Software Intellectual Property Rights and how to protect it [GUIDE]

Global software revenues is estimated to be worth $659 Billion, with double digit YoY growth. Yet, software piracy is estimated to have reached about $63 Billion globally, or almost 10% of the market. Any individual or organization that authors and distributes software should have at least a general understanding of software intellectual property, what it is, why it matters (even for free software!), and some ideas on how to protect software intellectual property.

Let's jump in!

What is Software Intellectual Property?

Software IP refers to legal rights that creators have over their software creations.

Software Intellectual property exists so that the authors have control over how their software is used, shared, modified, or distributed. Intellectual property covers pretty much everything that is part of the software, such as the source code, compiled binaries user interface, underlying algorithms, user manuals, and certain procedures and routines on ways to use certain software.

Here's some good news: significant legal protections granted automatically simply by producing software (although enforcement is a whole other story, which we'll get into later).

Types of Intellectual Property Protection Applicable to Software

Although intellectual property laws are unique to every country, there is general overlap on the type of protection that can be legally granted.

Copyrights: Exclusive Rights to All Creative Works

A Copyright is a type of IP protection granted by intellectual property law to the original creator of a software program. This protection gives the author exclusive rights to reproduce, distribute, perform, display, or create derivative works based on the software. Copyright applies to the software's source code and or computer code, as well as any accompanying documentation, as soon as the work is fixed in a tangible medium of expression.

Software copyrights are basically a claim that says "I made this, so I get to decide how it's used." For software, if you write a program, copyright law says only you can copy, sell, or modify it. Example: The code of Microsoft Word is copyrighted, meaning no one else can legally copy or sell that software without permission from Microsoft.

Patents: Exclusive Right for Specific Inventions

A patent is a form of intellectual property protection granted to an inventor of a novel, non-obvious, and useful process, machine, manufacture, or composition of matter. In the context of software, it typically covers new and innovative algorithms, methods, or systems implemented through software, granting the patent holder exclusive rights to use, sell, or license the patented invention for a limited period.

You can think of it like a trophy for an invention, saying "I thought of this first." In software, if you create a new kind of algorithm, you can patent it. For example: Google's search algorithm could be patented, protecting their unique method of sorting search results.

Amazon famously patented the 1 Click checkout in 1999, and later licensed it to companies like Apple Inc. (lol).

Caveats regarding Software Patents:

You will need to publish your invention when applying for the patent, making it available for anyone to see! It's not unheard of someone taking a novel idea from a patent application and creating an alternative (not patented) solution, with similar use-cases. This happens and there is nothing you can do about it because:

You cannot patent an idea! In the example above, if Google patented their Search Algorithms, someone like Bing could analyze what the algorithms do, and simply create alternative algorithms that achieve similar outcomes.

For this reason, most software authors, even for novel projects, choose not to patent their inventions, but rather rely on protection granted by the tool described below, the trade secret:

Trade Secrets: Confidential Business Information Advantage

A trade secret is a form of intellectual property comprising confidential, non-public information that provides a business with a competitive edge. In software, this includes algorithms, processes, formulas, designs, or compilations of information used in the business that are not generally known or reasonably ascertainable. a trade secret protects software intellectual property as long as reasonable steps are taken to maintain their secrecy and as long as they derive economic value from not being publicly known.

This is a company's secret recipe. It's not publicly known and is kept hidden to maintain an advantage. In software, a company's proprietary code that they don't share with anyone is a trade secret. For example: The recommendation algorithms used by Netflix are a trade secret, giving them an edge in content suggestion.

Trademarks: a Guarantee of Origin

Trademarks are a symbol, word, phrase, or design that identifies and distinguishes the source of the software from those of others. It legally protects the brand name, logos, or slogans associated with the software, ensuring that consumers can identify the software's origin or brand and helping to prevent confusion in the marketplace. Trademarks in software are valid as long as they are in use and can be renewed indefinitely, provided they continue to function as a source identifier for the software or related services.

A trademark is like a special tag or logo that says "This product is made by us." For software, it could be a unique name or logo. Example: The logo and name "Photoshop" by Adobe is trademarked, meaning no other company can use that name or logo on their products.

Side note: you need to enforce your trademarks if you don't want to lose them!

A trademark can be lost if its owner fails to enforce it against unauthorized usage. This lack of enforcement can lead to a trademark becoming "genericized," which means it becomes a common name for a product or service and loses its distinctiveness. When a trademark is considered generic, it no longer functions as a source identifier, and as a result, the owner may lose the exclusive rights to use it. Regular and consistent enforcement of trademark rights is essential to maintain their validity and protect the brand identity they represent.

Which Protections Are Automatically Granted to an Author of Software?

Copyrights and Trade Secrets automatically grant software intellectual property protection. Patents & Trademarks, however, require applications and are not automatically granted. Filing a software patent or registering a trademark is done at a country level. Although you can do it yourself, I would suggest most people without a legal background to get lawyers to perform the applications to the relevant patent and trademark office for every country you seek IP protection in.

How Software IP Is Commonly Stolen

There are a few ways that software intellectual property rights are frequently abused:

1. Piracy: Illegal copying, distribution, or use of software without proper licensing or permission from the owner. This is the most common way that Software is stolen and typically shared on torrent sites, offered on the dark web, on social media, and on USB devices.
2. Reverse Engineering: Disassembling or decompiling software to access and replicate the source code, algorithms, or features, often in violation of license agreements. For a motivated attacker (with knowledge of Assembly), there is little one can do to protect software intellectual property from reverse engineering if the culprit can gain access to the binaries.
3. Code Theft by Insiders: Employees or contractors with access to the software's source code stealing or leaking it, either for personal gain or to provide it to competitors. There are steep penalties for this sort of activity, but proving it is not so straightforward without proper safeguards in place.
4. Breach of Contract or NDAs: Parties who are legally bound by contracts or non-disclosure agreements (NDAs) disclosing software IP in violation of these agreements. This is similar to theft from insiders.
5. Hacking and Cyberattacks: Unauthorized access to a company’s network to steal software code or related intellectual property. This is increasingly common, especially with software supply chain attacks by persistent threat actors.
6. Unauthorized Access through Insecure Networks: Accessing proprietary software through weak security systems or networks.

Should You Even Bother to Protect Software Intellectual Property?

The topic of software intellectual property, albeit a dense and somewhat daunting topic at the periphery of the actual production process, should be a major concern for Software developers and companies of all sizes, from startups to large enterprises that rely heavily on proprietary software for their operations or competitive advantage for a few main reasons:

1. Preventing Revenue Leakage: protecting software intellectual property ensures that the creators and owners of the software can monetize their work, either through sales, licensing, or other means. Software IP gives the credit and often a financial incentive for individuals and companies to invest time and resources in developing new software, knowing their creations are legally protected. IP protection often allows for a period of market exclusivity, which can be essential for business success.
2. Brand and Reputation: Protecting IP safeguards the brand identity and reputation associated with a software product.
3. Legal Recourse: Legal frameworks used to protect software intellectual property offers legal grounds to act against unauthorized use or infringement, which can be critical in maintaining a competitive edge.

What Are Some Challenges in Protecting Software IP?

While there are certain practical and straightforward steps a person or company should take to protect their works, the sad truth is that there is no sure way to fully protect your IP from unauthorized or unlicensed usage. Some of the many challenges include:

Challenge 1: Inconveniencing legitimate customers

This is arguably the top challenge, you could, for example, simply create a very difficult to remove code protection license entitlements program within your organization giving a software vendor more control over the usage of the software, but should you?

It's important to realize that the vast majority of your users are legitimate customers. For expensive software, it's not uncommon that paying customers are asked to jump through hoop after hoop in order to be able to use the software they are legitimately licensed to use (look up complaints about dongles, 3rd party runtime monitoring systems like Codemeter, or the abundance of support requests created by faulty DRM tools). In fact, creating a reliable and effective Cloud licensing solution that does NOT inconvenience the end user is no trivial task (we've been in this business for several years now, we would know!)

Challenge 2: difficulty to detect unauthorized usage

It might be difficult or even impossible to fully monitor unauthorized usage of your software IP. The larger the organization, the more tools they might have at their disposal (such as piracy detection and code protection services). These services can be expensive and create additional management overhead, making them impractical or even outright impossible to implement for smaller organizations.

Challenge 3: Enforcement difficulties

Let's say a software vendor discovers their IP is being used contrary to their terms of service. a cease and desist letter might cost a few hundred dollars to get drafted by a contract lawyer, while litigation will be significantly more expensive, and might not even yield a positive outcome if there is insufficient evidence of the claim.

Extra-territorial jurisdictions might make enforcement even more challenging, given the different legal systems. In Canada, for example, while downloading and consuming a pirated movie is considered copyright infringement and therefore illegal, evidence that an account downloaded a movie illegally and failing to respond to cease and desist letters is insufficient to establish infringement has taken place. Most countries have an innocent until proven guilty legal system, so the onus is on the Author (software vendor) to prove unauthorized use.

How to Protect your Software IP

There's actually quite a few pragmatic and straightforward things a software vendor may consider as part of their overall intellectual property management. It's important to note that there really isn't a 1-size-fits-all approach, and every company and organization that produces software should carefully consider what is relevant to them.

License & Contractual Agreements

There are a few important contracts that a software vendor could consider requiring from it's users

Most software licensing is governed by a license agreement, OEM agreement, or other sort of contract that describes the software vendor's offers and obligations, as well as the licensee's rights and obligations, and provide both (or multiple) parties legal protection for agreed upon usage.

You can also put in place a non-disclosure agreement if you are giving access to sensitive information such as source code.

At LicenseSpring, we notice a growing awareness and requirements for contracts governing the use of personal data (mostly as a result of GDPR in Europe, but equivalent legislation in North America and abroad).

• Open source software has License Agreements (you can find all of them here).
• Pro-Tip: If you are in need of an End User License, our free end user license generatorhas you covered!

Have Developers Sign an IP Assignment Agreement

Usually part of a contractor agreement or an employment contract, the developers who are developing your intellectual property need to sign an IP assignment agreement stating that all work developed within the company belongs to the company.

These clauses should dissuade an individual from selling your intellectual information to a competitor or using it to profit from their own use. If one of your developers does take either course of action you can use this document to take swift, legal action.

Piracy Prevention & Piracy Detection Mechanisms

There's a whole ecosystem of tools and services available for detecting and preventing software piracy:

• Software License Management Solutions (LicenseSpring falls under this category of solutions for the most part, but we're far from the only ones!)
• Code protection, and code obfuscation tools. (here's an open source approach to protecting Java Code).
• IP Monitoring and reputation management Services. There are many services that offer monitoring torrent sites and the dark web for stolen data or for cracked software.
• Evaluating and Reviewing internal processes. Principle of least privilege comes to mind when it comes to accessing sensitive data. Protecting software IP is in large part putting together a framework to make it difficult to access sensitive information. Vendors who went through SOC 2 type 2 compliance and ISO 27001 know what sort of processes I am referring to.

Apply for Software Patents

A software patent grants property rights to the inventor of a new invention. If your software has a distinct feature that separates it from your competition, you could consider a software patent to protect your competitive advantage. The benefits of having software patents include right exclusivity, establishing market positioning, increased return on investments, and the opportunity to license or sell the invention.

Apply for Trademarks

This is not so difficult and is an important part of fighting unauthorized use of your word mark or stylized logo.

The Madrid system enables organization to file trademarks across the whole EU at once, and the process in applying in other jurisdictions such as the UK, Switzerland, the US and Canada are relatively straightforward.

Use Caution When Providing Source Code Licenses

If you use a source code license, you are giving a licensee a non-exclusive and non-transferable license to your software; permission to use and modify your licensed software. This is a risky move to take because you are possibly allowing your source code outside of your organization. This arguably weakens your company’s trade secrets as the source code is no longer being kept completely secret.

To eliminate these issues use a source code escrow to ensure the rights of your software are protected. A source code escrow protects all parties of a software license by having a 3rd party escrow agent hold the software’s essential information. This helps keep the source code safe while still providing the protection a licensee needs.

Conclusion (TL;DR)

• The IP is probably the most valuable asset in your Software organization
• Unauthorized usage of software IP is widespread through piracy and other means
• Although there are many challenges to protecting your software IP, there are several reasonable safeguards that you can take as a vendor to guard your interests.
• Resist the urge to penalize your paying customers by making their lives miserable through your software IP protection crusade.