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Who Can Change Proprietary Source Code

Added06/15/1992

Updated12/16/2015

Author(s) Michael Pritchard
Authoring Institution Center for the Study of Ethics in Society at Western Michigan University
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Contributor(s) Michael Pritchard
Notes Case study originally published in “Teaching Engineering Ethics: A Case Study Approach” by Michael Pritchard. Center for the Study of Ethics in Society, Western Michigan University, 1992.
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Authoring Institution (obsolete) Center for the Study of Ethics in Society, Western Michigan University
Rights For more information on permissions to use this material please see: http://onlineethics.org/permissions.aspx
Year 1992
Publisher National Academy of Engineering, Online Ethics Center
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  • John L. King

    Posted 3 years and 5 months ago

    What should Derek do now? That’s the closing question of Part II of the case. The answer is clear: he should talk to the lawyers at the current company. I say keep this case. It is pretty realistic, and reflects problems many people face. This case illustrates nicely how the issues are both ethical and legal. It does need a teaching note, however. It is helpful to divide the case into ethical and legal issues. I’m not a lawyer, and lawyers might spot more than I do here.

    Legal

    Irrespective of whatever agreement Derek had with his previous company, the system in question is theirs: Derek is tweaking with “a few minor alterations” the “innovative software system he helped design at the small computer firm.” It is confusing to parse the language of the case, but it appears this innovative software system is the “lifeblood” of the firm. It is difficult to imagine any court saying otherwise. Derek’s current company appears to have deep pockets. They could be liable for substantial damages if they adopt this software that can be shown to belong to some other firm. If the current company is sued I would think the outcome would be bad for Derek, at least. If Derek uses this for himself neither the previous company nor the current company are likely to know. If the previous company finds out they might sue Derek, but he doesn’t have deep pockets, the new company didn’t know so getting at them might be hard (especially after they fire Derek), there is ambiguity about Derek’s rights in this case since he didn’t sign anything, and the previous company probably didn’t lose any real sales. But if the new company uses this widely all that could change.

    Ethical

    Derek knows this is the previous company’s “lifeblood.” At the least he should ensure that the current company offers the previous company the sale or license opportunity if it goes beyond him. Derek owes his current company the warning that this could be (probably is) proprietary and that. He might “get away” with using it for himself, but it would be a bad idea to use it widely in the current company without talking to the previous company. Derek can always say (as can the current company to the previous company) that Derek was just testing to see if it worked. The current company probably buys all kinds of stuff – why not this? And the previous company would probably like the sale.

    Upshot

    Derek owes both an ethical and legal “duty of care” to both companies. Fortunately, neither duty of care excludes the other. Derek can honor both by doing the right thing: talking to the current company’s lawyers. They’ll know what to do.
  • Michael  Pritchard

    Posted 12 years and 11 months ago

    It might seem that this case is basically about law rather
    than ethics. Clearly it does raise a number of legal questions.
    However, there is a strong ethical dimension as well. Derek's
    desire to adapt the software program to his new job
    circumstances seems innocent enough. But the fact that his new
    employer required him to sign a software agreement that what he
    designs becomes company property should have alerted him to a
    potential problem. Although Derek did not sign a similar
    agreement with his previous employer, this does not
    conclusively settle the question of ownership. Others were
    involved in the initial design.



    At the very least, Derek should have inquired about the
    ownership matter prior to adapting the software to his
    purposes. This would not only protect his current employer from
    a potential law suit (should the previous employer choose to
    sue), it would also evidence respect for the interests of his
    previous associates. Carelessly placing one's employer at legal
    risk is both an ethical and a legal concern. Indifference to
    the interests of his previous associates is an ethical concern,
    unless we can assume that Derek is estranged from them (and
    even if he is, there might have been an implicit understanding
    about the disposition of the software). After all, Derek is
    very possibly legally entangling the "lifeblood" of his
    previous employer, given his current employer's apparent desire
    to claim ownership of its employees' software designs.



    It might be objected that Derek did not know that his new
    employer would use all means at its disposal to adapt the
    software system throughout the company. True, but his having to
    sign an ownership agreement should have put him on alert.



    It seems clear from the case that Derek bore no special
    animosity against his previous employer and associates. Now, to
    his regret, he has become involved a legal and ethical
    quagmire. Perhaps a careful investigation of law can clarify
    the legal rights involved in this case, but the ethical
    concerns cannot be handled so readily. So, I conclude that
    Derek should have proceeded with greater caution, heeding the
    concerns of Horace. A call to his previous employer before
    adapting the system might have avoided these problems.

  • Neil R. Luebke

    Posted 12 years and 11 months ago

    The general problem area raised by this case is ownership
    and use of technical knowledge. One question might be phrased,
    "What is the right of the individual engineer to specific items
    of technical knowledge which he/she came to possess because of
    and while in the employ of a firm?" However, there are
    additional, more broadly ranging, questions such as, "How,
    through communicating or (mis)using technical knowledge gained
    in a previous employment, might an engineer cause a current
    employer considerable trouble and expense?" and "To what extent
    is an engineer responsible for the firm's use of his/her
    technical knowledge?" Particular cases dealing with
    intellectual property, as in the present instance, are often
    complicated by a number of legal considerations. In any event,
    Derek would be well-advised to seek the counsel of his firm's
    lawyers before proceeding and to urge his superiors to do the
    same.



    There are at least two major gaps in the case description
    that must be filled before concrete, detailed advice could be
    given to Derek. One is the matter of ownership, and the
    particular type of ownership, of the innovative software
    system. The other is whether Derek's new firm has a license to
    use the original software system. Regarding the first, the case
    description does not explicitly state--but strongly
    suggests--that the software system belongs to Derek's former
    firm. It is said to be the commercial "Lifeblood" of the firm,
    Derek and other developed it while employed by the firm
    (presumably as past of their jobs), and Horace's remark "That
    system is really the property of your previous employer" is not
    challenged but apparently accepted by Derek. The fact that
    Derek did not sign an explicit agreement with his former
    employer may be immaterial. The former employer might have a
    company policy governing ownership. [My university has a
    detailed policy governing the ownership of patents and
    copyrights developed by university employees. No employee
    "signs" the policy and it went into effect, valid from its
    adoption date, years after I first joined the university
    faculty.] Then, too, there are legal precedents regarding
    design work done by employees while under hire to do such work.
    Derek's assumption that his helping to design the system gives
    him some sort of "right" to use it or change it may be
    dangerously flawed. It is remotely possible that Derek had and
    retains some sort of ownership right in the system, but there
    is nothing positive in the case description to suggest so.



    There is also the question of Derek's current firm's license
    to use the software system, for they obviously do not own the
    original version. The case description suggests that the
    current firm has not purchased a license to use the original
    system, but wants Derek to replicate the whole system, with a
    few modifications, for extensive company use and (claimed)
    ownership. Such a move would seem to be a violation of
    copyright by the firm. It is not clear that Derek himself has a
    license to use the system--he may be "pirating" it. There are
    situations in which a company buys a license to use a software
    system and, as part of the purchase, also buys access to and
    use of the "source code" for the system, legally permitting the
    company to modify the system for its own needs. If this were
    the case--but there is nothing of the sort stated or implied in
    the description--there would be no problem in introducing the
    modification and the firm is fortunate to have a person with
    Derek's experience. (There may still be a problem with "owning"
    the modified system.) More commonly, the license to use a
    system prohibits the licensee from modifying the system (which
    would at least void the warranty) or distributing it to other
    parties; the software supplier retains the right to service,
    updates, or otherwise control modifications in the system. The
    user's rights and their limits are usually spelled out in legal
    detail in the purchase agreement and warranty.



    As both Derek and his new employers could be exposed to a
    major lawsuit, Derek should insist that his superiors obtain
    legal counsel before the situation develops further. Derek may
    already be guilty of using proprietary information.



    [Perhaps a few background remarks are in order here
    concerning the topics of patents and copyrights, trade secrets,
    and agreements that might be signed regarding maintenance of
    confidentiality or other intellectual property rights. The
    United States Constitution, Article I, Section 8, Clause 8.
    There the Constitution provides that "Congress shall have the
    power . . . to promote the progress of science and useful arts,
    by securing for limited times to authors and inventors the
    exclusive right to their respective writings and discoveries."
    The United States was one of the first countries to develop a
    patent and copyright system. Since the country was founded at
    the beginning of the modern industrial revolution, there was a
    concern on the part of the Constitution writers that creative
    individuals be protected and encouraged in their efforts to
    develop inventions or to produce artistically. The federal
    Patent Act grants a limited monopoly to a patent-holding
    inventor that gives him a 17-year right to exclude others from
    using, making, or selling his invention in the United States.
    Once a patent is applied for, it becomes a form of personal
    property; it may be bought, sold, traded, leased, licensed for
    the use of others, and so on. Not every invention is
    patentable; it has to meet certain standards, usually standards
    of novelty, utility, inventiveness, and what is sometimes
    called subject matter, that is, there are certain things which
    cannot be patented, such as mathematical formulas or managerial
    techniques, whereas other things--such as actual devices,
    designs for processes, and chemical formulas--may be patented.
    A copyright is similar to a patent in that it grants an
    exclusive right to the holder to publish, sell, etc., plays,
    music, textbooks, photographs, and other such material. The
    extent of protection is usually for longer for a copyright than
    for a patent. To infringe a copyright or to manufacture
    illegally, say, a patented device would be grounds for a
    lawsuit by the owner of the patent or the copyright against
    those who violated the right.



    There is another category of protected information usually
    called "confidential information," "proprietary information,"
    or more commonly "trade secrets." For a variety of reasons,
    companies may prefer to use the trade secret route to protect
    information, designs, formulas, and possibly even computer
    programs developed within their firms. One reason is the
    expense associated with patenting. Another reason has to do
    with the fact that a patented or copyrighted item becomes a
    matter of public record and hence is publicly accessible. While
    at the time of this writing there is no national trade secret
    law, there are a number of statutes on the books of various
    states and a large number of court decisions protecting the
    rights of a firm to maintain its own trade secrets. Companies
    have successfully sued each other for trade secret theft.
    (Surely they were never parties in signing any ownership
    agreement!) One process by which trade secret theft sometimes
    occurs is the hiring of an employee from another firm and then
    putting that employee in a position to use specialized
    knowledge obtained from the previous firm. A trade secret can
    be any specific piece of information--a list of customers, a
    mathematical formula, a chemical formula, a process design, and
    so on--that gives the company holding it a competitive
    advantage in the marketplace and has been identified or treated
    by the company as confidential. Generalized skills that an
    employee may pick up on the job, such as a skill in using
    certain programming techniques or a skill in the conducting
    some type of chemical analysis, would not be regarded as trade
    secrets but rather as general knowledge that becomes part of
    the employee's overall ability.



    In order to help the company in protecting trade secrets (an
    activity that is extremely important in more technological
    firms) as well as in alerting employees to policies governing
    patents and copyrights, employees are often requested to read
    and sign an employment agreement. These agreements explain the
    company's policy regarding patents, copyrights, and trade
    secrets and usually call attention to the employee's obligation
    to continue to maintain confidentiality indefinitely, not just
    during the time of employments with the company.]



    Let us suppose that the company, at Derek's insistence, does
    carry out negotiations with the smaller company producing the
    original software. Derek's ethical commitments to his previous
    and his current employers would not be violated. He will have
    kept faith with his previous employer, and he cannot be charged
    with knowingly doing anything to damage his current employer.
    His current firm may be able to work out some kind of
    relationship with the previous employer and possibly even come
    to a business arrangement for the marketing of the adaptation
    for even more commercial profit.



    On the other hand, let us suppose that the company does not
    talk with the supplier of the software and insists on going
    ahead with or without Derek in making the adaptations
    company-wide. Let us also suppose, as is likely to be the case,
    that at least someone in Derek's previous company finds out
    about the new use of the software system. Derek's new employer,
    as well as possibly Derek himself, could be confronted by a
    lawsuit having to do with the infringement of copyright. Even
    if the lawsuit is not successful, the legal action could prove
    costly for Derek's employer. It certainly might besmirch his
    reputation, both within the company and outside of it. Derek
    should at least do what he can to urge his superiors to seek
    legal advice in this matter. His professional responsibilities
    to his current employer as well as to his previous employer
    would call for no less. If his superiors are too pig-headed to
    seek and listen to legal counsel on this matter, Derek would
    probably be better off working for a more enlightened firm--at
    least one that would not ask him to act illegally.

  • Joseph  Ellin

    Posted 12 years and 11 months ago

    I



    This is a debate over who owns a software system, the
    company or the designer. Horace says the system is 'really' the
    property of the company, but Derek, the designer, claims to
    possess certain property rights in it. My contribution to the
    ensuing discussion would be to say: "Gentlemen. Questions of
    property are determined by law, not philosophy. It is true that
    some philosophers, such as Locke and Nozick, think there's such
    a thing as property apart from law; but this opinion is
    untenable, as no rational criteria can be provided by which
    'natural' property can be determined. (For instance, Locke says
    that I own anything with which I 'mix my labor'; but what is
    that? If I build a fence around a forest, does that mean I own
    the entire forest? Or only the land under the fence? Or the
    fence itself and nothing else? And if I own the fence, do you
    have a right to climb over the fence to get into the forest?)
    Whether the system is or is not the property of the previous
    employer depends on what the law says. It's not a moral
    question whether Derek or his prior employer have legal control
    over the work Derek did there. This may or may not depend on
    any agreement Derek signed, or didn't sign. So Derek should
    consult his, or the company's, lawyer and determine what his
    rights are.



    Derek's arguments are feeble rationalizations for his desire
    to fiddle with the software he invented. He'd be more honest to
    say, 'Look, if I had signed my rights away, my hands would be
    tied. But I never did, and the previous company didn't seem to
    care. So now I'm free as a bird to do what I want with this
    system. That's my understanding of my legal rights, and I
    intend to exercise them fully. If I'm wrong, they can sue
    me.'"



    II



    As the case develops, things go farther than intended and
    now Derek's new employer not only wants him to make greater use
    of the software system than he initially thought would be
    right, but claim to own it themselves. Derek has gotten himself
    into a moral pickle and he wants someone to rescue him from it.
    He signed an agreement with his new company that his work
    belongs to them. He then revised the work he did for the first
    company, half-thinking that he really shouldn't; and now he
    regrets that the new company claims that the whole thing is
    theirs! It's really to late for him to conclude that the old
    company is being treated badly, since he's the one who made it
    happen. The only remedy here is for the first company to sue
    the new employer and have the court determine the legal
    property rights.



    III



    Should Horace, Derek's friend, tell the old company that
    Derek is using the software? Why not? There are no secrets
    involved in this, unless Horace is under a pledge of
    confidentiality, which wasn't stated. The smaller company needs
    to know that their systems are at risk unless they secure legal
    title to them; it's surprising that they have never been told
    this before by their lawyers! (Maybe they need new
    lawyers).

  • John B. Dilworth

    Posted 12 years and 11 months ago

    This is one of the few cases where the specific legal provisions governing the matters at issue are of primary importance in clarifying and resolving the problems. In the case of software, some basic points about copyright law, and some related matters concerning software licensing, are vital to understanding the case, and to distinguishing it from other cases of ownership or rights as they apply to employees. Therefore these legal provisions will be spelled out as an integral part of this commentary.


    1


    Copyright in software is treated under current U.S. law as being essentially similar to copyright in any literary or creative work. In all these cases, one acquires initial ownership of the copyright simply by being the author of the work in question. (Several persons may jointly author a work and so jointly hold copyright to it.) The government (through the Copyright Office, Library of Congress) does provide a Registration of Copyright mechanism. This does not create ownership, but instead officially acknowledges that it already exists. Typically one submits a manuscript, whether of a novel, movie script or source code for a program, as evidence of one's authorship/copyright.


    Authorship as discussed above is subject to the following important qualification. The author of a work might prepare it as a "Work Made for Hire" (defined as a work prepared by an employee within the scope of his/her employment), and explicitly state this on the Copyright Registration form. In this case, the copyright statute provides that the employer rather than the employee is considered as the author (and hence as the copyright holder). However, it is important to note that, in the absense of any such explicit acknowledgement by an author that the work was "Made for Hire", the normal assumption would be that the actual author/s hold copyright to the work, unless other substantive evidence could be produced to prove that it was "Work Made for Hire".


    In the current case, we are explicitly told that Derek was never asked by the small computer firm to sign an agreement that software designed during his employment there becomes the property of the company. If he signed no such agreement, nor (as we may consequently assume) specified that his work was a "Work Made for Hire" in any copyright registration application, then legally he would have a strong presumptive case that he was (and still is) the copyright owner of the software in question. (The possible complication that he was the primary, but not the only, contributor to the software will be considered later.)


    It might be objected that in most cases of employer-employee relations, if one works for someone then they own the products of one's labor. This is broadly true, but creative works falling under the copyright laws work differently. A familiar example in higher education is the fact that professors retain copyright in their books or papers even if they were hired to carry out such creative research.


    In the present case, the fact that Derek was indeed working for a computer firm while preparing the program etc. is not sufficient to establish copyright ownership by the firm. For in the case of software copyrights, there are other rights or permissions to use the software which the firm will have acquired as a result of Derek's activities, which are fully adequate for their business purposes and which justify their hiring and compensating of Derek for his work. They get broadly what they want, but it is rights and permissions to use the software which they get, rather than ownership of it. (Recall that they could have had ownership too, but neglected or elected not to take the necessary legal steps to secure it.) Here is a brief discussion of rights and licensing in relation to copyright, to help clarify these matters.


    2


    Everyone is familiar to some degree with literary and movie rights, for example that a producer may have to pay a novelist a large sum to get the movie rights to a book. These rights give the movie producer the right to produce a film version of the novel, but do not in any way transfer the copyright (or ownership) of the novel to the producer. Similar considerations apply to software too: acquiring the right to make certain uses of software does not transfer its ownership. Derek's firm acquired rights to use his software system for customer services in virtue of his being employed by them to produce the software, but the firm does not thereby acquire property rights in the software.


    More distant still from ownership considerations are issues about licensing. Almost all actual software contracts involve some kind of software licensing, in which the copyright owner gives permission to one or more licensees to make certain kinds of use of the software. Though an exclusive license is possible, most licenses are of a non-exclusive kind, so that many different licensees could make similar uses of the software without violation of their contracts. Clearly in such cases there is no question of any transference of ownership in the legal arrangements.


    3


    In the present case we are given no specific information about what rights or licensing arrangements were in force between Derek and his original small computer firm, but these can be reasonably inferred from the conduct of the parties. Minimally his firm needed from Derek a perpetual, non-exclusive licence to use and modify his source code for the software. Then they could use the software indefinitely, and modify it at any time in the future as changes became desirable. However, unless there was a written contract in existence (signed by the firm and Derek) in which Derek granted the firm an exclusive license to use the software, Derek is free at any time to license the same software (whether or not he chooses to make changes in it) to anyone else, and under any terms he wishes.


    The implications for the present case are clear. Derek as the copyright holder can use or modify his software for use in his new larger computer firm in any way he pleases, with or without discussing it with his former employer. What is more, his new employer cannot claim ownership of the software, because it was developed prior to Derek's current employment rather than as part of his current design work.


    However, Derek would certainly be wise to come to some explicit agreement with his new firm about how he would allow them to use the software. In effect, the new firm wants Derek to produce a customized version of the software for them, and he could agree to do this as part of his regular compensation, while also negotiating a monthly or yearly licensing fee in return for granting them appropriate rights to use the software. Or to simplify things, Derek might be tempted to sell them the package outright for a suitable compensation, in which case there would be an actual transference of ownership of the package.


    4


    We are told that Derek was a "primary contributor" in the original development of the software. This suggests the possibility that he may jointly hold the copyright to the software with one or more other designers. How would this affect the case? Generally, joint ownership allows each owner to exercise all rights of ownership, except for those whose exercise would materially affect the rights of the remaining owners. (Commonplace examples include such matters as joint ownership of a home or bank account.) In the present case, this means that Derek is free to grant non-exclusive licenses to use the software to anyone (but not to everyone), since other joint owners would not be thereby prevented from exercising similar rights. On the other hand, Derek should refrain from attempting to grant an exclusive license, or from attempting to sell the software outright, because both of these actions would materially affect the interests of any other joint owners.


    Does Derek have any moral obligation to contact his former employer, or his co-workers there, before exercising his legal rights as detailed above? First, it is prudent for anyone in business to stay on good terms with both present and former associates. In the interests both of common courtesy and of safeguarding his own career, Derek would be well advised to explain his actions and his view of the case to anyone who might otherwise resent or be annoyed by them, including his former associates and friends.


    Second, if there are indeed co-authors from his previous firm whom Derek could contact, he should do so. A basic principle of legal ethics, assumed in contract law, is that parties who enter into a contract or agreement are thereby obligated to make a good-faith effort to carry out the terms of the contract, both explicit and implicit. Co-authorship, as with other forms of joint ownership, could appropriately be viewed as requiring that one should keep co-authors informed of one's actions with respect to the joint property, even if this is not explicitly spelled out in a written agreement between the co-authors.

Cite this page: "Who Can Change Proprietary Source Code" Online Ethics Center for Engineering 6/15/1992 OEC Accessed: Thursday, July 18, 2019 <www.onlineethics.org/Resources/csaindex/WhoCanChange.aspx>