Copyright transfer in software: scope and the seller's rights of use
Software seller retains an implied right of use in overlapping source code
In 2016, PayingIT bought the Usemate software from Workrate and, immediately afterwards, granted Workrate a licence back to continue using Usemate internally. Years later it emerged that Workrate's own product, Workstate, contained the same source-code components as Usemate. PayingIT argued that Workrate was thereby infringing the transferred copyright. The court of appeal rejected that argument entirely.
Workrate had developed the Usemate software — originally named Workmate — from 2008 onwards for HR processes. PayingIT (then still Usemate B.V.) was incorporated in 2013 to exploit that software commercially. Workrate's own product Workstate, aimed at security companies such as Equinix, used a shared codebase. All those involved were aware of this. In 2016 the parties concluded a package of two related agreements: a purchase agreement under which Workrate sold the Usemate software to PayingIP, and a licence agreement under which PayingIP licensed that software back to Workrate free of charge.
The dispute turns on two questions: (1) precisely which source code falls within the copyright transfer, and (2) to what extent Workrate may continue to use the overlapping parts of that source code for Workstate?
The court of appeal: transfer in line with the technical specification document, but Workrate retains an implied right of use
On the scope of the transfer, the court of appeal was clear. At Workrate's request, one of the software developers involved had drawn up a technical document specifying six folders of source code, noting that Workrate held the copyright in them and that PayingIT would become the new rights holder. That document was forwarded — without reservation — to all negotiating parties. The fact that the lawyer ultimately did not include the document as an annex to the purchase agreement does not alter this: the buyers were justified in relying on the transfer of the rights in the six specified folders. The court of appeal pointed out that this was a commercial transaction, so that the restrictive interpretation under Section 2(5) of the Dutch Copyright Act (Aw) — which favours the (natural) author — has no role to play here.
The second question was more complex. PayingIT argued that the software was to be fully separated prior to the sale, so that no overlapping code would remain. The court of appeal did not follow that position. All those involved knew that Workrate was actively exploiting Workstate, including externally with clients such as Equinix, and that the agreements would bring no change in this. One of the appellants had even confirmed as much at the hearing. The terms of the Licence Agreement — which limit Workrate to internal use or acting as a distributor on behalf of PayingIP — are irreconcilable with the continuing external exploitation of Workstate that was visible to everyone and to which everyone consented. In the agreements the parties had not settled what was to apply to overlapping source code. In the court of appeal's view, Workrate therefore holds an implied contractual right of use in the shared parts of the source code, insofar as used within Workstate. There was neither copyright infringement nor breach of contract.
What does this mean for software suppliers that sell a product and receive a licence back?
A party that sells software while, as licensee, receiving rights of use back must set out expressly in the agreements what applies to source code that also features in the seller's other products. If this is not settled, the court may — as here — assume an implied right of use on the basis of what the parties evidently had in mind when concluding the agreement. That may work out favourably for the seller, but it brings legal uncertainty for the buyer.
In concrete terms: record in the purchase agreement and the licence-back which source-code components are shared, for which products the seller may continue to use them, and what the rules are if the seller further develops that shared code. A technical specification document as an annex to the deed — as was in fact intended here but ultimately not included as an annex — is the minimum for this. For more on contractual protection in software transactions, see the expertise page on corporate and commercial law.
Frequently asked questions
When does copyright in software validly transfer under a purchase agreement?
Transfer of copyright requires a written deed under Section 2(3) Aw. The deed need not be detailed if it is sufficiently clear from the circumstances — including pre-contractual correspondence and technical specifications — which rights are being transferred. Here, the court of appeal held that the purchase agreement qualified as a deed and that the transferred rights were sufficiently ascertainable.
Can a software seller still claim use of the sold source code after the transfer?
Yes, if the parties agreed this — implicitly. The court of appeal found that Workrate held an implied contractual right of use in the overlapping source code, because all those involved knew that Workrate also used that code in Workstate and the agreements did not intend to change this. Rights of use that are not excluded in the agreement may thus still exist.
What is the difference between the restrictive interpretation of Section 2(5) Aw and interpretation in commercial transactions?
Section 2(5) Aw provides that any doubt as to the scope of a copyright transfer must be interpreted in favour of the (natural) author. The court of appeal held that this rule does not apply to a commercial transaction between professional parties. The agreement is then interpreted solely by reference to the Haviltex standard.
Amsterdam Court of Appeal, 19 November 2024, ECLI:NL:GHAMS:2024:3207.
Cited case law
Courts of Appeal: ECLI:NL:GHAMS:2024:3207