New understanding of a nonexclusive licence

Some diverse changes have been proposed to Part VII of the Civil Code. Many of these changes are very important and are being widely discussed. I would like to talk about one such change. It is, not the most obvious one, but, as practice shows, it is an essential change – an amendment to Article 1296 of the Civil Code on software and databases developed according to a contract.

Nikolay Stepanov

Muranov, Chernyakov & Partners
+7 495 783-74-50

Currently, the person placing an order must choose to obtain either exclusive rights on the software or a simple (nonexclusive) license ‘for its own needs’. The latter is not very common but it can reduce the investments needed to develop the software. When the exclusive right is kept by the developer it usually costs less for the customer to get the program.

In this case, however, the question that arises is about limitations on the usage ‘for own needs’. Clearly, that may differ from customer to customer. To some, use of the software by its own employees is enough. To others, it is desirable to install the software on their customers’ computers so that it can be used for communication between them and the company, etc. At the same time, to most commentators the use of software for own needs, according to the law as it stands at the moment, is a very restricted right which amounts to using the program exclusively within the customer’s company.

Of course, the customer and the contractor can agree that for their purposes ‘the own needs’ include a wide range of ways of how software can be used. In this case, the customer will be protected from claims by the developer / owner. However, this does not guarantee the absence of claims from tax authorities. Our law firm have already had to defend the interests of clients when tax inspectors were trying to qualify the ‘extended’ license as a form of gift received from the developer / owner and on that basis to tax it as additional income.

The proposed wording of paragraph 3 of Article 1296 of the Civil Code states that when the exclusive right to software or database remains with the contractor, the customer is entitled to those rights as stated in the contract.

Interpretation of this provision in conjunction with the ‘new’ paragraph 2 of Article 1296 of the Civil Code (which refers to cases when the developer reserves the right to use software for its own needs free of charge) suggests that the amendments give the customer more powers to use the software, which go beyond the scope of the current restrictive understanding of ‘own use’. The customer may use the software in the business for which he ordered it and paid for it. This seems reasonable and fair.