FindLaw | Find a Lawyer. Find Answers.

Corporate Counsel Magazine (April 1997)

By now, many companies are familiar with the technical and practical problems that may occur in their hardware and software systems when the year 2000 arrives. These problems, collectively referred to here as the "Year 2000" problem, arise because much of the software developed during the past two decades uses two digits, instead of four digits, to identify years. For example, software might recognize "97" for "1997." When this software is asked to perform functions using these dates in the year 2000, the results may be unpredictable or inaccurate, or, worse yet, systems may fail.

Many companies have identified Year 2000 problems in their own systems and have taken steps to resolve them. Systems may combine licensed and internally developed software. Software may be licensed from one or several vendors. The technical Year 2000 solutions must be implemented system-wide.

Companies may use internal or external resources to solve Year 2000 problems. First, third-party licensors may undertake solutions to Year 2000 problems, either at the company's request or through actual or threatened legal action. 1/ Second, companies may use their own employees to fix Year 2000 problems for internally developed or licensed software. Finally, companies may hire outside specialists. The second and third scenarios raise copyright issues that companies should address.

Infringement Claims By Licensors

Copyright issues may arise when companies use their employees or outside vendors to modify licensed software components. Much of the software in company systems is licensed from third parties who own the software copyright. The agreement may or may not address the licensee company's right to modify the software. If the agreement does not grant the licensee the right to modify, and the licensee nevertheless does so, the licensor may claim that the licensee has infringed the licensor's exclusive right to create derivative works. 2/ A derivative work is broadly defined by statute to include editorial revisions, annotations, elaborations, or other modifications which, as a whole, represent an original work of authorship. 3/

Software licensees should anticipate copyright infringement claims by licensors and should take steps to address them. First, licensees who expect to modify licensed software should review existing license and maintenance agreements. If the agreements do not permit licensee modifications or are silent on this issue, the licensee may wish to seek the licensor's permission to modify the software. Licensees who do not have the licensor's permission to modify should assess the available defenses to a copyright infringement claim by the licensor.

One defense that may be available to licensees is the fair use doctrine, which permits use of a copyrighted work for purposes including criticism, comment, news reporting, teaching, scholarship, and research. The "fair use" analysis includes the following factors: (1) the purpose and character of the use, including whether the use is commercial or for nonprofit educational purposes, (2) the nature of the copyrighted work, (3) the amount and substantiality of the portion used in relation to the work as a whole, and (4) the effect of the use upon the potential market for or value of the work. 4/ When applied to licensee modifications of software, the first factor may weigh against the licensee if the use of the software and the need for Year 2000 modifications relates to commercial purposes. Under the second factor, the software would be considered a creative work, deserving strong copyright protection. The third factor may weight against the licensee because a derivative work by its very nature incorporates a substantial portion of a prior work. Finally, the fourth factor should favor the licensee because the licensee's software modifications would not detract from demand for the licensor's software.

Licensees may also claim that they may modify the software without infringing the licensor's copyright rights. The owner of a copy of a computer program does not infringe the copyright holder's rights by making or authorizing the making of another copy or adaptation so long as (1) it is created as an essential step in the utilization of the computer program in conjunction with that machine and it is used in no other manner, or (2) it is for archival purposes only and is not sold or transferred apart from the transfer of all of the copy owner's rights in the program. 5/ Here, the licensee could claim that the modification is an essential step toward fixing a Year 2000 software problem in connection with particular machines for which the software is licensed.

Copyright Ownership

Companies who hire Year 2000 "fix-it" companies to correct problems in company-developed software should address ownership of the copyright for the modified software. 6/ Under the "work made for hire" doctrine, the copyright in works prepared by company employees within the scope of their employment is typically owned by the employer. On the other hand, the copyright in works created by independent contractors is presumed to be held by the contractor.

Works created by independent contractors qualify for the "work made for hire" doctrine only if the work fits within nine specified categories, and the parties agree in writing that the work is a "work made for hire." 7/

Year 2000 software modifications by independent contractors may not qualify for the "work made for hire" doctrine. Accordingly, companies should address copyright ownership in written agreements with Year 2000 "fix it" companies. Specifically, companies who already own the copyright to internally developed software should ensure that they own the copyright to any modifications made by Year 2000 "fix-it" companies.

Companies seeking to solve Year 2000 software problems may face the copyright issues outlined above, as well as others. These issues should be addressed as part of a complete Year 2000 compliance program.

______________________
1 Existing licensing, maintenance, outsourcing, and other agreements may legally obligate licensors and vendors to fix Year 2000 hardware and software problems. Companies may assert claims such as breach of contract and breach of warranty against licensors and vendors pursuant to these agreements. 2 17 U.S.C., '106. 3 17 U.S.C., '101. 4 17 U.S.C., '107. 5 17 U.S.C., '117. 6 Companies should also be aware of similar copyright ownership issues when they use their employees or independent contractors to permissibly modify licensed software. 7 17 U.S.C., '101.