In today’s world, software is not merely a technological tool but also an independent asset capable of having significant economic value. Within a group of companies, software and the rights thereto may be transferred between legal entities in various forms: through the assignment of intellectual property rights, licensing, the grant of rights to use software, or the development of a software product on commission.
At the same time, the mere fact that the parties are formally related does not eliminate the need for proper legal structuring of such a transaction or for substantiating its economic terms. Of particular importance is determining exactly what constitutes the subject matter of the transfer. For this purpose, reference should be made to the relevant statutory definition.
The Law of Ukraine “On Copyright and Related Rights” defines a computer program as a set of instructions in the form of words, figures, codes, schemes, symbols or in any other form, expressed in a format suitable for reading by a computer (including a desktop computer, laptop, smartphone, game console, smart TV, etc.), which causes the device to perform certain actions in order to achieve a particular purpose or result. This includes operating systems and application software expressed in source code or object code.
It should be noted that copyright protection is granted specifically to the form of expression of a computer program. A graphical user interface, the set of functions performed, and the format of data files used by a computer program in the course of its operation do not constitute forms of expression of a computer program. Ideas and principles underlying any element of a computer program, including those underlying its interface, logical schemes, algorithms and programming languages, are not protected by copyright.
Accordingly, legal protection extends to computer programs expressed in source code or object code, provided that they are original. Under Ukrainian law, a lawful user of a computer program is a person who lawfully possesses a legally made copy of such computer program.
For the IT sector, the transfer of rights to created assets — including code, design, graphics, algorithms and other results of intellectual activity — is of particular importance, as it determines who owns the product, who is entitled to derive income from it, and on what terms it may be used.
In European practice, intra-group transfer arrangements (commonly referred to as intercompany transfers) and licensing agreements often provide for intellectual property assets owned by a parent company — such as trademarks, patents or software — to be made available for use by other companies within the group.
Depending on the nature of the software transfer and the scope of rights granted to another company within the group, the parties may choose one of several contractual mechanisms.
A licence agreement is an agreement under which the right holder grants another company the right to use software within the scope specified by the agreement. In particular, the parties may determine the permitted methods of use of the software, the term and territorial scope of the licence, as well as other conditions governing its grant.
An agreement on the assignment (transfer) of proprietary intellectual property rights provides for the transfer of proprietary rights in software from one party to another. When entering into such an agreement, it is essential, first and foremost, to confirm that the assignor is indeed the legitimate right holder and is entitled to dispose of the relevant proprietary rights.
Particular attention should be paid to the chain of title, including the transfer of rights from developers, employees, consultants and other persons involved in the creation of the software. It is also necessary to verify the existence and fulfilment of all payment obligations related to the transfer of such rights.
The agreement should clearly specify the method by which the software is transferred, for example, by means of a physical storage medium or electronic communication. It is also advisable to determine the moment at which the rights transfer and, where appropriate, provide for the execution of a handover and acceptance certificate as documentary evidence confirming the transfer of exclusive proprietary rights.
A software development agreement is used where software is developed specifically for a customer and should regulate the procedure for creating the software product, the allocation of rights in the development results, and the moment at which the relevant proprietary rights are transferred to the customer.
Proper documentation of rights in software code created by employees, freelancers, consultants or other contractors is particularly important. In such cases, it is necessary to clearly determine who owns the proprietary rights in the development results, as this may depend on the legal status of the developer, the nature and terms of the contractual relationship, and the applicable statutory provisions governing works created in the course of employment and other intellectual property objects.
Regardless of the contractual model chosen, the parties generally need to regulate a number of key issues. In particular, agreements governing the transfer of software should clearly specify:
A particular advantage of transferring software within the framework of an intercompany transfer arrangement is the possibility of establishing remuneration for the use of intellectual property, including in the form of royalties. The agreed remuneration model may serve as one of the mechanisms for allocating income among companies within a group. However, its terms should correspond to the nature of the rights transferred, the actual use of the intellectual property, and applicable legal requirements.
At the same time, the contractual structure of an intra-group transfer and IP licensing arrangement may also have tax implications. Therefore, when designing such a structure, it is necessary to assess not only the legal aspects of the transfer and use of intellectual property rights but also the taxation of the relevant transactions, transfer pricing considerations, and the justification of the amount of remuneration.
One of the issues our law firm encounters in practice when advising on similar transactions between related companies is inadequate documentary formalisation of software transfers. Companies often limit themselves to providing actual access to a computer program, for example, by transferring relevant codes, credentials or access keys. However, such an approach does not replace proper legal documentation of the transfer or grant of rights in the software.
Over time, the absence of clearly defined contractual terms may create legal uncertainty regarding the scope of transferred rights and the parties’ respective powers. It may also result in discrepancies between the legal structuring of the transaction and its tax and accounting treatment.
It should also be borne in mind that software and the intellectual property rights associated with it may constitute a valuable intangible asset of a company. Proper documentary formalisation of such transactions is important not only for confirming rights in the software but also for minimising the risk of future corporate, tax and proprietary disputes.