and a basic misunderstanding about the law.

Many parts of IP law are counterintuitive and defy what people consider “common sense.”

It’s important for startup founders to learn a little about IP law to protect their hard work and investment and keep them out of legal trouble.

WARNING:  If your startup does not own the copyright to its software or have a proper license from the developers who created it allowing the startup to sublicense the software and make derivative works, the startup may be committing copyright infringement when it copies or modifies the software and sublicenses it to others.

And the startup’s customers may be committing copyright infringement too.

Ignorance of the law is not an excuse that will get you off the legal hook.

Sometimes the founders just don’t care. They know they are playing fast and loose with IP ownership of the startup’s alleged software.  But they don’t want to find or pay for proper contracts and do things right. In these cases, the startup’s licensing campaigns, contract warranties to other companies about IP ownership, and sale of stock in the company with a valuation based on the value of the software, simply smacks of fraud.

Frequent sad scenarios where the startup does not own the IP rights include the following:

• The founders don’t sign IP assignment agreements that capture the IP they created before incorporation and transfer it to the company.  A founder may walk off and assign their IP to another company, like Facebook’s Mark Zuckerberg did. Of course he got sued.

• The startup thinks that because  it paid for the software’s creation and had an NDA with the developers they own the IP rights.

Wrong! It doesn’t matter that the startup paid for the creation of the software. Payment doesn’t transfer IP rights.

Without a proper contract assigning the IP rights to the startup that is signed by the developers, the startup usually has nothing more than a revocable, implied license, which is almost worthless.

• The startup hires a software development company that uses independent contractors who have not assigned their IP rights to the software development company. The development company can’t pass through IP rights they don’t own to the startup. The startup does not own the rights.

• The startup and an independent developer sign a contract but the contract does not have the correct language transferring the IP rights to the startup. The developer retains the IP rights.

• An entrepreneur incorporates a new startup  to sell IP created by her former company.  Without proper IP transfer or license agreements, the new startup does not own or have the proper rights to agree to contractual IP warranties with the new company’s software customers. It’s another implied license scenario.

In the circumstances above, no smart company would pay money for a license to the startup’s alleged software or buy it as an asset.

The moral of the stories is the startup must have proper written contracts signed by all software developers.

The contract must have proper IP transfer language (not simply a statement that the job is a work for hire) and be physically signed by all developers.

IP assignment contracts preserve the value of the startup’s software asset and help avoid legal liability for infringement and fraud.

Jill Hubbard Bowman is an intellectual property attorney who helps companies own the rights to the software created for it.

For related posts explaining copyright law see the following:

• Who owns the rights to custom software?
• How to destroy the value of your software
• Critical legal issues for your website

• Do you want to know who owns the IP rights to custom software?

• Do you want to learn how to protect your software investment?

• Do you want to learn about the most common IP problems that can harm the value of your software?

Heather Schafer and I will be explaining these issues and more in a free teleclass:

Sunday, August 21, 2011

6:00-7:00 (CT)

Space is limited.

To get  call in details or submit pre-questions email me at bowmanlaw [at] me.com.

The call will be recorded.

When developing commercial software products that incorporate any type of open source software (“OSS”), it’s important to understand the basic difference between Restrictive and Permissive OSS licenses.  OSS licenses can have dramatic implications for the value of your final product.

To understand the different types of OSS licenses, it is first important to understand the difference between source code and object code. Source code is the text written in programming language by software programers.  For your computer to understand the instructions,however, the source code must be converted into object code (also called binary code) that the computer can read.   To change or modify the software, software programmers must have access to the source code.

Most computer programs that you buy are distributed in object code.  Commercial software companies usually strictly restrict access to the source code for their key products and protect it with trade secret and copyright law.

In an academic tradition, however, there are many software developers who work collaboratively, freely share source code, and distribute the resulting software under open source licenses without charge.  Hence, this type of software is referred to as open source software.  Open source software is an amazing resource and can greatly reduce product development time.  Open source software, however, is only as “free” as its attached license that legally limits what you can do with it.

Restrictive OSS Licenses

Proponents of restrictive licenses want to keep source code freely available to all. Restrictive licenses, like the GPL or Affero licenses, limit the terms of distribution of software that incorporates pieces of OSS licensed under its terms.  Restrictive licenses require that works based on the OSS relicense the resulting works to others on the same terms of the initial license and require the final source code be openly available for free or a nominal value.

Restrictive relicensing terms can dramatically lower or nullify the value of your final software product.

The rub is that when you incorporate different pieces of OSS into a larger product, the licenses may not be compatible with each other or with the license that you want to use with your final product.  Essentially, restrictive licenses can contaminate your larger product and create an intellectual property mess for those who want to change the licensing terms and  limit access to the product’s full source code.  Basically, if you incorporate OSS with a restrictive license into your product’s software family, the father or grandfather license will dictate what you do with the software children.

Permissive OSS Licenses

In contrast, permissive open source licenses allow you to license second generation software children without requiring access to the final source code.  With permissive licenses like the MIT, BSD and Apache OSS licenses, free is more free.

You can incorporate pieces of OSS into your product and restrict the access to the source code for the final product.  It is much easier to make all licenses compatible and comply with the terms of the original licenses, some of which simply require attribution, a copyright notice, disclaimer of warranties and limits on liability.

In short, it is important to read the licensing terms of any open source software that you want to use in a software product (or website) that you want to sell or sublicense.

The fine print can be very important.

Jill Hubbard Bowman is an intellectual property attorney who helps software developers create valuable products.

When navigating the complex legal landscape of open source software (“OSS”), it’s critical to understand that where OSS is concerned, free does not mean free.

OSS is “free” in the sense that you may use it without paying a fee.  Most importantly, however, OSS is NOT “free” of legal restrictions.  Indeed, some types of OSS licenses, like the GNU GPL, are highly restrictive.

Some software developers mistakenly believe that because they don’t have to pay a fee to have access to the OSS source code, OSS is in the public domain and can be freely used without any restrictions.

This is not the case.

OSS is not in the public domain — free of protection by copyright law.  Original authors of works licensed under OSS terms choose to retain their copyright ownership rather than expressly disavow their legal rights and release the software into the public domain truly free of any legal restrictions on use.

And some developers through OSS licenses use copyright and contract law to control licensing terms, downstream distribution and availability of the source code.

Despite their rallying cries of freedom, some  developers act like little dictators over their software and use OSS licenses to control the use and distribution of modified OSS as well as any software that incorporates or rub shoulders with the OSS.

Some licenses like the GNU GPL, the most commonly used type of OSS license, have flow down provisions that require the source code to be open to all when distributed to others. Consequently, modifications of the OSS or other new code that is combined into the same executable files created by subsequent developers may become OSS governed by the same restrictive licensing terms.

Restrictive licenses can create problems for software developers who want to legally protect and license their work based on OSS or code used in conjunction with OSS.  To protect the code’s commercial value, some developers want to protect their new source code as a trade secret and restrict access to the source code by others, especially competitors.  Tyrannical licenses, like the GNU GPL, prohibit this type of source code protection.

Jill Hubbard Bowman is an intellectual property attorney who helps software developers create strategies for dealing with OSS licenses.

Let’s face it.  In today’s fast moving technical marketplace, most software engineers want to use open source software (“OSS”).  It can provide free, quick, and easy shortcuts and dramatically cut product development cycles.

The catch is that OSS with its associated licenses can create a legal quagmire and dramatically undermine the value of the resulting product’s intellectual property.

If you are going to use OSS in a product (or even a website) that you want to sublicense or sell, it is critical to understand a little about OSS licensing issues.  Although the legal issues are complicated and somewhat daunting, with a little knowledge, software developers and companies can create licensing strategies to get the benefits of OSS without jeopardizing the value of the final proprietary product.

The next few posts will explain the following:

• the philosophy of open source software for the uninitiated;
• basic copyright and licensing terms;
• the major types of OSS licenses; and
• strategies for using OSS in proprietary products.

Jill Hubbard Bowman in an intellectual property attorney who helps software developers protect the value of their intellectual property.

If your business is based on your website, and someday you want to sell your business or your site, the IP rights and licenses to the website’s software foundation are important.

You need to consider the following questions:

1) Do I exclusively own the underlying IP rights to the site’s foundational software?

2)  If I don’t own the rights, do I have a license to use the software?

3)  If I have a license to the software, do I have an unrestricted right to make derivative works, copy, sublicense and distribute the software without the same open source license attached?

Here’s how this shakes out.

If you wrote the website foundation code yourself without using code with IP rights that belong to anyone else (like a former employer or friend), you own the IP rights to the code.  This scenario is rare.  Before you sell your company or your company sells the website, you need to assign your IP rights to your company.

If you didn’t write all of the code, who did?  Did you use open source code? Did you hire someone else to write the code? Did they write the code from scratch or use open source code for any parts?

Do you even know where the code came from?

It’s important to find out.

Generally, to fetch a great price for your fabulous website, you must not infringe the IP rights of others and you must either have exclusive IP rights or a broad license and the right to keep the resulting work proprietary.

If you hired someone to write code from scratch for your website or you wrote the code with friends, you need a written assignment agreement that transfers the IP rights to your company or gives it a broad license to do what you ultimately want to do.  Yea, once again, you need a formal, written contract with the right language.

Moreover, most people today use open source for some parts of the sites they build.  All open source licenses allow you to use the software.  Most critically, however, some licenses don’t allow you to make a derivative work or a work that you can claim as proprietary.

Some restricted, open source licenses require you to pass through the open source license to the work that incorporates the open source to others under the same free-for-all license.   To protect the value of what you built that incorporates some open source, beware of a GPL license and others that require unfettered license pass through.  For unrestricted commercial freedom, look for licenses like the MIT or Apache licenses.  Carefully, read the terms of the licenses to your foundational software. Keep a copy of the applicable license in your legal file.  Make sure you can make derivative works and sublicense the work without passing on an open source license.

Jill Hubbard Bowman is an IP lawyer who helps emerging growth companies increase their value through the use of intellectual property.

Unless you’re living in the dark ages, your business has a website.  Unfortunately, many companies, even big companies, don’t spend the time to really consider the legal issues and potential liability related to their website.

Websites have a myriad of  issues, many of which relate to intellectual property.  Indeed, analysis of the legal issues on a website would be a great law school final exam.

If your business is based on a website, it’s important to understand the critical legal issues.  Of course you want to avoid potential legal liability, but most importantly, if you ever want to sell the site, you must make sure that you own or have the right to use every element of it and the ability to convey the whole thing for a big hunk of cash.  If your site’s IP is a muddled mess, it may kill a deal or greatly reduce the potential sale price.  Worse yet, if your site infringes the IP rights of others, you may owe more than its worth.

If your business only uses its site for advertising, you still want to make sure that you don’t get in legal hot water.  You want to comply with the law and avoid IP infringement.

The next five posts will address some of the critical website legal issues including:

• My Website’s Software Foundation:  Do I Own the Code or Can I Sell It?
• Website Trademark Issues
• Website Copyright Issues
• How Your Website’s Terms of Use Can Protect Your Company From Legal Liability
• Getting a Safe Harbor for Your Website Under the DMCA

In this series, I’m focusing on issues that you can control.  Stay tuned if you want to protect the value of your website and avoid legal liability.

Jill Hubbard Bowman is an intellectual property attorney who helps startups and emerging growth companies own and protect their IP.