Software is like a virus – constantly changing, developing new forms and evolving in complexity.
Twenty years ago (when dinosaurs ruled the software world), software was simpler with human-readable source code written in defined modules and converted to machine-readable object code for operation. Now, software is more amorphous, including everything between interfaces for pre-existing data structures and hardware-centric firmware.
As a practical matter, most software is not subject to registered copyrights and a “printout” of the code is not practical. So how do you identify what you are buying in an asset purchase deal? In many cases, the software is the target of the acquisition.
While a general definition, such as “all software associated with the Business” may be acceptable for the purpose of the transaction (with the Business being defined as, for example, “manufacture and distribution of valves”), a later claim of infringement or disputed ownership leaves the buyer struggling to identify just precisely what has been purchased. There is no registered deed to this property with a survey. The key is being as specific as possible in defining at least the function and application of the software as part of a definition in an asset purchase agreement or on a schedule of assets. Keep the following questions in mind when crafting a description of the purchased assets:
- What is the form and format of the software? Is it standalone or does it interface with other software or hardware?
- Does the software require other components, hardware or software, to operate, and are they included?
- Is the software only compatible with a particular operating system, hardware system or chipset?
- Are there different versions?
- Is there documentation, including development notes as well as end user operational materials?
- Does the software include open source components or other third party materials which need to be licensed?
- Is there a library of historical versions?
- Are there maintenance obligations if the software is licensed to third party end users and is there proper documentation to assist with that function?
These and similar questions during the diligence process will assist in appropriate definition of the assets.
Contact the Intellectual Property group at Metz Lewis to learn more.
