IP issue

[JohnnyP]

A company asked me to design a product, which is now in production.  I billed them as the design progressed.

They said they would also add a small royalty, say a dollar or two per unit.

My design is based on a Freescale 9S08 processor.  I wrote the program in assembly.

Now they want me to add some features that are beyond my ability and probably should be coded in C.

I told them it would take me too long to do this, and that they should get a real software guy to do it.

They just called and said they may have someone to do it and they want me to send them all my files, including the software, so the new guy can have a starting point.

They asked me to design a product.  I gave them the schematic and the layout.  They bought a programmer, into which I loaded the secured code.

They have all the tools to make more widgets.

The question is, do I own the source code?  Do I have to turn over my Code Warrior files?

[c4757p]

This is not something you figured out before you started?

Don't produce IP for anybody without first figuring out who is going to own it...

[Mechanical Menace]

Depends on the terms of the contract. Personally I wouldn't employ someone without making it clear in the contract I own all IP related to what I've employed them for or/and done in time I'm billed for. Might even go as far to stipulate it belongs to me if you used any equipment I supplied depending on the exact situation. I'm almost certain your contract will include clauses like that.

This is not something you figured out before you started?

Don't produce IP for anybody without first figuring out who is going to own it...

+1.

[Corporate666]

Were you working as an employee, a contractor on their premises, or were you working as your own company (or sole proprietor) and billed them?

It sounds like the last of those three.  It very much depends where you are located, but generally you still own the intellectual property.  Keep in mind that the rights to the IP and the original source files are two different things.  If you gave the new designer the source, that doesn't mean you are explicitly or implicitly transferring the IP, although the client may feel if they have the source, they can do whatever they want with it.  But from a legal perspective, they can't.

The "standard" way this is done is that if the client wants source files, they pay a release fee.   The release fee is a one time compensatory payment for the presumed loss of future revenue from the original created work.  If they want to own the IP, that's something a bit different where you no longer have any rights to use that created work and they can do whatever they want with it - even sell it to a new client of theirs.

If they are a seasoned and experienced buyer of contract services, they shouldn't have any issues with a release fee.  If they do, you probably won't want to work with them further.  And ALWAYS define ownership of IP and access to source materials up front!

[donotdespisethesnake]

If you did not have a contract in place assigning copyright of the software to the client, then I believe that copyright stays with the author. "Work for hire" does not apply to software.

This may not be what the client is expecting. Personally I think I would cooperate with the client, you may get some further work from them. It doesn't seem worth causing ill-will, or getting into a legal case.

Of course, make sure a contract is in place next time. Really, you do need to consult a lawyer, or maybe get legal advice from professional bodies. They may have some pro forma contracts.

I know some software consultants will make two quotes for work : one with IP assignment, and one without. The one without being much cheaper. Then it is clear to the client what they are getting, and that they have a choice of buying outright, or paying the consultant if they need further work.

Disclaimers:
IANAL
Will likely depend on jurisdiction.

[JohnnyP]

Yes, I work alone at home, and used all my own equipment.

There is nothing in writing, nothing verbal.

Originally, they asked me to copy a widget that was all analog.  I spent a few hours looking at it, then decided it would be better to use a uP.

As the design progressed, I would give them the latest schematic.  These guys are not into electronics, so it was meaningless to them.

At one point very early in the design, I gave them a flow chart and said "you might as well have this too, you're paying for it".  The flow chart has changed quite a bit since then, but I haven't given them any more than that first one.

[nctnico]

This is not something you figured out before you started?

Don't produce IP for anybody without first figuring out who is going to own it...

Copyright law says that whatever you write by yourself is yours (unless when employed or when told specifically how to write the program). It is a common misconception that paying someone to write a piece of software means the copyright belongs to you.

[c4757p]

This is not something you figured out before you started?

Don't produce IP for anybody without first figuring out who is going to own it...

Copyright law says that whatever you write by yourself is yours (unless when employed or when told specifically how to write the program). It is a common misconception that paying someone to write a piece of software means the copyright belongs to you.

What does that even have to do with what I said? Of course, the law defines a default - but there are still going to be expectations on both sides, and you're a fool if you don't work those out at the beginning.

[eas]

Honestly, this sounds like a good time for you both to get lawyers involved, and a good time for both sides to get more sophisticated about IP and contract law.

Before you do though, build on your current relationship to set expectations about why lawyers are being involved and a rough outline of the goals.

Both sides should understand that lawyers are supposed to represent their clients best interests, but left to their own devices, they will fill in the gaps about what their clients best interests are based on their own biases. I've found that many lawyers don't give enough value to goodwill in business relationships as evidenced by horribly one-sided contract language they include which any reasonable counterparty will read as "my client has the right to both braise your first born for holiday dinner and amputate your genitals. They may do so at any time for any reason, without warning, and you agree not to do anything about it." A related affliction of the profession is to put mitigation of downside risk above the value of potential upside.

Many people make the mistake of being overly deferential to attorneys. I suspect that their hourly rates encourage this behavior.

[Mechanical Menace]

Both sides should understand that lawyers are supposed to represent their clients best interests, but left to their own devices, they will fill in the gaps about what their clients best interests are based on their own biases.

Oh this so much. Legal is a tool and like any tool should be handled with care lol.

[eas]

Both sides should understand that lawyers are supposed to represent their clients best interests, but left to their own devices, they will fill in the gaps about what their clients best interests are based on their own biases.

Oh this so much. Legal is a tool and like any tool should be handled with care lol.

I'd actually written that lawyers were tools, and spent some time whether the double meaning of "tool" would help my point or obscure it.

[Mechanical Menace]

I'd actually written that lawyers were tools, and spent some time whether the double meaning of "tool" would help my point or obscure it.

   


Probably both both though

[JohnnyP]

This is not something you figured out before you started?

Don't produce IP for anybody without first figuring out who is going to own it...

Copyright law says that whatever you write by yourself is yours (unless when employed or when told specifically how to write the program). It is a common misconception that paying someone to write a piece of software means the copyright belongs to you.

Thanks for all your replies.

We talked with him today, it kind of blew up.  He doesn't understand how I could bill him for programming time then not give him the code.  He said that was dishonest, and that if I had told him in the first place he would have understood.

In the end, we agreed to give it to him, he agreed to royalties up to a certain amount.

He's a young guy that owns a large machine shop.  He said he gives all the CAD files and G codes to his customers whether he runs the parts or they take it somewhere else.  He assumed we would do the same.

[AndyC_772]

He assumed

Ah, there's your problem, in two words.

You're far from being alone. There are a lot of people out there who believe - incorrectly - that just because they're paying for someone's time, they automatically own the rights to any creative work that's produced during that time.

It can be very hard to make it clear to a customer that this isn't the case, and even if you get a lawyer involved (which isn't a bad idea at all), there's no guarantee that your contract will be interpreted the same way by your customer as you intended.

My standard T&C's do actually grant customers access to source materials, and include a fairly broad licence to make use of them. I figure that if I do a good job, they'll come back to me anyway, but they'll also have the peace of mind of knowing that if I get run over by a bus, they already have everything they need to take a job elsewhere.

That's a purely commercial decision which I made early on, having seen what happens when a company is refused access to source materials, and is held hostage to the original supplier. It's a crappy trick that some suppliers pull, which only ever works on a given customer once.

Providing source code is not the same thing as granting outright ownership of the IP, though. If a customer wants full ownership of a design, then I first make it clear that if I'm going to lose ownership of the finished project, then I'll have to start from a completely blank sheet, and so their job will cost more purely in terms of the number of hours required.

Any royalties over and above that are up for negotiation. A good starting point is to look at the relative value of your contribution as a proportion of the finished product. If the finished item is a PCB you've designed, using software you've written, then a 50/50 split of the profits might not be at all unreasonable. If it's a small part of a bigger system, adjust accordingly.

[Karel]

Speaking of royalties, how do you check if the number of produced/sold items (used to calculate the royalties) is the real number?

[SeanB]

You either rely on the honesty of the customer, or you build in something to serialise the equipment, and simply check that counter. You can also check with the auditors of the client, as they will also give the correct figures ( dodging tax by lying about income means the auditors also do jail time, no slap on the wrist fine option for not pointing this out ) and are able to reconcile purchases and sales, and will flag the apparent high failure rates indicated by the difference between purchases and sales of finished goods.

If it is Internet connected you simply have a serial number, and have the firmware periodically or randomly simply send a UDP packet to a website and a specific port number you maintain at your own cost ( your own personal site) with only info being the serial number and a magic value to validate it, so a single packet is hard to detect. Your side simply records the UDP packets received, probably also geolocating roughly from source IP, and populates a database with the received number. Then you can simply see and match sales with units after a period. UDP so that you do  not have to make a TCP connection, there is no hard fail built in if no reply ( you should not reply to this at all) and eventually you will get a packet through.

[JohnnyP]

As to quantities and profit per unit, my wife and I trust the guy.  He's been great up to this point.  I believe what he says.

I should have listened to my two friends and just turned it over and let it go.  Then I would have asked him to google "nolo who owns the code", etc to show him he is wrong, but that he could still keep it.

My friends were right, they said the hassle and loss of a friend wouldn't be worth a few $k.  Now he thinks I was dishonest.  I have to clear this up.

I think I know what is really troubling me about handing over my files.  Why should I give the new guy a jump start?

I wasn't trying to keep it from him; I was really trying to keep it from my replacement.  I need to tell him that when I hand over the files.

He paid me about $9000 over several months for a finished design.  He's not making much per unit, so I am going to tell him to forget about the royalty, at least until he makes back his investment.

The competition just came out with a product that blows this away anyway, so I doubt there would have been more than a few $k in royalties anyway.

[mikeselectricstuff]

We talked with him today, it kind of blew up.  He doesn't understand how I could bill him for programming time then not give him the code.  He said that was dishonest, and that if I had told him in the first place he would have understood.

One approach to this situation is to make a charge which represents documenting the code to a standard that can be understood by someone else. That way at least they feel they are getting something for the money.

[mikeselectricstuff]

Speaking of royalties, how do you check if the number of produced/sold items (used to calculate the royalties) is the real number?

IME the issue with royalties, especially with smaller companies without formal systems in place,  can be not so much dishonesty but disorganisation - accounting for royalties just drops to the bottom of the priority list & you end up in a situation where nobody really knows what's owed after a while.

I'd only do a royalty agreement where there is a robust way of counting - for MCU type stuff the easiest way is to supply them with preprogrammed devices, or program devices for them.
To mitigate the "what if you fall under a bus" issue,  you could get a third party programming house to supply (or just program) parts against their orders and send you your cut.



 

 

[Deathwish]

As to quantities and profit per unit, my wife and I trust the guy.  He's been great up to this point.  I believe what he says.

I should have listened to my two friends and just turned it over and let it go.  Then I would have asked him to google "nolo who owns the code", etc to show him he is wrong, but that he could still keep it.

My friends were right, they said the hassle and loss of a friend wouldn't be worth a few $k.  Now he thinks I was dishonest.  I have to clear this up.

He paid me about $9000 over several months for a finished design.  He's not making much per unit, so I am going to tell him to forget about the royalty, at least until he makes back his investment.

Never mix business with friendship as they say, one will lead to trouble with the other, as for letting him of the royalties till he makes his investment back, that is going to be your cross to bear and will mean you will always be thinking that way, you will always be out of pocket doing that.

[HighVoltage]

I build a lot of "one off" test equipment for manufacturing sites and one of my customers/clients has become a friend over the years.
One more reason, to write a contract, just a small one.
It can be an email that states the project and the cost and what is included.
I always have a line item for
1. Hardware Test Equipment (the stuff I build)
2. Manuals and schematics (What is included and what is not)
3. Calibration and calibration certificate
4. Stability (Cpk) analysis of the test system.
5. Yearly calibration cost (So there will not be any discussion a year later)
6. Delivery cost
7. Training of employee cost
8. Warranty stantement
9. Cost of repair, after warranty

This way there is no grounds for misunderstanding.
And even then, sometimes I get some trouble.
I just had a case where everything was stated on the estimate but one Item that I could not guess the cost, was not listed and it was stated that he, my client, had to pay for it at the end separately and directly to the supplier. Since it was a little more complicated, the price was very high and we ended up in a little fight. So, even when you think you covered everything, Morphy's Law will catch you almost every time.

In your case, I would highly suggest, to do the following
1. Make a full contract now that both sides will agree upon.
(Although this will be much more difficult now, you need to have something in your hands, if it should really blow up in the future)
2. Make a royalty agreement now.
Although you might never see any money coming out of it, you are protected, if he will be successfull.

And what if he makes small changes to your design?
Will you still get royalties or part royalties?

I have some contracts for royalties for now almost 20 years with some people I would call real good friends.
But we are renewing our written contract every 5 years, so that we are on the same playing field.
This way, we have at least covered the basics.

Good luck!
 
 
 

[AndyC_772]

...so a single packet is hard to detect...

I do hope you're not advocating burying something covertly in the code which your customer, and the product's end user, don't know about.

If I'd paid someone to design something for me, and I found it phoning 'home' without my knowledge, heads would roll.

[lewis]

I had to fire a customer recently, the hassle dealing with them far outweighed any financial benefit. We designed and manufactured a fairly complex product for them over a year ago, but recently they wanted to make significant changes to it to squeeze it into another product for a different market, some of which weren't possible or economical. Constant daily emails and phone calls (from different numbers!) asking when can I do it, continuous specification changes, refusal to take advice, and because they paid a lot for the initial design they expect it almost free. And we're not cheap. Basically the bloke is an f%*^#@g nightmare. It was a pain first time around, it would be even more painful now.

So I fired him. And my blood pressure has returned to normal.

But even after all this agro, I actually didn't want to fuck them over. So I gave them everything - source code, gerbers, schematic, literally everything necessary to manufacture the design. I think anything else would have been spiteful - I never EVER intend to work for them again, and I have far better customers whom I can now serve better and devote more time to.

[SeanB]

...so a single packet is hard to detect...

I do hope you're not advocating burying something covertly in the code which your customer, and the product's end user, don't know about.

If I'd paid someone to design something for me, and I found it phoning 'home' without my knowledge, heads would roll.

If the relationship is that toxic that both sides do not trust each other then having that would be the least of the troubles in any case.

Just pointing out that there are ways these days to have firmware devices announce their presence in a way that is both not a hard failure mode ( send only, and no care if there is actually an answer so no risk of buffer overflows causing a problem) and a simple diagnostic that will eventually show up any units as present.

[SeanB]

I had to fire a customer recently, the hassle dealing with them far outweighed any financial benefit. We designed and manufactured a fairly complex product for them over a year ago, but recently they wanted to make significant changes to it to squeeze it into another product for a different market, some of which weren't possible or economical. Constant daily emails and phone calls (from different numbers!) asking when can I do it, continuous specification changes, refusal to take advice, and because they paid a lot for the initial design they expect it almost free. And we're not cheap. Basically the bloke is an f%*^#@g nightmare. It was a pain first time around, it would be even more painful now.

So I fired him. And my blood pressure has returned to normal.

But even after all this agro, I actually didn't want to fuck them over. So I gave them everything - source code, gerbers, schematic, literally everything necessary to manufacture the design. I think anything else would have been spiteful - I never EVER intend to work for them again, and I have far better customers whom I can now serve better and devote more time to.

Pity the poor guy who now is going to be asked to do the impossible, and who is given all this as a start, then has to tell them the same answer after some time and the same conclusions........ Hope you included every email in the documentation as well, just for completeness. 100% likely they would not read that massive file collection before sending it out, while the recipient will read it very closely.