UK: Demystifying IT Law

Last Updated: 6 February 2017
Article by Richard Kemp

A. AUDIENCE, PURPOSE AND SCOPE

  1. Audience. The primary audience for this practice note it is the in-house lawyer at an organisation that acquires IT and that is not an IT provider company, and who is not an IT specialist but who is responsible (perhaps for the first time) for lawyering the IT and related aspects of the business. A secondary audience is any other in-house lawyer at an IT acquirer company looking after IT and related aspects of the business. A tertiary audience is an in-house lawyer at an IT provider company on the sales side who wishes to understand what her or his counterpart at their IT acquirer customer will be thinking or looking out for.
  2. Purpose and scope. The purpose of this practice note, which is in three parts, is to provide an introduction to what to look out for in lawyering the organisation's procurement, deployment and governance of the IT it uses. Section B (this Part I) overviews by way of introduction the five main 'flavours' of IT and communications procurement and deployment – equipment, software, data, services and telecommunications. IT is driven by change - advances in technology and the commercial application of that technology - and Part II (section C) briefly looks at some of the current trends in IT as they affect the organisation. Part III considers the remit and role of the legal department and the IT lawyer in lawyering the organisation's IT and provides practical pointers and tips in the areas of intellectual property rights, IT contracting, IT regulation and IT governance (sections E, F, G and H). This practice note is intended as an introduction and is not intended to be comprehensive. Reference should be made to other Practical Law resources shown in the hyperlinks.

B. TYPES OF IT/COMMUNICATIONS PROCUREMENT AND DEPLOYMENT

  1. Introduction. To those unfamiliar with it, the range of IT contracts and related legal matters may seem rather daunting and impenetrable. In demystifying this inaccessibility, it is therefore convenient to break the area down into its key component parts, of which there are essentially five – equipment, software, data, services and telecoms.
  2. Equipment. This divides down into two main types – user, and other, equipment.

    1. User equipment covers PCs, laptops, tablets, smart phones, and related computer equipment that the organisation's people use in their day-to-day work – in network terminology, "client-side".
    2. The other equipment is "server-side" and consists of servers, storage devices, cabled and wifi networking, back-up power sources, routers and the like. Other equipment also includes the organisation's telephones and communications equipment together with document production and other office equipment.
  3. Software. Computer software (programs) is a set of instructions that tells the computer what to do. It can be categorised by type of code; development model; whether product or bespoke; type of function; licensing and distribution; and delivery model.

    1. As to code type, a computer program is generally written as source code, a form in which it is understandable when read by the individual programmer. For source code to be understood by and run on a computer it needs to be compiled (translated) into machine code, a version of the program in binary format (consisting of 0s and 1s) that is not readable by the human eye. Machine code is also known as object, binary or machine readable code and the program in this form is known as an executable.
    2. As to type of development model:

      • software was traditionally developed in a highly organised ("cathedral") way and on a proprietary model by developers whose ownership of the copyright in the code is the asset they license and monetise. Proprietary developers typically just license the object code and are loath to license source code (except through a mechanism called escrow where the source code is deposited with a trusted third party escrow agent authorised to release the source code to licensees in limited circumstances like the developer's insolvency).
      • More recently, this model has been challenged by open source software ("OSS"), a development model that is much less structured ("bazaar") and where the underlying source code is made freely available under standard licences.
      • As OSS has become mainstream many organisations now operate in a mixed environment using both proprietary and OSS software.
      • The key OSS risk to be aware of is that some OSS licences (like GPL or LGPL) operate an 'inheritance' (or 'copyleft') requirement where proprietary software that operates with this kind of OSS may itself become compulsorily open sourced as a condition of using the OSS in the first place.
    3. Software can be either product (off-the-shelf), bespoke (customised or developed – for developed software see services at paragraph 7.a) below) or a mix of product and bespoke. Increasingly, for enterprise (large organisation) and SME (small to medium enterprise) customers, off-the-shelf software needs to be tailored (tuned or parameterised) 'out of the box' to make it suitable for use.
    4. By functionality type, software is either operating system, application or middleware.<

      • The operating system (OS) controls how the computer's resources – input, processing, memory, storage and output – are used in the most efficient way, a bit like a traffic cop;
      • Application software is the software functionality you use on your individual device (like an Office document on your laptop or an app on your smartphone) or through a server-based network across the enterprise (like Oracle, SAP or other enterprise resource planning (ERP) software). The application requests the OS to use the computer's resources to perform tasks that the application does not have permission to execute directly. These requests are made through application programming interfaces (APIs) or system calls. An API is a specification which the application must comply with in order to obtain a particular service from the OS. A system call is a specific service request made directly by the application to the OS.
      • In ERP/enterprise applications, middleware sits between the application and the operating system to provide a further set of resources to support the application.
    5. Software is protected as a literary work by copyright and so is licensed. A licence in this context is permission to do something that the law would otherwise stop you doing. Software licences are typically on a subscription (periodical, e.g. monthly or annually) or a perpetual basis. Product software, as software licences (whether subscription or perpetual), is distributed directly by the developer itself and indirectly through the developer's 'channel'.

      • In direct software distribution, the software developer directly licenses the end user to use the software on the terms of an End User License Agreement (EULA). In business to consumer (B2C) direct software licensing, the end user typically accepts the EULA by clicking on a radio button on the developer's website (whether or not he or she pays a fee) and downloading the software to use. In business to business (B2B) direct licensing, the end user and developer may sign the EULA (for high value licences) but here the pattern is increasingly for EULAs to be accepted as in B2C;
      • In indirect software distribution, an intermediary is interposed between the developer and the end user. Intermediation applies to both subscription and perpetual software licensing and may take many forms. In agency, the agent introduces the end user to the developer. In distribution the distributor buys from the developer and sells to the end user. Here, the EULA may run directly between the developer and the user, where the distributor buys and sells not the EULA itself but the right to the EULA. (From the end user's point of view it is paying the price to the distributor directly but getting the EULA from the developer). Alternatively, the distributor may buy in and sell on the EULA.
      • Distribution may be one tier (developer→reseller→end user) or two tiers (developer→distributor→reseller→end user). Distributors take a number of forms, including OEM (original equipment manufacturers) who typically pre-load software on a device and sell the two together; VAR (value added resellers) who sell the software and also provide other services, typically for professional or enterprise software; and appstore providers who connect mobile users to the developer (see paragraph 13 below). The development of the internet is tending to disintermediate software distribution so that increasingly developers license end users directly.
    6. Software is delivered "as a licence" or "as a service" (for SaaS, PaaS and IaaS, see paragraph 7.c) below). If as a licence, the software generally (but not always) resides on-premise – in the organisation's server room or data centre. If as a service, the software is generally sits in-cloud at the data centre of the organisation's cloud service provider.
  4. Data. As first computers and then software have tended to become commoditised, organisations are increasingly looking for competitive advantage to the data that they buy in, use and generate. As data becomes more valuable, data law is a rapidly growing field at the moment, encompassing:

    1. intellectual property, contract and other rights and obligations in relation to data: data is increasingly licensed akin to software, and a number of industries – like financial market data – have grown up around an ecosystem of contracts and licences regulating usage and risk;
    2. data protection - the legal rights and duties that arise specifically in relation to personally identifiable information;
    3. data security - the mix of management, legal, technical, operational and governance controls that an organisation puts in place to ensure desired security outcomes for its data;
    4. data sovereignty - when a person's right to deal as she or he wishes with her or his own data may be overridden, typically through involuntary disclosure to or access by a third party; and
    5. a growing stratum of generic and industry-specific regulatory rights and duties conferred by statute, tort and other law on the users and holders of data.

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