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By Karina Kolobova, Associate BGP Litigation, Life Sciences & Technology practice
The modern global tech race, where promising innovations capable of generating millions of dollars in profit for the authors of the software code in just a few months appear in the market almost every day, raises an acute issue of authorship of such software and the protection of the developer’s intellectual property (IP) rights. It is worth noting that possible risks for the software development companies might be coming not only from the “outside”, i.e., from third parties, but also from the “inside”, i.e., from the company’s employees involved in the development of the relevant software. Given that the threshold for entering the software market is relatively low and, in certain situations, an employee-developer may be competing with the development company itself (e.g., when joining competitors or starting their own business), sometimes the “internal” risks may be even greater than the “external” ones.
IP laws may be specific and unique to each jurisdiction. This article will examine approaches of the Russian legislators and practice of the national courts regarding the “work-for-hire” nature of software. Recommendations offered in this article will be helpful both for Russian and international software development companies operating in the territory of the Russian Federation.
Software Components as Objects of Protection under the IP Laws
According to Art. 1261 of the Civil Code of the Russian Federation (the “Russian Civil Code”), software is viewed and protected by law in a manner similar to works of literature. In practice, the following elements of software are subject to IP protection: the source code and object code, as well as features and functions (e.g., where software is protected as an invention). The source code is a text written by a human in a programming language. The object code is a binary code generated by processing the source code and transforming it into a machine-readable format. Therefore, despite the fact that both the source code and the object code are subject to legal protection, the source code is the key element here, since the object code cannot exist without it. As such, the employer needs to pay close attention to ensuring protection of the source code.
Courts are of the opinion that, generally, the law does not distinguish between “computer software” and the “source code”, which may evidence that any provisions of the Russian Civil Code concerning the protection of software should be equally applied to the source code by proxy.[1]
Creation of IP Rights to Software
Unlike with most of other objects of the IP law, according to the current laws, registering software is a right and not an obligation of the titleholder,[2] which means that the software creator enjoys that right from the moment of creation irrespective of the existence of an entry in the relevant register. This is supported by judicial practice indicating that registration of software does not produce a constitutive effect.[3]
“Work-for-Hire” Nature of Software as a Conditio Sine Qua Non
Since IP rights to software arise objectively and are not linked to any formal procedures, it becomes more difficult to ensure the “purity” of rights to such an object. It is for this reason among other that today, a significant number of court cases involve authors challenging the “work-for-hire” nature of software and other works, demanding exclusive rights for the author, as well as claiming compensations.[4]
The provision contained in Art. 1295 of the Russian Civil Code and stating that an employer automatically acquires an exclusive right to a work for hire is a dispositive norm of law and poses a significant risk for the employer. Special care should be taken when entering into agreements with employees in part concerning settlement of disputes related to intellectual property.[5] The key element of a work for hire is the employee’s obligation to develop the software as part of their job description.[6] To fully perform such obligations, the employer should provide detailed work assignments (specifications) to the employee. In any event, the burden of proof regarding the “work-for-hire” nature of an object lies with the employer.[7]
Another hurdle in proving the “work-for-hire” nature of software relates to the requirement for the work for hire to be created during the employee’s working hours. Due to the recent developments, this provision has raised significant criticisms. De lege ferenda, the fairest approach in such a situation would be to consider something to be a work for hire if it was at least partially created during the working hours and as part of an employee’s job description.[8] The courts are starting to produce judgments supporting this exact approach.[9]
Software as a “Work for Hire” – Preparing the Paperwork
Based on the current court practice, in order to prove that the created software is a work for hire, the following documents may suffice: an instruction to develop the software, detailed technical specifications for the development of the software issued by the employer to the appointed employee, a report of the assigned employee on the work performed to create the “work-for-hire” software, as well as an act for the delivery and acceptance of the created software from the employee to the employer.[10] It is important that these documents contain a detailed description of the proposed software that would be identical to the actually created software. Aside from the mere existence of these documents, their execution also plays a significant role as, sometimes, their form may be deemed insufficient in order to reach the threshold for a work for hire. For example, work assignments should be approved by the CEO of the company or by any other authorised person; similar actions are required for the delivery and acceptance acts; the employees should confirm that they have read and understood the work assignment by signing it; all persons involved in developing the software should sign every necessary document; etc. What happens, however, is that employees get hired to certain positions before the position had been confirmed in the staffing schedule. This violates the labour laws and may play a negative role when it is time for the employer to prove the “work-for-hire” nature in court.
Issue of Modifications and Compensation When Developing Software
Executing appropriate documents to confirm the relationship with the software’s authors is crucial not only when creating the first version of the software, but at every following stage of the software’s lifecycle. The most sensitive issue in this context is the software’s modifications. The situation with modifications is difficult due to the fact that the author of the product derived through the modification acquires exclusive rights to the newly created product without prejudice to the existing rights of the original titleholder. Meanwhile, the software modification means any action performed with respect to the software except for its adaptation.[11] Therefore, in case of a significant improvement, a new version of the software achieved through modification may be qualified as separate software,[12] which would then be a new object of rights that also needs to meet the test for a work for hire. This means that when it comes to modifications, the employer needs to execute necessary addenda to the original documents or prepare new paperwork similar to the procedures completed for the original software. When working with modifications, strict control over versions should be put in place, which requires meticulous work as regards dating all documents relevant to the development of the software. Moreover, one of the key issues that employers often neglect is the author’s right to compensation for the software developed as a work for hire.[13] Accordingly, supporting documentation should contain addenda to the employment contract or other documents allowing for the payment of the author’s fee.
These measures, however, might not be enough to maintain the “work-for-hire” nature of the software, since the Russian Civil Code also contains an additional provision allowing for the exclusive right to the software to be transferred back to the employee, specifically, if the employer fails to use the software within three years from its creation.[14] For this reason, in order to be certain that they retain their rights, employers have to start using the developed “work-for-hire” software within this period, make it the subject matter of a transaction, or at the very least take steps to ensure that the confidentiality of the software is preserved.
Subsequent Commercialisation of Software
In order to ensure the appropriate level of protection for the code, special care should be taken when entering into relations not only with the employees and persons participating in the development of software, but also with persons who will subsequently receive the right to use the software. For instance, in the majority of cases, companies aim to register the source code as trade secret and, therefore, only the object code becomes subject to further licensing.[15] This approach seems reasonable as a way of maximising the level of protection of a combination of symbols that constitutes the source code.
Other Possible Protective Mechanisms
Without prejudice to the above, it would seem that in terms of the work-for-hire status, in addition to the mechanisms directly related to the matter, general practice developed by courts outside of the IP law can also be used. For instance, according to the position expressed by the Russian Supreme Court,[16] parties may set out in an agreement exactly what documents shall be sufficient in proving a certain fact between them. I can suggest that such an approach may be used in the case at hand, which means that the employee and the employer may enter into an agreement and spell out the list of documents that would serve as ironclad proof of the work-for-hire nature of the software created. Such an arrangement concerning evidence will lead to it being impossible to challenge the work-for-hire status by using other documents not listed in the agreement.
Therefore, appropriate protection of software and developers being aware of measures necessary to ensure such protection in many ways may stimulate technological progress and the development of more innovative software. As regards the healthcare industry, special relevance for this topic may be seen in the various products that can be based on the modification of public information systems in the healthcare sector and may include certain private elements and private interests (new additional features); various systems supporting medical decision-making, including with the use of artificial intelligence; programs for analysing big data in healthcare (studying routine clinical practices by using automated methods, etc.). Investment appeal of such projects also directly correlates to the ability to ensure the appropriate protection of such objects, which only increases the certainty that there is a need to reach out and raise awareness of the matter among the developers.
[1] Resolution of the Intellectual Property Court No. S01-1361/2014 of 4 February 2015 in Case No. A56-75812/2013.
[2] Civil Code of the Russian Federation, Art. 1259(4).
[3] Resolution of the Intellectual Property Court No. S01-617/2017 of 6 August 2019 in Case No. A60-46975/2016.
[4] See, e.g., Judgment of the Kirovsky District Court of Ekaterinburg No. 2-2458/2019 2-2458/2019~М-1843/2019 М-1843/2019 of 28 May 2019 in Case No. 2-2458/2019; Resolution of the Intellectual Property Court No. C01-657/2017 of 20 September 2017 in Case No. A40-173939/2016; Ruling of the Third Cassation Court of General Jurisdiction No. 88-2235/2021 of 15 March 2021.
[5] Resolution of the Intellectual Property Court No. S01-44/2019 of 29 March 2019 in Case No. A40-256611/2017.
[6] Resolution of the Intellectual Property Court No. S01-446/2019 of 1 August 2019 in Case No. A40-202764/2018.
[7] Resolution of the Plenum of the Supreme Court of the Russian Federation No. 10 of 23 April 2019 “On the Application of Part 4 of the Civil Code of the Russian Federation”, para. 104.
[8] Savelyev A.I., Licensing Software in Russia: Law and Practice [Litsenzirovanie programmnogo obespecheniya v Rossii: zakonodatel’stvo i praktika], Moscow, Infotropic Media, 2013.
[9] Judgment No. 2-13/2019 2-13/2019(2-1661/2018;)~М-1614/2018 2-1661/2018 М-1614/201 of 4 February 2019 in Case No. 2-13/2019.
[10] Resolution of the Intellectual Property Court No. S01-1253/2019 of 22 January 2020 in Case No. A40-21788/2018.
[11] Civil Code of the Russian Federation, Art. 1270(2)(1).
[12] Resolution of the Second Appellate Commercial Court No. 02AP-4118/2016 of 5 August 2016 in Case No. A28-9466/2015.
[13] Resolution of the Plenum of the Supreme Court of the Russian Federation No. 10 of 23 April 2019 “On the Application of Part 4 of the Civil Code of the Russian Federation”, para. 105; Resolution of the Third Cassation Court of General Jurisdiction No. 88-5599/2020 of 15 July 2020.
[14] Civil Code of the Russian Federation, Art. 1295(2).
[15] Robert Gomulkiewicz, Legal Protection for Software: Still A Work In Progress, Texas Wesleyan Law Review, No. 8, p. 449.
[16] Ruling of the Judicial Chamber on Civil Cases of the Supreme Court of the Russian Federation No. 10-KG20-1, 2-264/2019 of 17 March 2020.