In-house developed software: intellectual property challenges and legal protection

In-house software development raises complex legal questions in terms of intellectual property.

Developing software within the company itself has today become an essential pillar of innovation and digital transformation strategies. These intangible assets, often at the heart of competitive advantage, nevertheless raise complex legal questions that many organisations underestimate.

Between copyright, employment contracts and the protection of innovations, the legal framework surrounding in-house software developments deserves particular attention in order to secure these strategic investments over the long term.

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The legal regime applicable to software: specific protection

Under French law, software benefits from a specific protection regime within copyright. Contrary to a widely held belief, protection applies automatically from the moment of creation, without any need for prior registration or filing. This protection covers not only the source code and the object code, but also the preparatory design documentation, the interfaces and the overall structure of the program.

This protection extends throughout the author's lifetime and for 70 years after their death, thereby offering long-lasting exclusivity. It confers on the rights holder essential prerogatives: the right of reproduction, the right of adaptation, the right of distribution and the right to correct errors. These economic rights are accompanied by a limited moral right for software, mainly centred on the right of authorship over the work.

The specific nature of the software regime is also reflected in particular exceptions, such as the limited right to decompile for interoperability purposes or the possibility of making a backup copy. These legal nuances shape the framework within which any in-house development takes place and deserve to be fully mastered by management and technical teams.

The thorny question of rights ownership

Software developed by employees: an automatic transfer subject to conditions

The most critical question concerns the ownership of rights in software developed in-house. Contrary to the general copyright regime, the French Intellectual Property Code provides, in its Article L.113-9, for an automatic transfer of rights to the employer where the software is created by one or more employees in the performance of their duties or following the employer's instructions.

This exception to the principle whereby the author is the first owner of the rights considerably simplifies the situation of companies. However, this automatic transfer remains subject to several cumulative conditions that must be scrupulously verified:

• The developer must have employee status (legal relationship of subordination)
• The development must be carried out in the performance of their duties or following the employer's instructions
• The creation must take place during the term of the employment contract

Case law has gradually clarified these notions, requiring in particular that the software development correspond to the tasks assigned to the employee. A development carried out outside working hours or manifestly exceeding the skills expected of the position could thus escape this automatic transfer, creating a co-ownership situation that is complex to manage.

For non-employee developers (interns, work-study trainees, corporate officers), the situation is radically different: no automatic transfer is provided for by law. An express assignment of rights then becomes indispensable, failing which one may find oneself legally unable to fully exploit the software that has been developed.

External service providers and subcontractors: the need for a formalised assignment

Using external service providers to supplement in-house teams in the development of software is a common practice. However, this hybrid approach carries major legal risks in terms of intellectual property if the contracts are not properly structured.

Unlike developments carried out by employees, those created by external service providers remain, in principle, the property of the latter. An explicit assignment of the economic rights is therefore imperative. This assignment must meet strict formal requirements, set out in Article L.131-3 of the Intellectual Property Code: it must be in writing and precisely delimit the field of exploitation of the assigned rights, the geographical scope and the duration of the assignment.

Drafting these assignment clauses requires particular attention. Wording that is too vague or incomplete may render the assignment partially ineffective, thereby limiting the company's ability to exploit, modify or subsequently assign the software. The courts interpret assignment contracts restrictively, in favour of the author.

To navigate these legal complexities and secure your in-house software developments, it is advisable to consult a lawyer specialising in software and database law who will be able to analyse your specific situation and put in place a suitable contractual framework.

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The challenges of collaborative projects and co-development

The growing trend towards collaborative developments, involving several distinct legal entities, further complicates the question of rights ownership. These partnerships, often essential to innovation, create situations of intellectual co-ownership that require rigorous contractual framing.

Consortium or co-development contracts must anticipate several scenarios: the initial allocation of rights in the joint creations, the terms of exploitation by each partner, the conditions for the evolution of the software, and the rules for sharing any revenue. Without such a prior framework, the subsequent management of the software can become a genuine legal headache, requiring the unanimous agreement of the co-owners for any significant decision.

The question of each partner's initial contributions deserves particular attention. These pre-existing elements, integrated into the joint project, must be clearly identified and their terms of use precisely defined. A detailed inventory, appended to the main contract, constitutes good practice for avoiding subsequent disputes over the ownership of certain components.

For projects involving public bodies (universities, research laboratories), specific rules may apply, particularly with regard to the exploitation of results and publication. These public-private partnerships require heightened vigilance and a thorough knowledge of institutional policies in terms of intellectual property.

The challenge of open source in proprietary developments

The integration of open source components into in-house developments has become a standard practice, making it possible to accelerate development cycles and benefit from proven solutions. This practice is, however, not without legal risk, since open source licences impose various obligations that may contaminate the entire software.

The diversity of open source licences (GPL, LGPL, MIT, Apache, BSD, etc.) and their varying legal implications require a case-by-case analysis. Certain licences, known as "copyleft", such as the GPL, require derivative works to be distributed under the same terms, and may thus compel the publication of the source code of the entire software. Others, which are more permissive, allow integration into proprietary solutions without any obligation to share the code.

A precise mapping of the open source components used, combined with a licence compatibility analysis, should form an integral part of the development process. This approach makes it possible to identify legal risks upfront and to adapt the development strategy accordingly, for example by isolating components subject to restrictive licences or by considering proprietary alternatives for critical elements.

Beyond redistribution obligations, open source licences generally contain warranty disclaimer and limitation of liability clauses that may affect the company's ability to provide warranties for its own software. These contractual aspects must be taken into account in the licence terms offered to end users.

Protection strategies that complement copyright

While copyright constitutes the foundation of software protection, other legal mechanisms can be mobilised to strengthen this protection and secure the investment made.

Filing and proof of prior existence

Establishing proof of prior existence is essential to effectively defend one's rights in the event of a dispute. Several complementary mechanisms can be implemented:

• Filing with the Agency for the Protection of Programs (APP), a specialised body offering a certified dating and secure conservation service
• Filing with a bailiff or notary, particularly relevant for major versions of the software
• The use of qualified electronic time-stamping systems compliant with the eIDAS Regulation
• The implementation of an internal chain of proof documenting the development process

These mechanisms do not create any new right but considerably facilitate the administration of proof in the event of litigation, in particular for establishing the prior existence and originality of the software.

Patent protection: a limited but strategic option

Unlike the United States, European law in principle excludes software "as such" from patentability. However, a computer-implemented invention may be protected by a patent if it provides a technical contribution going beyond the mere interaction between the software and the hardware.

This avenue of protection remains complex and uncertain, but may prove strategic for significant technical innovations. Drafting the claims requires particular expertise in order to circumvent the exclusion in principle while maximising the scope of protection. Careful consideration of the cost/benefit ratio must precede any patentability process, taking into account the time required to obtain the patent and the public disclosure inherent in this procedure.

Trade secrets and confidentiality measures

For the non-visible aspects of the software, in particular complex algorithms or innovative methods, protection through trade secrets may constitute a relevant alternative or complement to copyright. Since the Law of 30 July 2018, transposing the European directive on trade secrets, this regime offers enhanced protection against the unlawful appropriation of commercially sensitive information.

To benefit from this protection, the company must put in place reasonable confidentiality measures and demonstrate the commercial value of the information kept secret. In practice, this involves:

• Confidentiality agreements (NDAs) with all parties having access to the source code
• Technical protection measures (restricted access, encryption, traceability)
• A documented security policy and regular training
• A clear classification of information according to its level of sensitivity

This approach is particularly well suited to software for internal use or to cloud (SaaS) solutions whose code is not distributed to users.

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Valuing software assets within the company's holdings

The software developed in-house constitutes intangible assets whose economic value can be considerable. The accounting and valuation of these assets represent a strategic issue, both for the company's financial image and for any possible disposal or fundraising operations.

Accounting and tax issues

From an accounting standpoint, software development costs may be capitalised under certain conditions, allowing them to be recorded as a balance sheet asset rather than as an expense for the period. This option, provided for by Article 311-3 of the French General Chart of Accounts, is subject to six cumulative criteria, including technical feasibility, the intention to complete the development and the probability of future economic benefits.

This capitalisation offers several advantages: improvement of financial ratios, spreading of the impact on profit through depreciation, and the possibility of benefiting from the Research Tax Credit (CIR) for eligible developments. Rigorous documentation of the development process and the associated costs then becomes a major issue in order to justify this accounting and tax treatment.

Software asset audits and due diligence

In the context of merger and acquisition or fundraising operations, software developed in-house is systematically subject to in-depth audits (due diligence). These examinations cover not only the technical and commercial value of the solutions, but also the soundness of the chain of rights and the associated legal risks.

The ability to demonstrate full ownership of the software developed, the absence of problematic third-party components, and compliance with legal obligations (notably in terms of data protection) can significantly influence the company's valuation and the terms of the transaction.

To prepare for these milestones, a preventive audit of software assets is recommended, making it possible to identify and remedy any weaknesses in the chain of rights upfront. This proactive approach secures intangible holdings and facilitates future operations by reducing legal uncertainty.

Practical recommendations for securing in-house developments

Securing the legal status of software developed in-house requires a proactive and structured approach, ideally integrated from the very design stage of the projects. Several concrete measures can be implemented:

• Include specific clauses relating to IT developments in the employment contracts of the staff concerned
• Draw up suitable contract templates for the various categories of external service providers involved in the development
• Put in place a systematic procedure for qualifying and analysing third-party components, in particular open source ones
• Develop a filing and documentation policy to establish proof of prior existence
• Train technical teams on the legal issues of software development
• Create and maintain a register of software assets, listing all developments and their legal status

These preventive measures, although representing an initial investment, constitute insurance against legal risks that are potentially far more costly in the long term. The support of a lawyer specialising in digital law is invaluable for putting these arrangements in place.

The international dimension of software developments

The globalisation of development teams, facilitated by remote working, adds an international dimension to intellectual property issues. Developments involving contributors based in different countries require a thorough analysis of the applicable legislation and how it interacts.

While the principle of territoriality of copyright remains the rule, international conventions (notably the Berne Convention) ensure mutual recognition of rights between signatory countries. However, significant differences remain as regards ownership regimes, particularly for employee-created works.

In certain jurisdictions, such as the United States with the "work made for hire" doctrine, the transfer of rights to the employer is broader than under French law. Conversely, other legal systems may be more restrictive, requiring formal assignments even for developments carried out by employees.

This legal complexity argues in favour of a unified approach, ideally through a framework agreement specifying the applicable law and consolidating all assignments of rights, regardless of the location of the contributors. Particular attention must be paid to mandatory local rules that could limit the effectiveness of these contractual provisions.

In summary

The legal aspects of software developed in-house may seem technical and burdensome, but mastering them constitutes a genuine competitive advantage. Rigorous management of intellectual property not only secures the investments made, but also makes it possible to confidently consider various exploitation strategies: direct monetisation, licensing to third parties, or integration into broader offerings.

Far from being a mere matter of compliance, the legal structuring of software developments must form part of the company's overall strategy. It makes it possible to protect innovation, avoid costly disputes, and maximise the value of the intangible assets created.

In an economic environment where value increasingly rests on intangible assets, transforming computer code into legally secured capital is becoming a strategic imperative that innovative organisations cannot ignore.