Засідання Комітету АПУ з питань телекомунікацій, інформаційних технологій та Інтернету і комітету IT-права Lviv IT Cluster «Особливості укладення зовнішньо-економічних договорів у сегменті ІТ», 14 травня 2016 року, м. Львів

1. eleks.comeleks.com
Drafting software development
contracts governed by U.S. law
by Andriy Kavatsyuk

2. Option 1: Hiring US Lawyer
 More than 2M lawyers in the U.S.- supply is over
demand
 In digital age any student with average brain power
can find the case law nowadays, and the most
experienced lawyers loose competitive advantage
 It may better to choose a lawyer of Ukrainian origin –
must be cheaper and possesses knowledge of our
specifics
 But transaction costs will increase anyway

3. Option 2: LL. M.
“It`s not much, but it`s better than nothing”
– Bear Grylls
Disadvantages:
 US law for foreigners
 A lot of useless information (introductory material plus
irrelevant fields of law)
 Expensive – on average $50,000 for tuition fees, plus
travel expenses, accommodation etc.

4. Option 3: Self-education by Practical
Training
“One learns at least one style that is proven
before developing his own style”
– S., martial arts instructor
Basic ingredients:
 Established knowledge base in the field of IP, private
international law and contract law;
 Sufficient knowledge of subject matter of common
transactions;
 Access to material to work with.

5. What are your goals?
“Leverage is everything, fairness is nothing”
- David W. Tollen
Real options theory for lawyers:
 What are you drafting a contract for?
 Do you (or your client) have sufficient resources for
litigation? Most probably not.
 Injunction? Maybe.
 Settlement (50-95% according to different estimates)? It
may be easier to kill the company.

6. What is your true leverage?
 IP ownership
 Source code disclosure
 Favorable payment schedule
 Non-solicitation, confidentiality etc. in most cases are
secondary

7. Sources of Wisdom
The state law in the USA is not harmonized. Suggested
resources:
 Uniform Commercial Code
(https://www.law.cornell.edu/uscode/text; adoption status:
https://en.wikipedia.org/wiki/Uniform_Commercial_Code_adoption);
 State-specific commercial code
(Nevada: https://www.leg.state.nv.us/nrs;
Delaware: http://delcode.delaware.gov/title6)
 Law books / handbooks / on-line articles

8. Case 1: “Work Made for Hire”
Sample clause:
“Company shall own all right, title and interest (including patent rights,
copyrights, trade secret rights, trademark rights, sui generis database rights and
all other rights of any sort throughout the world) relating to any and all inventions
(whether or not patentable), works of authorship, designations, designs, know-
how, ideas and information made or conceived or reduced to practice, in whole
or in part, by Supplier, in connection with Services (including any person
allocated by the Supplier to provide the Services) or any Confidential Information
(as defined herein) (collectively, “Inventions”) and Supplier will promptly disclose
and provide all Inventions to Company. All Inventions are “works made for hire”
to the extent allowed by law.”

9. And what is the allowed extent?
“Section 101 of the Copyright Act (title 17 of the U.S. Code) defines a “work
made for hire” in two parts:
a) work prepared by an employee within the scope of his or her employment or
b) work specially ordered or commissioned for use
1 as a contribution to a collective work,
2 as a part of a motion picture or other audiovisual work,
3 as a translation,
4 as a supplementary work,
5 as a compilation,
6 as an instructional text,
7 as a test,
8 as answer material for a test, or
9 as an atlas,
if the parties expressly agree in a written instrument signed by them that the
work shall be considered a work made for hire.

10. … If a work is made for hire, the employer or other person for whom the work
was prepared is the initial owner of the copyright unless both parties involved
have signed a written agreement to the contrary.”
The US Copyright Office, Circular 09:
http://www.copyright.gov/circs/circ09.pdf
That is, this is an exception from a general rule where the natural
person who created work of authorship is the immediate owner.
Therefore, the clause cannot regulate relations as between
Company and Supplier. It is merely an obligation of the Supplier
to ensure that its relationships with employees and contractors
satisfy “work made for hire” requirements. Moreover, everything
except of copyright is not covered (inventions, designs etc.).

11. Case 2: Unconditional IP Rights
Assignment
Sample clause (introduced by a customer):
“Supplier hereby acknowledges and agrees that Company (or at Company’s
election, its designee) owns and shall own all right, title and interest, including
all copyright, patent, trade secret and other intellectual property rights in all
deliverables, developments, code, documentation, materials, information,
improvements, recommendations, ideas, modifications, and inventions created,
conceived or reduced to practice by Consultant, its employees or contractors,
individually or in conjunction with others, in the course or as a result of
performing the Services (collectively, the “Work Product”). Consultant hereby
irrevocably assigns, transfers and conveys to Company or its designee the
exclusive ownership of all intellectual property rights in the Work Product
without the necessity of any further consideration.”

12. The problem – no leverage is left with Supplier.
But this is the problem for Supplier, not the Company.
An argument for negotiations could be that such provision basically
leads to a lack of consideration, which in turn could lead to the whole
agreement being held unenforceable, should a dispute arise. With
whom IP rights will remain in such a case is up to the court to decide.
Uncertainty in such an important provision is bad for both parties.

13. Case 3: Perpetual Confidentiality
Obligations
Course of negotiations (simplified):
Client: We don`t like your NDA template, please sign our
standard one
Supplier: We would like to limit term of confidentiality
obligations from perpetuity to a reasonable term, say 2 or 3 years.
Client: We insist on perpetuity, our information is extremely
valuable and one of a kind.
Supplier: Information tends to become less valuable over time.
Let`s separate it separate it into trade secrets and everything else. We
agree to applicable statutory term for trade secrets and 3 years for
everything else.

14. Client: There is no such thing as applicable statutory term.
Supplier: We both understand what is meant, let`s just change
the wording.
Resulting clause:
“This Agreement shall remain in force for 3 (three) years from the
Effective Date. Notwithstanding the aforementioned, the obligations of
the Parties shall continue with respect to any Confidential Information,
which constitutes a trade secret for as long as such Confidential
Information satisfies trade secret criteria.”

15. eleks.com
Thank you for your attention.