Outsourcing software development abroad may be an attractive option to companies. Laws are becoming more uniform through international treaties and organizations, allowing companies to better assess and reduce legal risks associated with outsourcing. However, there are important differences among laws that could impact ownership rights in newly developed technology.

Patent issues

• One patent may not be enough. Patent rights are national rights meaning that a company must obtain patent rights in each country in which it wants patent protection. The process to obtain patent rights abroad is getting easier; for example, once a patent application is filed in a Paris Convention member country, the patent applicant may file for patents in other countries under a uniform process set forth in the Patent Cooperation Treaty. However, multiple applications may be necessary to achieve the desired patent rights and patent law varies widely from country to country. Owning a U.S. or U.K. patent does not insure worldwide access to markets.
   
• First to invent vs. first to file. Eligibility for patent protection is not uniform throughout the world. Under U.S. law, an inventor must be the first to invent the technology and must disclose other known similar inventions or “prior art” to obtain a valid patent. In contrast, in other countries an inventor who is the first to apply for a patent may be eligible for patent rights, even if that inventor was not the first to invent the technology. Therefore, companies outsourcing development should prohibit the developer from filing for patents on the new technology, unless the developer agrees to assign invention and patent rights to the contracting company.
   
• Timing public disclosures is key. The timing of public disclosures of an invention is critical for preserving patent rights abroad. Inventors lose eligibility to file a U.S. patent application one year after the invention is offered for sale or otherwise publicly disclosed. In other countries, the moment a new invention is available to the public the “novelty” required for patentability ceases to exist. For example, under the European Patent Convention rules, an invention loses the requisite novelty when made available to the public “by means of written or oral description, by use, or in any other way” before filing a patent application. Before outsourcing, companies should ensure that the overseas developer does not make the software “available to the public” (e.g., alpha or beta tests) in any way that could impair future patentability abroad.
   
• Get invention assignments. Ownership of patent rights, as between the overseas developer and its employee who does the development work, varies from country to country. Without an agreement stating otherwise, in the U.S. ownership vests in the inventor (i.e., the developer personally) and not the employer. As a result, most U.S. companies require engineers to sign an invention assignment when hired to do development work. In many foreign jurisdictions, ownership vests in the employer and not the employee. Therefore, many foreign companies do not ask their engineers to sign invention assignments. As a practical matter, companies should request employee invention assignments from the overseas developer to streamline the process of filing for U.S. patents. In addition, ownership of all rights in the new software should be clearly stated in an agreement with the foreign company.
   

Copyright issues

• Important nuances in copyright law. Widespread adoption of the Berne Convention has resulted in more uniform copyright laws throughout the world. Approximately 149 countries are members of the Berne Convention and implementation is relatively consistent among member countries. However, there are some important differences and varying degrees of enforcement in different countries that should be examined before outsourcing development abroad.
   
• China example: have written agreement. China is one country historically reputed as not enforcing copyright protection to the level international copyright holders may have liked. However, China has recently taken steps to bring itself into compliance. While endeavoring to meet the World Trade Organization standards it committed to in 2001, China enacted a number of laws that improve its copyright protection and enforcement, including the new “Computer Software Protection Regulations.” Article 12 of these Regulations provides that if one party commissions another party to develop software in China, the commissioned party (i.e. the local developer) will own the copyright in the software unless otherwise stipulated in a written agreement. A written agreement that clearly addresses ownership of the new technology is key.
   
• Get advice on moral rights. Another concept worth mentioning is moral rights because of its importance in copyright law abroad. In the United States, the term "moral rights" typically refers to the right of an author to prevent revision, alteration, or distortion of the works, regardless of ownership. This concept is much more broadly interpreted and more widely enforced in other countries, particularly France and other parts of Europe.
   

Trade secrets

• Address use of existing trade secrets in writing. Companies must be wary of two issues related to trade secrets:
  (1) the use of third party’s trade secrets; and
  (2) the disclosure of the company’s own trade secrets.
  
  The outsourcing agreement should broadly prohibit the developer from using any third-party trade secrets in the development project. This will help avoid the risk of a lawsuit by a third party alleging trade secret misappropriation. In addition, the outsourcing agreement should prohibit the use and disclosure of your trade secrets. Often the best approach is to target and identify the important trade secrets and prohibit their subsequent use and disclosure by the overseas developer. Companies should be aware that an overly broad definition of trade secrets is likely to be ignored or ambiguous.
   
• Allocate ownership of new trade secrets. Finally, the parties should decide who will own new trade secrets created by the developer in the course of their work. The developer will not want to give up their right to use new ideas, algorithms, and sub-routines that they create; but at the same time, the contracting company does not want the developer using new technology developed at the contractor’s cost for other companies, particularly competitors.
   

Conclusion

Scrutinize laws to protect rights. Companies engaging developers abroad should explore how local variations of patent, copyright and other intellectual property laws could impact ownership of software developed overseas, review issues with their legal advisors and have a carefully drafted agreement in place with the prospective developer.

This article is for informational purposes only and is not legal advice.