According to experts, Ukraine ranks fourth in the world in export of IT-products; i.e., software. It is not a rare phenomenon for Western counter-parties buying software to encounter a low level of pre-sale clearance. In other words, the Ukrainian sellers are not always able to confirm their title rights to the software they dispose of, potentially exposing foreign buyers to the risk of IP-related claims of third parties.
Such risks may be mitigated by pre-sale due diligence of software, particularly focusing on the following issues: (1) the seller’s title to the software, and (2) the contract disposing of proprietary rights to the software.
1. The seller’s due diligence: both the author of software and the person who acquired the proprietary rights to the software as a result of the employer-employee relationship or civil law relationships may act as the seller of the software. In the latter instance, if the seller and the author are not the same person, the entire chain of transfers of proprietary rights to the seller must be verified. For this reason, the seller shall be requested to provide:
- for employer-employee relationships: an employment contract; job description; technical design specification; certificate of delivery and acceptance; and any other document which may prove that the software was created and proprietary rights thereto were transferred to the employer. Important Issue to be Verified: the employment contract should expressly provide for the employer’s exclusive ownership of the proprietary rights to the software. Otherwise, such rights will constitute the joint property of the employee and employer. Important Issue to be Verified: the employment contract should list all proprietary rights which originate from or are transferred to the employer as a result of working for hire. Those rights which are not expressly stated as transferred shall be deemed to be vested with the employee.
- for civil-law relationships: there are three agreements that fall within this category: (i) an agreement for transfer of rights; (ii) a commissioning agreement; and (iii) an independent contractor contract. In addition to these agreements, the following should be provided: all supplements, attachments, and acts to the agreements; technical design assignments, as well as any other documents referred to in the agreements. Important Issue to be Verified: all such agreements should list, whenever possible, those proprietary rights that the buyer wishes to receive. Again, all things that are not specified as transferred are deemed to be remaining with the previous owner. Important Issue to be Verified: only an individual originator may act as contractor under the commissioning agreement. The commissioning agreement should contain the provisions related to the manner and order of utilization of the software and provide for the commissioner’s ownership of the proprietary rights to the software. Important Issue to be Verified: an independent contractor contract does not automatically provide for a transfer of proprietary rights to the software from the contractor to the customer. To avoid the risk that the rights to the software product will remain with the contractor such rights should be transferred on the basis of a separate agreement for transfer of the rights.
Once the seller’s due diligence is complete and foreign buyer is confident that the seller is entitled to dispose of the proprietary rights to the software, it is possible to proceed to the next stage.
2. Audit of the contract disposing of proprietary rights to the software. As a rule, proprietary rights to the software are disposed of by means of: (i) an agreement for the transfer of rights to the software, or (ii) a commissioning agreement. Although we have already specified the requirements of Ukrainian laws for such agreements, they are, again:
Agreement for Transfer of Rights. The agreement for the transfer of rights should correctly state the name of the relevant software, list all possible rights to the software, and contain the seller’s warranties. As a rule, such agreements are non-gratuitous, unless otherwise expressly set out in the agreement.
Commissioning agreement. As to the commissioning agreement, it is important to confirm that it was concluded with the individual originator. In addition, the agreement should specify the methods and order of application of the software as well as establish the commissioner’s title to the proprietary rights (otherwise, such rights will constitute the joint property of the commissioner and contractor). The commissioning agreement is non-gratuitous.
We hope that all of our above thoughts will be useful for conclusion of agreements for purchase of proprietary rights to the software.
By Oleg Batyuk, Head of IP, and Oksana Horban, Counsel, Dentons
This Article was originally published in Issue 5.5 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.