Property, intangible

Oh, just ugh. This is in a software development agreement:

14. INTELLECTUAL PROPERTY

The Parties agree that no new Intellectual Property will be created under this agreement.

That’s sort of like agreeing in a contract that the sun won’t rise. The sun is going to rise, so what happens then?

Plaintiff Decisionq hired defendant GigaM to write some front end software. The suit has a lot of claims endemic of a failed relationship; however, the ones interesting to me are the ownership claims, which hinge on the above contract language.

Here’s how the court describes the parties’ interpretations:

Plaintiffs assert that “the Parties agreed that neither party would create any intellectual property pursuant to the Subcontract,” and that “[i]f no new intellectual property is created, there is nothing to copyright.” In sum, Plaintiffs argue that the Parties, by contract, intended to prevent the attachment of any copyright interest in the first place.” (Emphasis in original.)

As to the plaintiffs’ argument though,

[U]nder the Copyright Act, rights vest in the author of a work immediately, as a matter of law, upon fixation of an original work of authorship without any requisite “intent to copyright” by the author. For this reason, Plaintiffs’ position is essentially that Mr. West and GigM, by agreeing to the Subcontract and its “no new intellectual property” clause, abandoned their copyright interest in the GigM Code. “It is well settled that rights gained under the Copyright Act may be abandoned. But abandonment of a right must be manifested by some overt act indicating an intention to abandon that right.

So since there was “intellectual property” created, the plaintiffs’ argument had to be that it was abandoned. There was a question of fact on that theory.

The defendants’ argument was that “no new intellectual property” meant there would be no change in the default ownership of any “intellectual property” that did accrue:

Defendants, by contrast, argue that the no new IP clause reflects the parties’ intent that “the Subcontract does not create new intellectual property rights in any technology created under the agreement (the default intellectual property rules apply) and the parties would not create any new joint intellectual property.” In support of this reading, Defendants cite the drafting history of the Subcontract. Originally, the Subcontract contained a work for hire provision, whereby the copyright in the GigM Code would vest in DQIO. During the negotiations of the Subcontract, Defendants allege, Mr. West and GigM “expressed their clear intent to not transfer any intellectual property rights to DQIO without additional consideration.” In light of this drafting history, Defendants argue that the parties intended the no new IP clause to mean that “(1) GigM would retain intellectual property rights to technology it developed; (2) DQIO would retain intellectual property rights to property it developed; and (3) no new joint intellectual property would be created under the Subcontract.”

The motion for summary judgment was unsurprisingly denied:

As reflected above, genuine disputes of fact exist regarding, inter alia, (1) whether the parties intended the clause to disclaim any transfer of copyright interests; and (2) whether the parties intended the clause to memorialize their intent to abandon their copyright interests; and if so, (3) whether Mr. West and GigM committed an overt act sufficient to effect abandonment of their copyright interests. Accordingly, neither party is entitled to summary judgment on Count I of the Amended Counterclaim.

The poorly conceived language didn’t affect just the copyright claim either; trade secrets were also at issue: “Additionally, the parties’ intent with respect to the ‘no new intellectual property’ clause of the Subcontract is material to all of the claims for misappropriation of trade secrets. For example, if, as Plaintiffs argue, the clause reflects the parties’ intent that nothing created under the Subcontract would be intellectual property, the parties may have likewise intended that nothing created under the Subcontract would qualify as a trade secret, or that to the extent it did, the parties intended to waive their rights as to any trade secrets.”

Casual use of the term “Intellectual Property,” rather than describing exactly what right you’re talking about, is what creates the environment for this kind of contractual havoc. One can avoid “creating” patentable rights by not filing patent applications, but as the court mentions, copyright arises automatically. And how do you interpret it for trade secrets? Ascertaining parties’ intent is going to be quite interesting when the parties don’t have a basic understanding of the rights involved.

This decision also has a bonus for open source software mavens. Decisionq argued that the GigM software wasn’t copyrightable because it was created using open source software, but the court sorted things out quickly:

The mere inclusion of preexisting open source code and automatically-generated code does not render an entire codeset unoriginal and thus uncopyrightable. … [T]he Court in Feist concluded that the white pages were uncopyrightable, not because they contained material that was unoriginal and factual, and therefore uncopyrightable in and of itself, but because the presentation of that information did not exhibit the necessary modicum of creativity, recognizing that had it done so, the resulting work would have been copyrightable.

At oral argument Plaintiffs argued that because the preexisting code used in the GigM Code was open source and the GigM Code was developed using an open-source platform, called Ruby on Rails, the resulting code must also be open source. As an initial matter, even were this true, whether or not code is “open source” is a matter of licensing, not copyrightability or assignment. Indeed, the need for the license derives from the existence of the copyright, not its absence. Open source licenses, also called “[p]ublic licenses …, are used by artists, authors, educators, software developers, and scientists who wish to create collaborative projects and to dedicate certain works to the public.” Jacobsen v. Katzer, 535 F.3d 1373, 1378 (Fed. Cir. 2008). However, using open source code does not necessarily render any resulting derivative work or compilation open source. An open source license may require, as a condition precedent to use, that any resulting compilation or derivative work be subject to the same license. Such a condition is a matter of interpreting the contractual terms of the license, and there is no evidence in the current record to indicate that such a term was included in any of the open source licenses on the preexisting code that went into the GigM Code or the license for the Ruby on Rails platform. Therefore, the fact that the preexisting code used in the GigM Code was open source neither defeats copyrightability of the GigM Code nor subjects the GigM Code to an open source license.

Decisionq Corp. v. GigM Technologies, LLC, No 1:17-cv-232 (AJT/JFA) (E.D. Va. Feb. 14, 2018).

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