In the modern world it is difficult to imagine life without IT technologies. Almost every area of this industry needs to process a large amount of information and data services. All modern IT technologies are based on software (computer programs). Many entrepreneurs working in the field of IT programming enter into licensing (author's) agreements with distributors, resellers, users, and also act as users themselves.
At the same time, in practice, when concluding such license agreements, the parties may make some omissions, which subsequently lead the parties to litigation.
In this article, we would like to reveal the concept of "computer program" (software) and focus on the mandatory conditions that a license agreement must contain in order to avoid unwanted litigation between the parties.
Definition of "program for electronic computers"
The legislation of the Republic of Kazakhstan operates with the term "computer program".
In accordance with Article 2 of the Law of the Republic of Kazakhstan dated June 10, 1996 No. 6-I “On Copyright and Related Rights” (hereinafter referred to as the “Copyright Law”), a computer program (hereinafter referred to as the “Software”) is a set of commands , expressed in the form of words, diagrams or in any other form of expression, the recording of which on a machine-readable material carrier ensures the performance or achievement of a computer of a certain task or result, including preparatory materials, the nature of which is such that the computer program is their result at a later stage .
For ease of understanding, software is understood as a set of instructions that allows the user to interact with the computer, its hardware, and perform tasks. Computers are useless without software.
Legal protection of software
In accordance with Article 2 of the Berne Convention for the Protection of Literary and Artistic Works of September 9, 1886, software is an object of intellectual property and is subject to protection as a literary work by a special section of law - copyright.
Software protection extends to all types of software (including operating systems), which can be expressed in any language and in any form, including source code and object code.
Do we need to register software?
Based on Article 9 of the Copyright Law, software is not subject to mandatory registration with the authorized body; copyright in software arises by virtue of the fact of its creation.
To notify about their exclusive property rights, the author and (or) the right holder has the right to use the copyright protection sign, which is placed on each copy of the work and necessarily consists of three elements:
- the Latin letter "C" in a circle;
- the name (name) of the owner of exclusive copyrights;
- the year of the first publication of the work.
In our opinion, software registration is still advisable, since the Certificate of entering information into the state register of rights to objects protected by copyright (author's certificate):
- confirms that the object indicated in it is a work and is protected as an object of copyright;
- identifies the software author;
- contains information about the date of creation of the software and the date of registration of the software with the authorized body;
- has the status of an official state document, which is recognized by the courts in Kazakhstan and abroad.
Among other things, software copyright registration allows you to compare "disputed software" with the author's original software.
Thus, a copyright certificate for software can be a good source of evidence in a lawsuit or arbitration.
License agreement and its parties
The transfer of rights to the software from the copyright holder/author to the user is carried out on the basis of a license (author's) agreement.
The subject of the license agreement will be software. Accordingly, the provisions of the Civil Code of the Republic of Kazakhstan (“CC RK”) and the Copyright Law will apply to the contract.
The license agreement implies the transfer of an intellectual property object (for example, software) in the appropriate amount for temporary use.
The license agreement has 2 parties - this is the licensor, who transfers the right to use the software, and the licensee, the one who temporarily receives these rights.
The fee for loaning the Software is referred to as a licensor's fee, license fee, or royalty.
Common schemes for transferring rights to software from the right holder to the end user
The transfer of rights to the software can be carried out directly from the copyright holder to the end user under a license agreement.
However, intermediaries are often included in the software distribution scheme: a distributor and/or reseller. This structure is typical for situations with product promotion to foreign markets.
Typically, the distributor is a company that has significant resources and connections with regional partners, which allows for a wide distribution of the product.
A reseller is a smaller distributor who sells a product to end users.
An agreement is concluded between the licensor and the distributor, which establishes the scope of the distributor's powers in relation to the distributed software. As a rule, such contracts are subject to foreign law.
In turn, an agreement is concluded between distributors and resellers, under which the latter can sell the software directly to end users. In most cases, the licensor under such agreements is the copyright holder himself.
Exclusive or non-exclusive (simple) license?
In practice, 2 types of license are used:
- Non-exclusive (simple).
An exclusive license implies the transfer of the right to use the software without the licensor (right holder) retaining the right to issue licenses to other persons, and a non-exclusive license assumes the licensor retains this right.
A simple non-exclusive license, as practice shows, is the most popular tool in the IT product market.
Ways to conclude a license agreement
You can conclude a license agreement in various ways: on paper, in electronic form via e-mail or electronic document management.
Any of these methods guarantees the contract a legal force.
One of the most popular ways to conclude a license agreement, which almost all entrepreneurs have encountered, is the acceptance of an offer or the acceptance of the terms of a license agreement.
The copyright holder (author) invites the user to read the license agreement, and the user ticks the box, accepting its terms.
For example, any individual intends to purchase an antivirus. It goes to the site of the copyright holder and downloads the program. During the installation of the antivirus, he is prompted to agree to the terms of the license agreement. An individual reads the terms of the agreement, clicks the checkbox “I agree with the terms of the agreement”, and then the “next” button. From this point on, it is considered that this individual has accepted the terms of the license agreement.
Registration of a license agreement
A license (author's) agreement on the transfer of rights to software is not subject to mandatory state registration.
Registration of a license agreement is necessary when the subject of the agreement is the transfer of industrial property (trademarks, patents, and so on).
Essential terms of the license (author's) agreement
The license (author's) agreement under the legislation of the Republic of Kazakhstan must contain the following essential conditions.
1. Ways of using the software (specific rights transferred under this agreement).
Uses are defined in section 16 of the Copyright Act and include:
- software playback;
- distribution of the Software by selling or otherwise disposing of its original or copies;
- import of the original or copies of the software for distribution purposes;
- bringing the software to the public;
- other actions that do not contradict the legislative acts of the Republic of Kazakhstan.
It is worth noting here that the rights to use the work that are not directly transferred under the author's agreement are considered not transferred.
2. Term of the license agreement.
The contract can specify any period of its validity. As a rule, the parties set the term of the contract for the entire duration of the exclusive (property) rights to the software (ie, throughout the life of the author and 70 years after his death).
If the term is not specified in the contract, then the contract can be terminated by the author after one year from the date of its conclusion, provided that the user is notified in writing 3 months before the termination of the contract.
3. Territory to which the right applies.
If the territory is not specified, then the effect of the right transferred under the agreement is limited to the territory of the Republic of Kazakhstan.
4. The amount of remuneration (or the procedure for determining the amount of remuneration for each way of using the work).
The remuneration is determined in the contract in the form of a percentage of the income for the corresponding method of using the work or, if this is not possible due to the nature of the work or the peculiarities of its use, in the form of an amount fixed in the contract or otherwise.
5. The procedure and terms for payment
- of remuneration, and other conditions that the parties consider essential for this agreement.
It is important to note that the subject of an author's agreement cannot be the right to use works that the author may create in the future. In other words, you cannot transfer a license for an unfinished product, you need to create software, and then transfer it.
Recommendations when concluding a license agreement
When concluding a license agreement, many entrepreneurs make a number of mistakes, which in the future can lead to various legal consequences for the parties to the agreement.
In this regard, we will designate several conditions that, in our opinion, must be provided for in a license agreement.
1. Be clear about what you are lending and how much.
If it is software, then it is desirable to indicate the full name of the software. If the software is registered, please indicate the copyright certificate number and the date of state registration.
In addition, we propose to describe the software functionality that will be available to the licensee when using the software. It is possible to indicate the brief functionality of the software in the contract.
If you intend to restrict the licensee's access to certain functions, then indicate in the agreement that access to them is not provided. This is done so that in the future there are no claims from the counterparty for the operation of the software.
Functionality in the contract can be described in various ways:
- in the subject of the license agreement;
- attached to it;
- make a link to the site where it will be placed.
2. Include the licensor's (right holder's) warranties.
Often, the licensor does not own the software itself, but has received the software from another licensor. That licensor, for example, received rights from another primary licensor. This chain of licenses can be very long, and it is difficult, and sometimes even impossible, for the client to trace it.
Therefore, in order to eliminate the risks, it is necessary to include provisions for the licensor's warranties in the license agreement. Specify that the licensor is the sole owner of property (exclusive) rights to the software, and that the rights of third parties are not violated by him.
3. Determine the scope of transferred rights. As already noted, rights that are not specified in this agreement as transferable are considered not transferred.
Previously, we mentioned user rights such as making the software available to the public, implementing the software, importing the software, reproducing, modifying the software, and so on.
4. Agree on terms of payment that are clear to both parties.
Often, the terms of payment under the contract are not clearly or incomprehensibly formulated, which can negatively affect both parties.
The license fee can be paid once for the entire period of the contract or periodically during the term of the contract (monthly, quarterly, annually).
If the payment is one-time, then indicate the period for which it is paid. For example, if the contract is concluded for a year, then determine that the license fee is paid at a time and covers a certain period.
If the payment is periodic, then enter the term “billing period” and indicate that the billing period is a month (quarter), and the remuneration is paid after the expiration of the billing period within 3-5 business days from the moment the licensor issues an invoice to the licensee for payment.
5. Include the AS IS principle in the contract.
The AS IS principle is widely used in international practice.
The "AS IS" principle means that your intellectual property is transferred to the property without any guarantees of quality.
This provision protects the licensor. This is protection against those users (licensees) who try to terminate the contract, referring to the fact that the transferred intellectual property object does not meet expectations and is of poor quality.
We cannot predict what exactly the licensee (customer) wants, what product he wants to receive, therefore IT companies, especially large ones, include the “AS IS” principle in their license agreements.
6. Determine the moment of transfer of license rights.
In the agreement, you can fix that the license rights are transferred to the licensee from the moment specified in the agreement (for example, from October 1, 2021).
You can specify that the rights to the software are transferred from the moment the certificate of completion or the certificate of transfer of license rights is signed.
7. Specify the term for granting license rights.
Be sure to indicate at what point you grant the license rights and at what point they terminate.
Please note that the term for granting rights may not coincide with the term for concluding the contract.
In accordance with the legislation of the Republic of Kazakhstan, the contract may contain retrospective conditions. For example, the contract comes into force from the date of signing, but in terms of mutual settlements, it applies to relations that arose from October 1, 2021.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.