Feedback: Sadien is exploring the idea of offering copyright and business services in exchange for a stake in software ownership/profits.

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Permalink Reply by Ian Tebbutt on April 2, 2009 at 10:43am

How do you see copyright for software working? For music I assume there are pretty well know rules. For software it's surely next to impossible to copyright adequately to protect IP. A copy of a song is obvious, whereas what constitutes a copy of a piece of software is really hard to define. A good team, can re-implement most stuff given enough time, and in many cases they do.

The fight between Apple and MS over windows springs to mind. Another approach you may be thinking of is the software patent, but they rightly IMHO have a really bad reputation.

I'd be keen to follow this up, if I knew where the benefit was, at this stage I'm just not seeing that value. BTW the creator/publisher model was used in the early days of the PC with DBase but that seems model also seems to have been discredited. Not really sure why as it works well in game development. Does anyone know why the creator/publisher model isn't used?

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Permalink Reply by yadu tekale on April 2, 2009 at 10:55am

a VC does more or less the same thing in differing ways, though they do NOT take ownership of copyright. and the reason for that is quite obvious. unlike music, in the software business the value of the business lies more both in the the business and in the software; it is the busines that gives the entity the multiplier effect in value terms.

i guess the question for many developers will be, what value you bring to them given that you come from a different domain.

for you the details of this will be, how will you validate the product? how will you market, assuming you do the marketing (if i take the music analogy)

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Permalink Reply by Jason Cohen - blog.asmartbear.com on April 2, 2009 at 2:29pm

I don't get it.

(A) You don't need to file a copyright. The only time you'd want it is if you're in court, and even then it's not required that you file it, only that you can prove it existed at some point in time, which the version control system can do nicely.

(B) Business filings run between $300 and $3000 depending on your state and at this point you can get all the docs you need online at the Secretary of State websites. No need for lawyers.

(C) User agreements (I assume you mean EULAs?) can be copied from similar software as a start. Again they don't really matter unless you go to court with a customer, and it shouldn't get to that point because you've already blown more money than the deal is worth. Unless you're doing BIG deals, in which case you'll need to retain council anyway because in that case every deal is different.

So I'm lost. I'm supposed to give up 5%-25% of my company for things that are either free, don't matter, or I can search Google for relatively low-cost setup?

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Permalink Reply by G.C. Hutson on April 2, 2009 at 3:39pm

Following up on Jason's post....

"(A) You don't need to file a copyright. The only time you'd want it is if you're in court, and even then it's not required that you file it, only that you can prove it existed at some point in time, which the version control system can do nicely."

Saying that you don't need to file your copyright with the LOC is like saying that you don't need car insurance, because you're never going to have a car accident.

Specifically, filing a copyright establishes irrefutable evidence that you were the first to create a piece of software. Such that, if the copyright is ever questioned, or more over, someone else creates a derivative work that is similar to your code, you have the right to seek statutory damages pursuant statute.... without litigation.... or proving actual damages. You can seek up to $150,000 in damages, without proving they damaged you at all, by infringing your work.

Whereas, if they file the copyright first... you're in trouble.

(B) Business filings run between $300 and $3000 depending on your state and at this point you can get all the docs you need online at the Secretary of State websites. No need for lawyers.

You can download 1000's of "do it yourself" documents. Wills, POA's, Living Trusts, etc... and you can perform various "boilerplate" legal functions for yourself as well. You can even purchase "business starter packages" at Office Depot.

Technically, you could remove your own tonsils with a with a steak knife, flashlight and a pocket mirror. That doesn't make it a good idea.

80% of my work-week is spent "cleaning up messes" from groups that thought the same thing... "We can do this stuff ourselves."

Every single group I've ever worked with, that is either being sued, suing someone else, or is facing the real possibility of losing their business thought the same things you listed in your post.

"(C) User agreements (I assume you mean EULAs?) can be copied from similar software as a start. Again they don't really matter unless you go to court with a customer, and it shouldn't get to that point because you've already blown more money than the deal is worth. Unless you're doing BIG deals, in which case you'll need to retain council anyway because in that case every deal is different."

Just for fun... let's use your post as a hypothetical example... you stated EULA's "can be copied from similar software as a start."

First off, this is completely false. EULA's are federally protected copyrightable documents.

And now your competitors know how to take you down. They open copy of your software... and discover their EULA agreement... that you copied.

They retain counsel and file a federal lawsuit for copyright infringement of their EULA... that you have copied and distributed, with every copy of your software. Again... they're only suing you for infringing the EULA... not the software.

They have your first and last name on a public website, disclosing that you willfully, and wantonly intended to pirate a competitor's End-User License Agreement, and use it as your own, "for free."

The cost to successfully defend a federal copyright lawsuit is $250,000 to $500,000... and that's if you "win."

Given the nature of the issue, they would be within their rights to seek an court mandated injunction... completely keeping you from doing ANY business, until the issue is resolved.

And, since they would only need to subpoena your financial records to show how many times you violated their copyright by using their EULA, along with the fact that can show that you intentionally pirated the document with your post herein... they could easily seek the limits of statutory damages of $150,000, without showing that you caused any actual "damage."

Thus... in a very short amount of time... your competitor figured out a way to cost you 1/2 a million dollars in legal fees and keep you from doing any business until the action is settled and paid.

It just makes good business sense for them to do so. They just reduced their competition, by 1.

And I'm pretty sure Office Depot doesn't make a form for this. ;)

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Permalink Reply by Ian Tebbutt on April 2, 2009 at 10:46pm

OK I'm getting a shape for the service you're thinking of offering, can you give some idea what filing copyright and writing a proper EULA could cost for a small software package. In that way we'll get an idea of the value of your service.

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Permalink Reply by Justin Bellinger on April 2, 2009 at 11:14pm

I think the idea of covering the legal side, and in an original form, not "borrowed" from someone else is a very good idea. I would also strongly recommend copyright registration (though I note most companies don't do this now.)

If you add-in trademark registration, domain parking (all key tld domain names), and other associated legal matters; on top of that, business registration and the pros and cons of any particular state for registration, then I think this would be a pretty good service.

However, I think you should have a flat fee in most instances; a percentage where the case is complex, and I think 3 - 5% would be the range most people would be happy with; I think 25% is far, far, far too high.

Some services exist offering some of this, but I don't know anyone offering the whole package, so good on you for a great idea.

Best,

Justin.

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Permalink Reply by G.C. Hutson on April 3, 2009 at 12:53am

I totally agree with a "flat-fee" package. It makes sense. In fact, as a software business consultant, I would recommend that you pay for everything, thus you control everything.

For everything involved... i.e. the business plan(s), copyright(s), trademark(s), corporate filings, and all the associated research... most groups would charge between $6,000 and $20,000.

Again... what I'm seeing time after time... are people / groups developing good software... who don't have the cash to pay for these things. (In this economy... sometimes just paying the rent and keeping the lights on are challenges.)

My idea is this... If we truly believe in your model and product, we'd be willing to take the risk with you, on the idea that it will pay off one day.

Would we potentially make more this way? Absolutely. Much more. That's the point. Which is why on some projects, we would be willing to front the $6,000 and $20,000 in services, in hopes of a bigger payoff down the road....

Now... to be clear... this isn't something we'd simply offer anyone off-the-street...

A. The idea and product would have to be good with a strong possibility of profitability and marketability.
B. There must be something tangible, that is clearly owned and controlled by the author.

In other words... we'd truly have to believe that you're an "undiscovered rockstar" in the world of software.

Example.. last month we were approached by an individual who had a GREAT idea for an educational, hand-held travel game for children. However, he wasn't a coder... and he had nothing more than a PowerPoint presentation on the idea.

We spent about 5 hours helping him with his business model, his projections, corporate structure, etc... completely free of cost to him.

Ultimately... we decided to pass, but told him what he needed to do, and how much he should budget in the event he raised enough capital to pay a firm to cover the requirements (regardless of whether he went through us, or not)...

If he would have already had some of the code written in the form of a prototype, I would have been all over it... but good ideas... are just that... good ideas.

A flying car is a good idea. When there is a working prototype... people get more excited.

Same is true for software.

Great feeback guys... thx.

G.C.

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Permalink Reply by Jason Cohen - blog.asmartbear.com on April 3, 2009 at 2:38pm

First, I've done three startups and seen many others and none of the issues you've brought up have ever happened.

That doesn't mean it can't, but you're suggesting 5%-25% of the company's value. That's ludicrous. Fee-based services makes a lot of sense.

I won't go through each of your points, but to take just the first, you can seek an injunction without a copyright filed, and then when hearing comes up and ASSUMING this competitor not only stole your stuff but ALSO filed for copyright, all it does is change the placement of the burden of proof.

And whichever side of that you're on, you'll have to prove yours comes first. If they file but you have proof yours existing first, THEY STILL LOSE. And you have to do that exercise anyway.

Therefore, I'm not giving up 25% of my company for it.

Finally, you're assuming there's one piece of software to copyright. Unlike a song, software is changed DAILY. Will you be filing copyrights daily?

G.C. Hutson said:

Following up on Jason's post....

"(A) You don't need to file a copyright. The only time you'd want it is if you're in court, and even then it's not required that you file it, only that you can prove it existed at some point in time, which the version control system can do nicely."

Saying that you don't need to file your copyright with the LOC is like saying that you don't need car insurance, because you're never going to have a car accident.

Specifically, filing a copyright establishes irrefutable evidence that you were the first to create a piece of software. Such that, if the copyright is ever questioned, or more over, someone else creates a derivative work that is similar to your code, you have the right to seek statutory damages pursuant statute.... without litigation.... or proving actual damages. You can seek up to $150,000 in damages, without proving they damaged you at all, by infringing your work.

Whereas, if they file the copyright first... you're in trouble.

(B) Business filings run between $300 and $3000 depending on your state and at this point you can get all the docs you need online at the Secretary of State websites. No need for lawyers.

You can download 1000's of "do it yourself" documents. Wills, POA's, Living Trusts, etc... and you can perform various "boilerplate" legal functions for yourself as well. You can even purchase "business starter packages" at Office Depot.

Technically, you could remove your own tonsils with a with a steak knife, flashlight and a pocket mirror. That doesn't make it a good idea.

80% of my work-week is spent "cleaning up messes" from groups that thought the same thing... "We can do this stuff ourselves."

Every single group I've ever worked with, that is either being sued, suing someone else, or is facing the real possibility of losing their business thought the same things you listed in your post.

"(C) User agreements (I assume you mean EULAs?) can be copied from similar software as a start. Again they don't really matter unless you go to court with a customer, and it shouldn't get to that point because you've already blown more money than the deal is worth. Unless you're doing BIG deals, in which case you'll need to retain council anyway because in that case every deal is different."

Just for fun... let's use your post as a hypothetical example... you stated EULA's "can be copied from similar software as a start."

First off, this is completely false. EULA's are federally protected copyrightable documents.

And now your competitors know how to take you down. They open copy of your software... and discover their EULA agreement... that you copied.

They retain counsel and file a federal lawsuit for copyright infringement of their EULA... that you have copied and distributed, with every copy of your software. Again... they're only suing you for infringing the EULA... not the software.

They have your first and last name on a public website, disclosing that you willfully, and wantonly intended to pirate a competitor's End-User License Agreement, and use it as your own, "for free."

The cost to successfully defend a federal copyright lawsuit is $250,000 to $500,000... and that's if you "win."

Given the nature of the issue, they would be within their rights to seek an court mandated injunction... completely keeping you from doing ANY business, until the issue is resolved.

And, since they would only need to subpoena your financial records to show how many times you violated their copyright by using their EULA, along with the fact that can show that you intentionally pirated the document with your post herein... they could easily seek the limits of statutory damages of $150,000, without showing that you caused any actual "damage."

Thus... in a very short amount of time... your competitor figured out a way to cost you 1/2 a million dollars in legal fees and keep you from doing any business until the action is settled and paid.

It just makes good business sense for them to do so. They just reduced their competition, by 1.

And I'm pretty sure Office Depot doesn't make a form for this. ;)

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Permalink Reply by G.C. Hutson on April 4, 2009 at 12:00pm

"First, I've done three startups and seen many others and none of the issues you've brought up have ever happened."

Good. I've been licensed to drive a car for past 6,570 days (18 years), and have never been killed in a car wreck. I still wear a seat belt.

"That doesn't mean it can't, but you're suggesting 5%-25% of the company's value. That's ludicrous. Fee-based services makes a lot of sense."

Two issues here...

A. It can, and does happen. The example I cited above... is the exact model IBM, SCO-Unix and Novell have been using in an attempt to put each other out of business for the past half-decade, through course of multiple multi-billion dollar lawsuits (that's Billion... with a "B").

B. Groups like ours help with reviewing details that most business proprietors like yourself overlook, or simply do not understand. For example... what I proposed above was 5% to 25% ownership in a specific, individual copyright... not the business. Your business, of which you own 100%, would own 75% to 95% of the software copyright. Right now, everyone reading this post is using an operating system and browser, in which they have a 0% copyright ownership. Yet they still use those vital pieces of software to run their businesses. And they still own 100% of their companies, and operate them just fine.

"I won't go through each of your points, but to take just the first, you can seek an injunction without a copyright filed, and then when hearing comes up and ASSUMING this competitor not only stole your stuff but ALSO filed for copyright, all it does is change the placement of the burden of proof."

With respect, you are completely, and totally wrong. And this is yet another example of how people use bad information to make potentially devastating choices.

Pursuant USC Title 17 Section 106a, copyright registration is a prerequisite for bringing any copyright infringement lawsuit or action. A copyright owner cannot proceed with a copyright infringement lawsuit unless the work has been registered with the LOC. Period.

"And whichever side of that you're on, you'll have to prove yours comes first. If they file but you have proof yours existing first, THEY STILL LOSE. And you have to do that exercise anyway."

Again, with respect, you are wrong. Registration is a prerequisite for establishing statutory damages. Registration also entitles you... or "the other side" to recovery of all attorney's fees and court costs.

Additionally, registration is sovereign prima facie evidence that the work is original and is owned by the registrant of the copyrighted work.

"Therefore, I'm not giving up 25% of my company for it."

Again, it's 5% to 25% of the copyright... not your business. And I've already figured out that you're not interested. :)

"Finally, you're assuming there's one piece of software to copyright. Unlike a song, software is changed DAILY. Will you be filing copyrights daily?"

I'm not assuming anything. I was only ever discussing the copyright for one piece of software.

Jason,

Somehow, you have been convinced, by either yourself, or someone else, that spending $30 to register your copyright, is "worthless." I'm going to cover this issue at length in another discussion string.

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Permalink Reply by yadu tekale on April 7, 2009 at 8:15am

GC,

interesting thread, though a little academic to me since it has no touch points with my business.

taking off on a point you made, if you are taking 5-25% of revenue share, why would you take part ownership of copyright too? what benefit would that give you?

y

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Permalink Reply by G.C. Hutson on April 7, 2009 at 12:56pm

"...if you are taking 5-25% of revenue share, why would you take part ownership of copyright too? what benefit would that give you?"

It depends on the model the client would intend to use for their own development. In many cases, the goal is to sell the code-base to a third-party, and allow them to run with the software product. I have worked with several groups in the past that have employed this model..

Typically, the coder writes the code, sells the code for a cash price upfront, and we negociate a residual royalty for a period time following the sale.

The other common model, is the "bootstrapping" approach (discussed in another thread). Whereas, the coder builds an entire "soup to nuts" business around their code-base, and sells it on the open market.

We would advise the client on what we think the best model would be, and come up with an equity model that works for everyone.

For example... if the coder wanted to sell their software "soup to nuts," with the option to be bought out later, we would probably take 10% equity in the copyright, and 5% of gross profits.

In short, each relationship would be different.

Some groups, we may only help them file the paperwork, and be done...

Many of the groups I work with call me weekly to discuss plans, strategies, forcasts, contracts, distribution deals and copyright issues.

Right now... we just bill.

It was actually one of the clients that I work with on daily basis that offered to give us a piece of his operation in exchange for our services.

Thus the string here, to see what other people thought.

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