Startup in IT-business: general provisions

Irina Bekish, lawyer

Currently, IT-business in the Republic of Belarus is actively growing. Many young IT-specialists leave the companies where they have worked enough time to organize their own IT-business.

However, developing your own IT business is not as easy as it seems at first glance.

At the moment in Belarus there are two main schemes of start-up:

- development of own solutions in parallel with outsourcing;

- selling the idea of creating a product in order to attract investment.

The second scheme is often used when their own funds is over.

In any case, when fulfilling your order to develop a computer program, any specialist in the IT business is faced with intellectual property issues.

Intellectual property is the exclusive right to the result of intellectual activity, which may be a work of science, literature and art; invention, utility model, including computer program.

Therefore, a very important aspect in promoting your product is to resolve the issue of ownership of property rights to a computer program (software product) and their transfer to the customer.

A thing, as an object of civil law, can be in use by one user. Intellectual property can be simultaneously used by many users.

Paragraph 2 of article 13 of the Law "On copyright and related rights" (hereinafter – the Law) provides that the author or another copyright owner in respect of a computer program has the exclusive right to install or authorize a computer program on a computer or other device, run a program and use it (the use of coded in the computer program functionality), as well as other actions in accordance with article 16 of the Law, with the exception of cases provided for by Chapter 4 of the Law.

Article 16 of the Law determines the content of property rights to a work, including the right of the author or other copyright owner to use the work at his discretion in any form and by any means. In this case, the author or other copyright owner has the right to allow or prohibit other persons to use it.

After finishing development of computer program (software product), beginning startups should launch their product on the market. At this stage, there is a need to clarify ownership of rights to the product, their legal registration. And only then exclusive rights are determined between startups and persons interested in acquiring a computer program (software product).

If beginning startups have already created an organization and has hired some employees (as a rule, programmers), it is important to determine the rights of employees and the rights of the company to develop a computer program (software product). Often exclusive rights are reserved for the developer company, which receives its main profit by providing permits (licenses) for the use of its product on the basis of a license agreement. Meanwhile, reservations related to the transfer of rights to an organization's product should be included in employee contracts. In addition, separate civil law agreements may be concluded between the organization and employees which specify the process of rights transfer, assignment of property rights, as well as issues of payment of royalty fee.

It is believed that the company should pay attention to concluding agreements on the assignment of exclusive rights with contractors or agreements on the transfer of rights to an official work with a staff member, as well as agreements on the prohibition of competition and the disclosure of trade secrets (information).

Paragraphs 2 and 3 of Article 44 of the Law provide for two types of licenses for the use of intellectual property: exclusive and non-exclusive.

Under an exclusive license agreement, the licensor grants the licensee the right to use the object of copyright or related rights in a specific way within the limits established by the agreement. In this case, the licensor does not have the right to use and authorize others to use the object of copyright or related rights in the part provided to the licensee, but retains the right to use and authorize other persons to use the object of copyright or related rights in the part that is not provided to the licensee (paragraph 2 of Article 44 of the Law).

Under a non-exclusive license agreement, the licensor grants the licensee the right to use the object of copyright or related rights while retaining the right of the licensor to use the object of copyright or related rights and the right to issue a license to others (paragraph 3 of Article 44 of the Law).

IT companies more use non-exclusive license agreements.

The legislation of the Republic of Belarus provides for various options for legal registration of such licenses. Firstly, the procedure for transferring rights to an intellectual property can be directly prescribed in a license agreement. In this case, the scope of the granted rights and the term of the contract in the territory where it is allowed to use a computer program (software product) are also specified in the contract.

Secondly, the procedure for transferring rights to an intellectual property is set out on the packaging of the program or is attached to each copy of the program. In this case, the person who intends to purchase a computer program (software product) must take into account that the transfer to the final user of a physical medium with a copy of a computer program (software product), including under a sales contract, does not give him the right to use this programs by virtue of the fact of transfer, since the transfer of rights to an intellectual property subject to the legislation of the Republic of Belarus requires compliance with a certain form.

When an IT company is going to transfer its exclusive rights to the created computer program (software product), it is already an agreement on the assignment of exclusive rights, the subject of which is the transfer by the copyright owner of its exclusive right to the computer program (software product) to the other party for the whole term copyright actions (part 1, paragraph 1 of article 43 of the Law). This means that the company developing the computer program (software product) irrevocably transfers all its property rights to the program as an object of copyright to another person. IT companies can do this for various reasons: due to the lack of the necessary organizational and financial resources for independent product promotion on the market, according to the chosen strategy, which assumes specialization in software development, etc.

According to the Law (clause 3 of article 43, part 1 clause 7 of article 44), an agreement on the assignment of exclusive rights and a license agreement must be concluded in writing. Consequently, non-compliance with this form may result in the recognition of the contract invalid.

Compliance with the written form is also required when preparing documents for the transfer of exclusive rights under these agreements.

When a computer program (software product) on a material medium or via the Internet is transferred to a user who is not a resident of the Republic of Belarus, IT companies need to comply with currency regulation and control.

Company must comply with the rules of currency legislation and complete the transaction within 90 days.

Please note that the object of VAT is volume on the sale (transfer) of intellectual property rights in the Republic of Belarus (according to the Tax Code of the Republic of Belarus (hereinafter - TC)).

Nowadays the SaaS (Software as a Service) model is widely used in the implementation of its product by IT companies. That is, one or another computer program (software product) with a certain functionality is located on the server of the IT company (right owner) or on the servers of the hosting company, with which the company (right owner) has an agreement on the provision of relevant services and which, as a rule, take assume the functions of an intermediary in accepting money from various payment systems and send the received funds minus the remuneration due to the developer’s accounts.

For developers of mobile applications, it is enough to create an account on the AppStore or Google Play by concluding an appropriate public contract. After registration, the developers of the product have the right to engage in its promotion and sale.

A person interested in using the program applies to the company-owner with a request for its use via the Internet. After gaining access to the program by entering the username and password sent to the user, as well as paying a certain amount of money, a person starts using the program.

The legal nature of such relations remains insufficiently developed today.

As a rule, in this case the accession agreement is used for the legal registration, when the person immediately before connecting to the program is invited to read and accept the terms of its license use and pay a certain amount of money. The terms themselves are set out in electronic form on a special page of the website and contain an offer to accept or refuse them by selecting one of the answer options (for example, "I accept the terms"/ "I do not accept the terms"). These conditions remain unchanged for each visitor of the website and are considered as a public offer (paragraph 2 of article 407 of the Civil Code). As the acceptance of such offer (if it is about paid services) the fact of payment by the interested person of the sum of money for the right of receiving possibility of use of the program in the amount determined by the company-the owner is recognized (Art. 408 of the Civil Code). This transfer of rights is also called a click-license.

Article 44 of the Law establishes that the conclusion of a license agreement on the right to use a computer program or database is allowed by each licensee concluding an accession agreement with each licensor, the terms of which are set forth on the purchased copy of the computer program or database or on the packaging of each copy or are attached to each copy. The start of the use of such a computer program or database by the licensee means his consent to conclude a contract.

When transferring intellectual property objects via the Internet from the point of view of accounting, the moment of the actual exercise of property rights by the licensor of the intellectual property object may coincide with the time of payment when the user acquires them by click licenses (the user becomes familiar with the terms of the contract during the installation of a computer program or its downloads over the Internet and expresses his consent by clicking on the “agree” button).

As a rule, before downloading a program a user pays for it cost and gets official permission to use it (or to transfer rights for its use to others). In such cases, at the time of receipt of funds, the licensor has the obligation to calculate VAT.

Thus, fresh startups must clearly understand how they will carry out their activities and have a clear understanding of the legal aspects of creating intellectual property.