Who Owns Your Code? Avoiding IP Ownership Pitfalls in Software Developer Agreements
Understanding Copyright in Software: EU and Cyprus Legal Framework
Software is protected under copyright law as a form of literary work. This protection arises automatically upon creation and extends to the source code, object code, preparatory design material, and associated technical documentation. Within the European Union, this framework is governed by Directive 2009/24/EC on the legal protection of computer programs, as subsequently amended. The Directive establishes that computer programs are protected in the same way as literary works under the Berne Convention and that such protection applies to any original program, provided it is the author’s own intellectual creation.
In Cyprus, the relevant EU Directives have been transposed through Law 59/1976, as amended (the Intellectual Property and Related Rights Law), which governs the subsistence, ownership, and transfer of copyright in literary, artistic, and scientific works, including software. Under Article 11(1)(b) of Law 59/1976, where a work is created in the course of employment, the employer is deemed to be the first owner of the copyright, unless there is a written agreement to the contrary. This statutory assignment applies only in the context of employment relationships.
In all other cases, including engagements with external software developers, consultants, and independent contractors, copyright vests initially with the author (that is, the software developer), and no ownership passes to the commissioning party unless expressly assigned in writing.
As many companies rely on third-party service providers rather than internal employees to develop software products, ensuring correct IP assignment is essential to safeguarding the company’s proprietary assets.
Moral Rights in the Software Context
In addition to economic rights, authors also hold moral rights, which may include the right to be identified as the author of a work (right of attribution) and the right to object to derogatory treatment of the work (right of integrity). These rights are personal to the author and are often non-transferable, although they may be waived in some jurisdictions, including Cyprus. Software developer agreements should therefore include a waiver of moral rights to the extent permitted by law, to prevent future claims that could restrict the client’s ability to modify or commercialise the software.
Misconceptions Around Automatic Ownership
Despite the clarity of the legal framework, it is common to encounter the mistaken belief, particularly in startup and early-stage tech environments, that payment for software development automatically conveys ownership of the resulting intellectual property. Without an express assignment of rights, the commissioning entity will typically receive only an implied licence to use the work, which may be limited in scope, duration, or transferability. This poses material legal exposure and financial valuation risk, especially in the context of fundraising, M&A, and product commercialisation.
The ‘Work for Hire’ Concept in the EU Context
The concept of “work made for hire,” rooted in U.S. copyright law, allows certain commissioned works to vest automatically in the commissioning party. However, in many jurisdictions outside the United States, including Cyprus and other EU Member States, this concept has no legal effect.
Under EU law and Cyprus’ Intellectual Property and Related Rights Law, copyright only vests automatically in the employer where the author is an employee acting in the course of their employment duties. For all other arrangements, including contracts with independent software developers, copyright remains with the creator unless expressly assigned in writing.
Risk Scenarios in Software Development Engagements
In practice, significant legal risk arises in situations where development work is carried out by independent software developers, freelancers hired through online platforms, or third-party software development agencies. These arrangements frequently lack formal contracts or rely on minimal boilerplate terms. In other cases, the source code may have been written by co-founders or collaborators prior to the incorporation of the company, with no written documentation in place.
Such deficiencies often surface during due diligence exercises in M&A transactions, when investors or acquirers seek to verify that the company has clear and undisputed title to all underlying IP. Where rights have not been properly assigned, remedial steps may be required, which can complicate or delay transactions.
Drafting Effective IP Assignment Clauses
To ensure that intellectual property in software development is properly vested in the commissioning company, software developer agreements must include clear and enforceable IP assignment clauses.
These should, at a minimum:
Provide for the full, irrevocable, and unconditional transfer of all intellectual property rights in the deliverables, including copyright and related rights;
Confirm that the assignment applies to all present and future rights, including modifications, derivative works, and updates;
Include a waiver of moral rights, to the extent permitted under applicable law;
Contain warranties from the software developer confirming they have the authority to assign the rights, that the deliverables are original, and that they do not infringe third-party rights.
Background IP, Open Source, and Licensing Concerns
Where a software developer integrates pre-existing tools, code libraries, or other reusable software components into the deliverables, it is essential to distinguish between Background IP (which the developer owns or licenses) and Foreground IP (which is created specifically for the client).
The agreement should at minimum:
Identify any Background IP to be used;
Specify whether the client receives an assignment or a broad, royalty-free licence to use, modify, and sublicense such components;
Ensure that any dependencies on open-source software are properly disclosed and that the software is used in compliance with applicable licence terms (such as MIT, Apache, or GPL).
Failure to manage open-source components and licence obligations correctly may inadvertently subject proprietary code to copyleft conditions, which could require public disclosure of source code or impose restrictions on how the software can be commercially exploited.
Practical Steps to Secure Ownership
From a governance perspective, companies should ensure that every person or entity contributing source code, whether an employee, contractor, third-party software development company, or founder, is bound by a written agreement that clearly addresses IP ownership, irrespective of whether IP during employment passes to the company. This applies not only to new engagements but also to historic contributions.
Where such documentation is incomplete or absent, retrospective IP assignment agreements should be executed to regularise ownership. Maintaining a source code register or internal IP log identifying contributors, contract dates, and rights status is considered a best practice, particularly when preparing for investment or sale.
IP as a Strategic Asset
For technology companies, IP is not a peripheral issue. It is often the core asset of the business. Ownership of software code underpins a company’s ability to operate, scale, license its products, or raise capital. Any ambiguity in IP ownership represents a latent legal risk that can introduce potential disputes or materially affect commercial outcomes.
Taking early, proactive steps to document and secure IP rights is not merely a matter of good housekeeping. It is a strategic imperative that directly supports the company’s business value.
How Aptus Legal Can Assist
At Aptus Legal, we work with founders, technology companies, and investors to secure and structure IP ownership in a legally robust and commercially viable manner. We draft and negotiate software developer agreements, IP assignment and licensing arrangements, ensuring our clients obtain full legal title to the assets they rely on.
We also assist clients in preparing for investment or acquisition by reviewing their IP position, identifying potential gaps in ownership, and putting in place the necessary agreements to ensure the company owns what it needs to. We carry out targeted legal due diligence on IP assets, advise on founder contributions and early-stage development work, and address historical issues where documentation may be missing or incomplete.
Whether you are onboarding external software developers, engaging technical co-founders, or reviewing your IP documentation ahead of a transaction, we provide clear, commercial, and tailored legal solutions.
For more information, please contact Aptus Legal by clicking here or send an email to info@aptuslegal.com.