Sold your company / Business ?? How to protect and handle the IPR transfer ??

As an entrepreneur launching a business in the IT and Software industry, one has his hand full with beating the competition and managing the overheads. The race is tough enough without employees stealing million dollar ideas and venture capitalists pulling the fast one during an acquisition. It is critical that start-up especially in the IT and Software Industry build a strong IP portfolio and take necessary precautions in order to safeguard their business interest. But why go into the trouble of registering your software code with the government or patenting your innovation when the uncertainty of future investment and business is looming over every start-up? The answer is simple. By registering the invention or source code, a start-up can not only protect their work, but also create potential for alternate sources of revenue by enforcing the rights vested in such a registered work.

Take for example the following factual scenario. A software and IT services start-up (Alpha Tech) develops a software platform titled PRIME. A combination of SaaS and PaaS, Alpha Tech invests extensively in hardware as well as software development and maintenance. While the software development process is duly recorded, no copyright registration is sought.

A second company (Beta Tech) seeks to acquire Alpha Tech. Negotiations ensue and it is agreed that all assets except for “Patents and other IPRs” shall be transferred to Beta Tech vide a Share Transfer Agreement. The IPRs and Patents are separately transferred to a third company which was incorporated by the shareholders of Alpha Tech and under the understanding of this “Business Transfer Agreement” with Betatech..

A year after the execution of the Share Transfer Agreement, it is found that Beta Tech is continuing the sale of PRIME through Alpha Tech which is now owned and controlled by Beta Tech.

Left with little choice, a copyright infringement suit is preferred by the former Shareholders/Directors of Alpha Tech with whom the Copyright in PRIME subsist. To assert the rights of the Copyright owner, it is essential to first establish that the underlying work was developed by the individual/company asserting the copyrights. In this particular case, it was also required to establish that the copyrights in the software program PRIME were assigned to the third company on or about the time Beta Tech took-over Alpha Tech. The lack of copyright registrations as well as ambiguity in the agreement as regards to the IPRs transferred to the third Company created several loopholes the impugned party to exploit.

In order to circumvent the loopholes, at the ex-parte stage itself, the petitioner, Alpha Tech filed an application for ad interim injunction to restrain the use of his software programs by Betatech as well as appointment of local commissioners to visit the defendants’ premises and raid them. On establishing a prima facie case as regards to the ownership over the software programme PRIME, the court granted the ex parte ad-interim injunction and local commissioners were appointed to capture the copyright violations by the Defendants.

While it is an uphill task to establish copyright infringement in cases such as the one under scrutiny, a clear chain of documents showing ownership/assignment of copyright in the software program in favour of the one asserting it coupled with suspected instances of infringement can be leveraged to get an ex-parte ad interim order. The order can be further enforced to protect the copyright owners of the software programs.