Rights to software for an IT startup in Ukraine.

IT startups are often formed by pooling the efforts and resources of friends, colleagues, or like-minded individuals, without detailed planning or a clear understanding of the company's future scalability. As the business grows and secures its first significant contracts, the startup undergoes changes, giving rise to important questions related to:

• Tax and financial planning.
• Business structuring.
• Attracting investments.
• Managing relationships with clients, contractors, and employees.

One crucial aspect that needs to be addressed right from the start is the issue of intellectual property rights for the created assets such as code and software. These rights play a vital role as the startup grows and seeks additional financing and investments.

In our experience working with IT startups and companies, we consistently emphasize the importance of addressing the acquisition and transfer of intellectual property rights. In most cases, IT businesses secure "code rights" through agreements with freelancers, employees, and specialized experts. While this is a common and effective practice, there are specific nuances and practical recommendations that we will discuss in our article.

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Creating software, code, and the acquisition and transfer of code rights

In Ukraine, there are two possible ways to protect software.

Option 1: Protection as Copyrighted Material.

Software in Ukraine is safeguarded as a computer program. A computer program is a set of instructions presented as words, numbers, codes, diagrams, symbols, or any other format that can be read by a computer, enabling it to perform specific tasks or achieve desired outcomes. This includes both operating systems and application programs, expressed in source code or object code.

Computer programs are regarded as literary works and enjoy copyright protection. However, this approach to safeguarding software is considered somewhat outdated and is in need of revision, according to many legal experts. Nonetheless, it is still commonly used in the Ukrainian IT industry.

Copyright protection for a computer program comes into effect as soon as it is created and does not require formal registration. However, you have the option to obtain a certificate of copyright registration if desired.

The main limitation of protecting a computer program through copyright is that it safeguards the form rather than the substance of the program. 

This means that programs created with different source codes, yet duplicating the functionalities of your program, could potentially claim the right to exist.

While the protection of a computer program as a copyrighted work may not seem highly effective, many IT businesses in Ukraine still opt for this legal framework due to the convenience of obtaining rights without the need for state registration.

In this context, the personal non-property rights to the created computer program belong to the individual(s) who developed it, while the property rights can be fully transferred or assigned to others. It is important to note that copyright protection is automatic (with certain nuances) in almost all countries worldwide, and the duration of copyright is generally long-lasting (70 years in Ukraine, starting from the first day of January following the author's death or the last surviving co-author).

Option 2: Patenting.

If a computer program meets the criteria for patentability, it can be granted a patent as a utility model (demonstrating novelty and industrial applicability) or an invention patent (showing novelty, industrial applicability, and inventive step). In this case, the subject of the patent would be a specific product, device, or process (method).

Patenting offers advantages in terms of protecting the core aspects of the software and securing rights to software methods and mechanisms. 

However, there are some downsides to consider:

• National protection: Patent rights are granted within the country where the patent is obtained, unless the patent holder applies for and receives protection in other countries.
• Lengthy and costly process: Obtaining a patent can be a time-consuming and expensive procedure, often taking 2-3 years to complete.
• Technological advancements: Technologies evolve rapidly, and maintaining a patent may become impractical as software becomes outdated.
• Patentability requirements: Not all software will meet the criteria for patentability. If the claimed invention or utility model fails to satisfy the requirements, obtaining a patent may not be possible.

Patenting is most suitable when a startup develops unique software that achieves a specific technical result and meets the conditions for patentability. For example, a novel method of information retrieval or distinctive elements of a CRM system.

Property rights to patents can also be transferred through agreements or incorporated into the capital of a legal entity. Additionally, graphic elements of a computer program can be protected under copyright, industrial design, or trademark laws.

For startups, as well as any IT company, it is essential to adhere to intellectual property laws and safeguard the ownership rights of their intellectual creations. This includes accumulating property rights for the intellectual assets created within the company.

Some of these creations may be protected under copyright, while certain software or its components might be eligible for patenting. Regardless of the specific approach, implementing a robust system for managing intellectual property can significantly enhance the company's value and provide competitive advantages when attracting investments.

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The lawful and unlawful use of someone else's software

Utilizing someone else's software or code to create or use your own software can have detrimental consequences for your business.

Firstly, individuals or entities holding the property rights to copyrighted works, patents, or other forms of intellectual property can take legal action to protect their rights. This may result in the cessation of the infringement and the payment of damages and compensation for any harm caused (the specific amount being determined on a case-by-case basis).

Secondly, when seeking investments, investors often conduct due diligence to analyze the ownership of your software and the mechanisms for transferring rights within your company. If they discover any lack of ownership or infringement of third-party rights, it can significantly diminish the chances of securing investments.

Thirdly, employees involved in software development, without established mechanisms for transferring property rights within the company, may separate from your organization and create their own startup using the code they have developed.

Considering these three reasons, it becomes evident that establishing a legally secure system for creating and utilizing intellectual property assets within your company is crucial.

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5 tips to help startups secure the rights to their software

1. Build a robust and user-friendly legal structure to safeguard your code and software.
2. Develop or modify contracts with your employees in a way that ensures the company acquires the intellectual property rights to their creations.
3. If you're creating a specific product or software, carefully analyze its components. It may be beneficial to pursue patents (invention or utility models) for the technical solutions (processes, methods) employed in your product/software, and consider registering a trademark.
4. Respect the intellectual property rights of others and avoid infringing upon them with your own creations.
5. Document the processes involved in acquiring, receiving, transferring, and utilizing the software developed by your company, which is utilized in the creation of your own products.

We provide a comprehensive legal audit of your code and software infrastructure, including the development of instructions and recommendations. Our goal is to ensure the security of your startup's operations.

You can find the cost of our services here.

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