Nowadays the world’s IT industry is increasingly reliant on outsourcing with a pronounced international element. The cornerstone of any legal relationship of this kind is settling the rights over intellectual property objects – software and databases, as well as their free utilization by the end client, which can be impeded by the insufficient regulation of the relationship between the parties who took part in the creation of the final product.

Oftentimes the principal resort to the so-called boilerplate contracts, generally used in dealings with subcontractors of all kinds without due consideration of the particularities of the internal structure and work methodology typical for each contracting party. This approach leaves the parties vulnerable to two fundamental issues typical of the IT industry – the transfer of copyright from the subcontractor to the principal and the complications related to the international character of the relationships. The order usually presumes the transfer of all intellectual property rights from the subcontractor to the principal – which cannot happen if the former does not own them in the first place.

Such an issue might arise in cases where the subcontractor utilizes freelancers, as the presumption enshrined in Art. 5 of the Bulgarian Law for Copyright and Related Rights is that copyright is owned by the natural person through whose efforts the object of intellectual property was created. Reliable counteraction begins as early as the recruitment of employees and freelancers by the IT companies that operate as subcontractors for IT projects; these companies need to regulate their dealings with employees and freelancers regarding intellectual property in a reliable manner to avoid causing significant damage to their own clients.

Despite the existence of the Berne Convention for the Protection of Literary and Artistic Works, Directive 2001/29/EC of the European Parliament and of the Council of 22 May 2001 on the harmonisation of certain aspects of copyright and related rights in the information society and Directive (EU) 2019/790 of the European Parliament and of the Council of 17 April 2019 on copyright and related rights in the Digital Single Market and amending Directives 96/9/EC and 2001/29/EC, domestic legal systems retain a number of specifics related to copyright. For example, the Bulgarian LCRR contains the presumption of transfer of copyright over software and databases created in the course of employment to the employer; while Czech legislation contains the opposite presumption, but grants controlling rights to the employee who created the product. On the other hand, while in the EU copyright over databases exists for 70 years, in India this period is 60 years. When entering into contracts with persons based in other states, it would be beneficial for companies to consult with an expert who is well-versed in both the aforementioned international legal acts as well as the provisions of the domestic legislation of the state in question, in order to iron out such discrepancies.

Last but not least, to ensure the unimpeded utilization of the final product by the principal or their end client, it is highly recommended that the contract between the principal and the subcontractor contain provisions regarding:

1. A detailed mechanism for the transfer and scope of the copyrights being transferred – blanket provisions for transfer can leave gaps in an unexplored and individualized legal relationship which might damage the established trade relations between the parties and their clients;

2. The relationship between the subcontractor and their own employees and subcontractors – natural persons working on the project. The various legal links between the subcontractor and these natural persons necessitate different ways for the transfer of copyrights to the principal;

3. The subcontractor’s liability for partial transfer of copyrights – in cases where the owners of moral and/or economic copyrights are the natural persons working on the project. This is a particular case of non-performance which is often disregarded by the parties who rely on the general statute or contractual clauses for non-performance.

If you or your company is a principal or a subcontractor in the IT sector, Obretenovi Law Firm can help you shape your legal relationships in a secure and reliable manner.