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Businesses and other organizations frequently purchase licenses to major pieces of software along with related services, such as customization or other support of the software. If the software provider retains title to the software, however, what can the customer continue to do with the software after the business relationship ends? Would making material modifications to the software create a derivative work that infringes the software company’s copyright? The answer is found by understanding the difference between owning a copyright and owning a copy of a work, and examining the language of the contracts between the companies in light of �117(a) of the Copyright Act. Section 117(a) can produce surprises, and grants the customer significantly more rights than parties might expect. Congress amended the Copyright Act in 1980 to allow owners of a copy of a computer program to make adaptations of the program that are essential to its use. Further refinements of the statute, and subsequent cases, have broadened this right. The starting point in understanding this is to distinguish between ownership of the “copyright,” and ownership of a particular “copy” of software, or for that matter any work of authorship. If I buy a DVD of a motion picture, or a CD containing a business software program, I own that tangible medium, and the seller can never demand it back. There are still restrictions on my use of the work, of course. In the case of the motion picture, even though I am the legal owner of my copy, I would violate the license that governed my purchase of the copy, and the Copyright Act, if I were to start to charge admission to others to watch the movie with me. In various ways software is treated differently than other works under the Copyright Act, however. The starting point for invoking rights under �117(a) in the example of a parting of ways between a software company and a business customer is that the customer must “own the copy.” In negotiating such contracts, even if the software will not be a work-for-hire and thus the software company retains ownership of the “copyright,” that does not answer the question of who owns the “copy” at the end of the relationship. If the customer owns the copy, then its rights are governed by �117(a), regardless of what the contracts might say. In most negotiations leading to major software contracts the focus is on which party owns the copyright. In many cases ownership of the particular copy is not explicitly addressed at all. If the customer’s true goal is not to own the copyright in the software as a source of income, but rather to have broad latitude to adapt the software for its own future use, then ownership of a mere copy might be enough to accomplish the customer’s goal. Several months ago the 2nd U.S. Circuit Court of Appeals described just how sweeping such rights under �117(a) can be, as in Krause v. Titleserv Inc. In that case, when the relationship ended, the software developer took some of the source code with him. The customer, Titleserv, then reverse-engineered what was left on its computer to obtain new source code. The contracts apparently did not grant Titleserv legal title to its copy of the program. The court decided, however, that since the contracts permitted Titleserv to discard its copy, or to possess and use its copy forever, Titleserv qualified as an “owner” of the copy under �117(a). With this established, the court went on to allow Titleserv to exercise breathtakingly broad rights. One might expect that Titleserv would have the right to correct programming bugs, or to modify the software to add new client addresses. After all, the purpose of the software was to track client requests. When Titleserv obtained a new Windows operating system, it could even adapt the programs to run on that. Could, however, Titleserv add new features to the program, such as check writing and direct client access? The court found that these were adaptations that were essential to Titleserv’s full use of the program. Titleserv went even further than this, however. It shared copies of the programs with its subsidiaries, and it granted dial-up access to the programs to two of its clients. Surely this was beyond the right to adapt for essential use. Not according to the 2nd Circuit. The appeals court decided that the programs were developed by the plaintiff in order to allow Titleserv to have a comprehensive client relations system, and that these adaptations were necessary for it to achieve that result. Parties negotiating software contracts are therefore well advised to assume that if their contracts don’t say that at the end of the contract all tangible media and electronic copies of the program will either be returned to the software company or destroyed, then the customer is likely to enjoy broad rights under �117(a). Parties are even better advised, though, to expressly state in their contracts who will hold legal title to the customer’s copy of the program after the contractual relationship ends. Alan J. Haus is a partner in the San Francisco office of Lewis Brisbois Bisgaard & Smith, where he practices intellectual property law.

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