The business world moves quickly, time is money, you have to be “business-oriented”. Under the pressures of the current way of thinking of the business world, let’s imagine that a subsidiary of a group of companies rushes off to have specific software developed by an offshore[1] software company and pays the developer upon receipt of each invoices. The software is tested, works, and is installed at each of the group’s subsidiaries . before someone finally[2] thinks of contacting the head of legal of the group, who asks himself: is the company the owner of the newly developed software? Can the company correct its errors? What about the source code?
The head of legal digs out the contract that was entered into with the developer, which all too often simply contains a vague summary of what the “client” wanted. Naturally no mention is made of the governing law, all documentation being, of course, drafted in English.
Let’s imagine that French law governs the contract, and that there is indeed a contract. Has the developer transferred intellectual property rights to the client? If this is the case, do the source codes belong to the client? “Yes” cries the client: “I ordered tailor-made software! I paid for the development of that software! I am therefore the owner of the executable version and of the source codes!” “Alas!”, the lawyer sighs, “nothing could be less clear .”
There are three reasons why the software-user may wish to use the source codes: the user of accounting software is required to pass the source codes to the tax authorities (in order to allow the tax authorities to analyse the methods underlying the accounts under inspection[3]), the desire to reduce the risk of a possible disappearance of the developer who, contractually, has reserved to himself the right to carry out maintenance (imagine here that the developer has gone into liquidation) and, of course, the desire to carry out maintenance on its own.
Before turning to the thorny problem of deciding who owns the source codes, it is necessary first to determine, within our example, who owns the IP rights over the specific software.
NON-WRITTEN DEVELOPMENT CONTRACT AND TRANSFER OF IP RIGHTS
By non-written contract we mean the practice, frequently used and perfectly valid, in the business world of exchanging oral promises in respect of a service to be delivered (the development of specific software) and its price, the written documentation relating to such agreement often being restricted to an exchange of invoices and payments. There is, in our example, undeniably a suggestion of a “sale” to the client.
Is the work that is ordered by the client his property? The French Intellectual Property Code says not. “The author of an intellectual work enjoys an exclusive intangible right over this work merely by creating it”[4] and “the existence or the entering into of a . service contract by the author of an intellectual work does not prejudice in any way the enjoyment [of such right]”[5].
Where a firm orders software and pays the entire amount it owes to the developer, but there is no written contract transferring IP rights, that firm will have only a “tacit license to use the software”.[6] The position is sufficiently clear for the summary judge to be able to make a final order to this effect.
If the client wishes to be entitled to ownership of the software, he needs to ensure there is a written transfer agreement in his favour. This transfer is valid only if the conditions set out in article L.131-3 paragraph 1 of the Intellectual Property Code are followed. These conditions are that “each of the transferred rights must be mentioned separately in the transfer deed and the area of use of the transferred rights must be restricted as to its extent and purpose, as well as regards its place and duration”.
Exceptionally case law sometimes allows an implicit transfer of some IP rights to the benefit of the client, which goes against the traditional interpretation of article L.131-3 paragraph 1. Thus the Court of Appeal of
There is another example that allows the effect of article L.131-3 paragraph 1 to be circumvented in order to validate an implicit transfer of IP rights. This is where the transfer was not entered into between “the author” and “the client” but between the client and “sub-contractors”,[10] and where there was a “common intention of the parties” (the Cour de Cassation being careful to note that in that instance both were “commercial companies”).
Is it possible to infer a rule from this judicial construction that is sufficiently clear to allow us to advise our client that transfers of rights between two commercial companies may be made without having to comply with the provisions of article L.131-3 paragraph 1? Unfortunately not, and case-law of this sort does nothing to create legal certainty, on the contrary it merely serves to encourage claimants to come up with increasingly far-fetched theories in order to obtain “equitable” decisions, and ultimately bamboozle lawyers.[11] It is clearly too risky[12] for our client to base his legal argument on this line of case-law, where there is no clause transferring rights.
Given that our client enjoys the benefit of a transfer of software rights, what is the duration of this transfer? Is the contract a contract at will? Initially the client will claim that this is the case, and the lawyer will confirm it to be so.[13] However where there is a contract at will, termination is possible at any time, subject to a reasonable notice period. This leaves the client with a nagging uncertainty as to how long the software may be used within its group.
So, a fixed term contract instead? Why not, but how long should the contract last: the length of time that the work is protected by copyright? For the period that the cost of development of the software is subject to amortization? Where the terms of the contract are ambiguous, should reference be made to the “customs” that are mentioned in article 1159 of the Civil Code, the suggestion being that it should be “the customs of the country in which the contract is entered into” that should be followed?
This provision hardly assists the lawyer, in particular where the “country in which the contract is entered into” is an offshore jurisdiction, unless the client is prepared to start lengthy legal proceedings offshore. It would first be necessary to prove that French law is the governing law,[14] or alternatively study the local laws, hoping that they operate in favour of the client .
In short, the calculations above show clearly that it will require a lot of effort to convince the French judge that the client is the effective owner of IP rights over the software for the period that the work is protected by copyright, and even if this is so, does the client have to have title to the source codes in order to ensure that it can correct any errors in the software without the assistance of the developer?
WHO HAS THE RIGHT TO CORRECT ERRORS?
Article L.122-6-1-I IP Code broadly provides that “the person having the right” to use the software legitimately may modify the software if this modification is “necessary in order to allow it to be used in accordance with its purpose . including to correct its errors”, without the need to request authorisation from the owner of the IP rights.
The principle is therefore that a party that enjoys the benefit of an oral license (and, furthermore, the transferee of rights) is legally free to maintain the software: our client can certainly correct the errors of its application in order to make the software fit for its purpose.
Though the principle may appear simple, this correction is not technically possible without the source codes: only the correction of the source codes, and their compilation, will result in a new corrected and useable version of the software.
In concrete terms, the source codes are a series of instructions contained in a file, for example a UML[15] code for programs in advanced fourth generation languages, which constitutes the current standard in the software industry. A first operation in the compilation of the UML codes allows the processor to obtain a code in a high-level language, for example C++, which when run through a C++ compiler[16] allows the programmer to obtain a final executable version of the software that is specific to the chosen platform.
In our example it is therefore necessary for the user to know the existence of the C++ compiler, as well as the existence of the first compilation software, if the user is to hope to reconstitute the source codes (provided that high-level program language used by the developer is a standard language or one known by the client .). However it is not sufficient to know that a C++ compiler has been used. It is also necessary to have access to the specific de-compilation software and software compiler companies hardly ever develop de-compilers that are linked to their compiler (indeed, why should they?).
Finally, even if the client has access to all the software, information and know-how that would allow him to de-compile the executable version, the operation “source codes -> compilation -> executable” does not produce the same result as the operation “executable -> de-compilation -> source codes”.[17] Furthermore the compilation of source codes in an executable version does not translate the commentary that programmers insert between the lines of the program and which, often, allow the user to understand the logic behind the program that has been chosen, and which is sometimes useful in determining the originality of the software, in particular in instances of counterfeiting .
It is therefore simply illusory to imagine that it might be possible today to obtain the source codes from the executable version of the software by a process of reverse engineering[18]. However this is what the Intellectual Property Code permits! If the user wishes to correct the errors in his software, when he has the right to do so, it is essential that he has access to the source codes.
An exception to the principle of freedom for the beneficiary under a license to correct errors is that “the author may reserve the contractual right to correct errors . in order to allow a person with the right to use the software the ability to do so in accordance with its purpose”.[19] In this example, if the developer of the software wishes to reserve himself the right to carry out any maintenance of the software in respect of which he has granted a licence,[20] he must provide so expressly. Generally, software companies insist upon such a provision.
The law allows the legitimate beneficiary under a licence to de-compile, even where the software developer has reserved the right to correct errors. Article L.122-6-1-IV of the Intellectual Property Code refers to “the reproduction of the software code or the translation of the form of the code” and authorises this only when all the above conditions have been met:
– “when the reproduction or the translation [of the executable version of the source code] is indispensable to obtaining the necessary information for the interoperability of the software created independently with other software”;
– “when the reproduction or the translation . are carried out by a person having the right to use a copy of the software or to authorise another to do so on his behalf”;
– “the information necessary for interoperability has not been made accessible quickly and efficiently to those [having the right to use a copy of the software]”;
– “when the reproduction or the translation are limited to the parts of the original software necessary for this interoperability”[21]
An unfortunate point to note: the beneficiary under a licence has very restrictive rights to the source code using an uncertain, if not impossible, technique whose results are improbable! Once again, the source codes must be indispensable to the user of an executable version in order to exchange data in a manner that is compatible with other software.
TRANSFER OF INTELLECTUAL PROPERTY RIGHTS AND SOURCE CODES
The transfer of intellectual property rights over a piece of software, assuming that the transfer is to be made in accordance with the conditions set out in article L.131-3 paragraph 1 IP Code and that the transfer is an exclusive one and for the duration of copyright protection, means, in principle, the transfer of all parts of the software. It is along these lines that the IP Code protects software, “including preparatory material”[22], which must be included in the transfer.
Let’s not get confused: source codes do not form part of the “preparatory material”. Neither are they secondary to the software, rather they form its “substantive core”:[23] the source codes and their compiled executable version constitute “the same software in two different states”.[24] One is comprehensible to the person who knows the program’s advanced language and the other is only comprehensible to the machine.
It appears therefore that article L.112-2-13 IP Code does not only protect the software in its executable version, which is most frequently and implicitly the purpose of the transfer of rights, but also the source codes.
It is along these lines that we interpret the decision of the Criminal Division of the Cour de Cassation[25] of 1998, in which it was stated that “source codes that allow [software] to be adapted, modified or developed according to clients’ needs” seem to have the same legal value as that of executable versions. On this implicit basis, the Court approved the prosecution of the manager of a software company that was in liquidation, for “hiding company’s assets”. The manager had wilfully refused to pass the source codes to the transferee of software that the judge had appointed. Effectively, the transferee could not do much with the software without the relevant source codes.
It should be added that if an item of software enjoys copyright protection because it is original, the courts prefer to use the analysis of source codes in order to identify the “identifying imprint”[26] of its developer and to confirm afterwards the protection that the IP Code bestows on the software.
However neither the 1991 directive relating to computer programs[27] nor the current French law deal with what happens to source codes where there is a license or a transfer of rights in respect of the software[28].
It does nevertheless seem difficult to argue against the fact that the client, the transferee of rights, should be able to use the software, which has been specifically developed to his order, in accordance with its intended purpose. He must therefore be able to physically correct errors that affect normal use of the software. And clearly if he does not have access to the source codes, he cannot do so. It is on this basis that it seems to us that the source codes constitute an indispensable accessory to the normal use of the executable version of the software, even if the same computer program is concerned, though expressed in a different form.
It is also along these lines that the Court of Appeal of
It is also along these lines that the Tribunal de Grande Instance of Melun[30] ordered that source codes be given to a client in respect of a specific software on the grounds that “without being able to use [the source codes], the person who owns the application is not able to fully use the software because, technically, only the source codes allow [the software] to be maintained and to be developed according to the user’s needs”.
However the Court of Appeal of
If one considers that the development of tailor-made software are services to order, which they undoubtedly are, it is clear that, as the Tribunal de Grande Instance of Melun stated, “the communication of source codes to the user is necessary, the source codes representing a secondary service to the main service provided”. If the developer is paid for his research and work, the client should be entitled to the full benefit of his investment (use of the software, ability to market and sell etc.): the “free access” to the source codes seems to us to “be part of the overall commercial deal”.[32] And we have seen that, technically, free access can be given only if source codes can be passed to the client.
If the clients intend that rights over the software are to be transferred to the client, the transfer of rights over the executable version necessarily involves the transfer of source codes too, and the handing over of the executable version of the source codes, even where the contract is silent on the point.
We cannot see on what basis the developer might be able to exercise a right of retention over the source codes, nor on what basis he might refuse the client an element that is necessary to give the client full possession of the thing that has been ordered, and above all to allow full use of that thing. Article 544 of the Civil Code states that “property is the right to enjoy and deal with things in the most absolute manner .” and article 1135 that “agreements do not only create obligations in respect of that which is expressed in the agreement, but also all other additional obligations that equity, custom and the law might add given the nature of the agreement”.[33] If the developer refuses to hand the source codes over to the client, the client should be able to enforce the performance of the obligation to do so, if necessary using force. However this is not the current position in case-law.
LICENSE OF USE AND SOURCE CODES
The law does not make any provision in respect of the passing of source codes to the owner of a software licence, even where the software is tailor-made.[34] It is therefore for the parties to deal with this matter in the contract agreed upon between them because, if the contract is silent on the point, the courts will not allow the source codes to pass to the licensee, not being “the transferee of intellectual property rights relating to the software”.[35]
The ‘exception’ that proves the rule is the isolated decision of the Tribunal de Commerce of Romans,[36] in which the users of software[37] were refused access to the source codes, but instead the court ordered that they be held in escrow if the transferee of rights was prevented in the future from being able to maintain the software package as a result of “special factors” (?).
Where the contract is silent as to the correction of errors by the developer alone, and where the beneficiary has no right to deal with the source codes, the beneficiary can only physically maintain and correct the software by calling upon the developer’s services. Hence the frequent complaint made against software companies of wanting to guarantee an income stream from a captive, entirely dependent customer base.
It should also be added that if the beneficiary has access to the source codes, and where the contract is silent, the same beneficiary has the right to correct errors in the software, he will have to modify the source codes and (re-)compile them in order to create a new executable version. This necessarily will constitute a “composite”[38] work, being “the property of the author who created it, subject to the copyright of the author of the pre-existing work”.[39] One can understand better therefore the reticence of software companies to give access to their source codes where the consequence is that they lose the right to sell their products, that is to say they lose their very vocation.
THE CONSEQUENCES OF THE USE OF SOURCE CODES
However the passing (sometimes accidental) of the source codes to the client and the absence of a written licence or transfer agreement do not allow the client to assume he can benefit from ownership of the rights over the work that it has ordered. The Court of Appeal of
Furthermore the fact of having legitimate access to “the preparatory work, algorithms and source codes” of a piece of software in order to “completely re-write” a similar software “necessarily results in economic efficiency”, “such re-writing obviously not requiring the same investment that the creation of a work from scratch does”. From this observation the Court of Appeal of
A person that uses the source codes that he has access to in order to correct errors affecting the software can do so with impunity. However the same is not true for someone who uses the work of developers in order to reduce his own expenses and market and sell a competing software. This decision can only be approved.
Clearly practice in the commercial world does not tally up very well with the provisions of the French Intellectual Property Code. Given the implicit transfer of rights and a line of case-law that refused to rule that source codes have to be passed across with the transferred software, it is difficult for lawyers to provide their clients with clear advice in the absence of a written contract. It is perhaps too much to hope for that the legislators provide an answer to this problem. It is more realistic to hope that case-law will make the point clearer. However what should be done today? Should businesses be advised to draw up written contracts? In-house lawyers are already convinced this should be done . but technical people? To this question (a naïve one, admittedly), an in-house lawyer once replied to us, alluding to the song from Snow White that parents with small children are familiar with, “one day my prince will come.”
Marc-Antoine Ledieu, Avocat à la Cour, works for Paris-based Hammonds Hausmann and is a lecturer in IT contract law, DESS Multimedia and IT law at the Paris II Panthéon-Assas University.
[1] ‘Offshore’ here loosely refers to a whole range of countries, from
[2] Once the software has been fully developed and installed within the client’s IT systems, the developer sometimes starts to think of the potential locked up in the work that it has just completed: what if the developer was able to sell the software to other clients as a standardised product?
[3] Article 54, French General Tax Code – article 97, law number 81-1160 of
[4] Article L.111-1 paragraph 1 of the Intellectual Property Code
[5] Article L.111-1 paragraph 3 of the Intellectual Property Code
[6] Summary order of the Tribunal de Grande Instance in
[7] Court of Appeal of Angers, Commercial Division, 10 September 2001 Graphibus v. Raimbault Communication Commerce Electronique, January 2003 p. 23 note Caron
[8] Article L.122-7 of the Intellectual Property Code: “The right of representation and the right of reproduction may be transferred for or without consideration.
The transfer of a right of representation does not automatically result in the transfer or a right of reproduction.
The transfer of a right of reproduction does not automatically result in the transfer of a right of representation.
Where a contract includes the complete transfer of one of the two rights mentioned in this article, the extent of the transfer is limited to the uses set out in the contract.”
[9] The court was careful to note that “the purpose of the sale of the product was in effect its reproduction”. As between non-consumers, the right of destination will be the deciding factor in the legal argument as to the implicit transfer of the right of reproduction, despite the contract’s clear terms to the effect that the author shall merely create the work, without transferring either the right of representation or the right of reproduction.
[10] Cass. Com.
[11] “Tout cela n’est pas tres coherent” (None of this is very clear) concludes Christopher Caron, with reason, in his note op. cit. p.23
[12] Why would one want to bring a claim in an action where one is not sure of its success? In commercial speak, why kill the bear when one hasn’t yet sold its hide?
[13] In respect of an oral license agreement, the Tribunal de Grande Instance in
[14] The litigation could also take place in
[15] Unified Modelling Language
[16] A compiler is a software which enables the translation of the language of the source code for the benefit of a specific machine (or platform)
[17] According to technicians, the operation compilation/de-compilation is not “bijective”
[18] An operation that consists in the de-compilation or de-assembly of an executable in order to reconstitute its source codes. To over-simplify in the extreme, if the de-compilation allows the programmer access to the advanced program language, the de-assembly consists in reconstituting the low-level code, comprising a series of letters linked to numbers. Those who saw the film ‘The Matrix’ saw the skill with which programmers of the vessel allowed Neo to read and understand the low-level code of the Matrice (perhaps this was even in a machine code?)
[19] Art. L122-6-1-I paragraph 2 Intellectual Property Code
[20] For the nature of the software licence contract and the obligation on the editor to ensure the ‘maintenance’ of his software, see our article “What if a software licence was a rental agreement?” in Communication Commerce Electronique, November 2003.
[21] Article L.122-6-1-IV of the Intellectual Property Code adds furthermore that “the information obtained in this way may not be:
1. Used for any purpose other than to create the interoperability of the software created independently;
2. Communicated to a third party except where this is necessary for the interoperability of the independently created software;
3. Used for the development, production or selling of software that is substantially similar, or for any other act that might infringe copyright
[22] Article L.112-2-13 of the Intellectual Property Code. To our knowledge case-law has never considered the contents of preparatory material, which usually includes “functional analysis” and “program files”, although it is now known exactly what is covered by these two notions.
[23] H. Croze and F. Saunier, Logiciels: retour aux sources (Software: return to the source) JCP G 1996 I no. 3909
[24] P. Guadrat La protection du logiciel par le droit d’auteur (Protection of software by copyright) RIDA 1986 p.99
[25] Cass. Crim.
[26] On the application of the criterium of originality in software works, see M. Vivant and C. Le Stanc – Droit de l’Informatique and the Lamy 2003 series no. 164 et seq
[27] Directive no.91-250 of
[28] The term “source codes” only appears in the Intellectual Property Code at article L.132-34 in respect of pledges over software
[29] Court of Appeal of
[30] Tribunal de Grande Instance of Melun, 2 March 1988, OCI Informatica v. SCPA Droit de l’Informatique et des Telecoms 1988/4 p.56 note F. Toubol
[31] Court of Appeal of
[32] A. Lucas, J. Deveze and J. Frayssinet, Droit de l’Informatique et de l’Internet Puf droit 2001 no. 756
[33] A basis that has been approved, correctly in our view, by a decision of the Court of Bordeaux, cited above at note 29
[34] The law does not differentiate tailor-made software from standard software or software packages.
[35] Tribunal de Grande Instance of Paris cited above at note 9, see also the Tribunal de Commerce of Creteil, 16 June 1998, Appel 24/24 v. Novatel, Expertise October 1998, p.316, a matter in which the beneficiary under a standard software license requested that the distributor be required to communicate the source codes to it on the basis of this being a right to sale (?!), notwithstanding that the latter was not contractually able to do as requested as it was not the owner of the rights.
[36] Order of Juge-Commissaire of the Tribunal de Commerce of Romans of
[37] Which “is not a tailor-made piece of software, but a software package”. The juge-commissaire concluded from this that “the decision of the Court of Appeal of
[38] Article L.113-2 paragraph 2 of the Intellectual Property Code “Any new work within which a pre-existing work is incorporated without the intervention of the author of the pre-existing work shall be a composite work”.
[39] Article L.113-4 Intellectual Property Code
[40] Court of Appeal of
[41] Court of Appeal of
