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Source code: is the software house required to hand it over to the client?

Published in: Intellectual Property
by Arlo Canella
Home > Source code: is the software house required to hand it over to the client?

The present decision of the Court of Bologna (Judgment No. 96/2020 published on 15/01/2020) addresses the issue of source code ownership and its legitimate attribution in case of software development entrusted to an external professional or software house.

In this article:

The case: the refusal to hand over the source code

The case addressed by the Court of Bologna concerns the refusal of a software house to hand over to the client the source code of the software commissioned from it.

The commissioning company, a firm in the refractory tile and ceramic tile manufacturing sector, had commissioned the development of software to streamline its operations.

Well, the commissioning company had been forced to sue the software house, on the one hand, to have its ownership of the source code recognized, and on the other hand, to obtain compensation for the damage suffered as a result of the refusal, and consequent delay, in returning the code.

The distribution of software rights under the Law

Article 12 bis of the Italian copyright law is located within Chapter III, Section I, entitled “Protection of the economic use of the work.” When the parties agree to develop or create a creative work-which naturally includes original software-the right of economic exploitation belongs to the employer or principal.

In fact, when the object of the contract between principal and developer is precisely the creative activity, its fruits can only belong to the one who has incurred the economic investment to obtain them.

Article 12 bis provides that “Unless otherwise agreed, the employer shall own the exclusive right to the economic use of the computer program or database created by the employee in the performance of his duties or upon instructions given by the same employer.”

This principle is also applied, in substantially similar terms, to the case of the principal in the context of a self-employed (non-employee) relationship.

As a matter of fact, the Jobs Act stipulates that the rights of economic use, in the case of original and inventive contributions by the self-employed worker, accrue to the latter “… unless the inventive activity is provided for as an object of the contract of employment and compensated for that purpose” [Law 81/2017, so-called Jobs Act, Art. 4].

What is the difference between source code and object code?

The main difference between source code and object code is that source code is written in a human-readable programming language; object code is not.

Object code is binary code compiled or translated from source code, which is much faster to execute but much more difficult to interpret.

Source code, having been written by a programmer, can be modified to meet any additional requirements or functionality (even by programmers other than the original ones).

However, when the creation of software is commissioned by a company to meet its needs, it seems obvious that if the developer-without good reason-decides to deny access to the source code to the client, he or she risks not only causing damage to the company but also being sued for compensation.

Who owns the source code?

Software developed for an enterprise, on the basis of the relevant legislation and prevailing case law, belongs by Law to the latter: it makes no sense to distinguish between source code or object code, because both, unless the contract provides otherwise, belong to the person who commissioned the software, bearing its expense, i.e., the commissioning enterprise.

According to the Bologna Court, “there is no question that software is a work protected by copyright and it is well known that […] there is a distinction between object code and source code, both of which are subject to authorial protection” [Trib. of Bologna, Sent. no. 96/2020]. As also already clarified by the Italian Supreme Court ( Civil Cassation, Sec. I, no. 13171/2016], the Bologna Tribunal also confirmed that the ownership of the code belongs “…to the principal, as a consequence of the work contract, because the principal himself by commissioning the work acquires it in its original title” [Trib. of Bologna, sent. no. 96/2020].

The organizational damage to the enterprise system by unavailability of the code

In the case examined [Trib. of Bologna, Judgment No. 96/2020], the contract stipulated that the developer “…shall own all industrial and/or intellectual property rights relating to any results arising from or otherwise connected with the performance of the services.” The Tribunal therefore interpreted said clause “in an inclusive sense of all the results of the developer’s activity without distinction between object codes and source codes.”

According to the reasoning of the Justices, therefore, the source code belongs to the principal as a typical result of the developer’s activity.

Therefore, “… it is entirely reasonable that the unavailability of the source code for some time resulted in the need for manual activities to enter data that would otherwise be acquired by the system automatically, or the need for the intervention of computer technicians to otherwise resolve computer system malfunctions.” In short, “it may be reasonably and presumptively held that the unavailability of the source codes […] caused the principal to suffer organizational and dysfunctional damage to the enterprise system”.

In other words, there is a certain consequentiality between the inconvenience suffered by the principal/owner of the software and the conduct of the developer who refused to make the source code available.

Failure to return the code as a tort

Bologna Court Judgment No. 96/2020 does not seem to have any particular innovative impact, but it does highlight very well the issue of source code ownership and the risks related to its management.

An unjustified refusal to hand over source code to its rightful owner constitutes an unlawful act. In fact, the court, having come to ascertain the ownership of the source code in the hands of the principal, held that it had to order the software house to pay damages for “wrongful act resulting from the failure to return the source codes at the expiration of the contract.”

In many cases, a good contract can make all the difference in terms of containing the risks associated with software development. In its absence, however, it should be kept in mind that Law tends to favor the developer, that is, the one who has borne the economic investment for the development.

© Canella Camaiora Sta. All rights reserved.
Publication date: 13 February 2023

Textual reproduction of the article is permitted, even for commercial purposes, within the limit of 15% of its entirety, provided that the source is clearly indicated. In the case of online reproduction, a link to the original article must be included. Unauthorised reproduction or paraphrasing without indication of source will be prosecuted.
Avv. Arlo Cannela

Avvocato Arlo Canella

Managing Partner of the Canella Camaiora Law Firm, member of the Milan Bar Association, passionate about Branding, Communication and Design.
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