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A Practical Guide to Protect your Source Code IP when Outsourcing

A Practical Guide to Protect your Source Code IP when Outsourcing

When you are hiring a partner for your software development, your primary objectives are that the software should adhere to your requirements, look attractive, perform predefined tasks without any bugs and be convenient for your end-users.

An additional concern for most Organizations is protection of their ideas and source code.  The following possibilities constitute a crucial source of this anxiety:

  • What if the code developed for me is Reused or copied?
  • What if my code is shared with my competitors?
  • What if the service provider initiates minor changes in my source code and develops his product?

Undeniably, a unique product or service for a business can be a priceless asset. However, stealing from the application is more difficult than just imitating the code.  Intellectual Property (IP) rights are not limited to patents, trademarks, and copyrights; it can also be applied for the source code, processes, techniques, methodology as well as talent.

What is an IP right for Software?

IP (Intellectual Property) rights ensure that creative work, which is treated as an asset is legally owned or protected by a company. IP right for software is software or code protected by law under a software patent, copyright, trademark or trade secret.

If IP protection is at your highest priority, here are some best practices to avoid negative repercussions from external risks.

Weigh the Intellectual Property Risks

Enterprises share some IP related to processes, technologies, and applications with their service partners. The sharing of sensitive information raises some security concerns. These concerns can be mitigated with solid preparation, but nothing aids more than anticipating prematurely what the potential risks are:

Risk 1: Misuse of Sensitive data                                 

The employees who have access to your sensitive data might disclose the data. This confidentiality breach might consequence stealing source code, credit card fraud, Refund Fraud, Selling of the client’s database to competitors, and identity theft.

Risk 2: Idea or Source Code leaks

The partnering company might have your competitors as its clients. Developing a piece of code or creative idea for your product sometimes finds its way into the competitor’s product as well.

Risk 3: Improper Proprietary Information Handling

You can’t expect everyone to treat your IP rights, data security, and confidentiality as a top priority like you do.

Risk 4: Ownership of Source Code IP

The most important asset that everyone considers is the source code, created or improved during the contract. No one wants to lose source code IP ownership in their preexisting works just because their partner made some enhancements. The service provider will probably claim the ownership of the source code or technology improvements and will demand ownership of any portion of the preexisting work, related to those improvements.

But don’t worry, we have several ways to protect your source code IP leaks ad business.

Practical Advice to Manage your Source Code IP Leaks Concern

A good business relationship takes trust, but it takes time – something you may not have when you first collaborating with a new service provider. By hiring right service providers and proactively taking steps to ensure your code is protected, can give you the confidence to work with the service providers you partner with. Here are some disciplined uses of risk management practices that arm companies with the best IP protection possible:

1. Choose the Right Partner

You can protect your IP before the first line of your code is written. Choose your service Partner carefully and work only with a reputable company that operates under a reliable legal framework. You should give priority to countries like US, Germany, India & Japan, where the security practices are ensured with the matured legal system. India has various laws covering the entire areas of IP. It is a participant to several international treaties in intellectual property rights.   

You can decide to work with based on their portfolio, testimonials and past clients’ references. Reputable vendors will have no issue providing you all the details you request. Working with professionals built on integrity will significantly reduce the chance of fraudulent dealing and the source code IP theft.

2. Vendor Security Audit

This indicates the care that your partners exercise in safeguarding your IP assets. Knowing more about your vendor's work environment can give you an insight into their safety and security practices.

  • Their workstations are protected by Firewall and UTM systems
  • No removable media is allowed in & out of the premises
  • Unauthorized access to workstation and PCs is prohibited
  • A Backup & recovery Policy is in place

Your risk-benefit analysis can reveal how well the legal infrastructure of the country will safeguard your IP rights. The employees of the company are bound by an agreement with clauses to protect Data security, IP rights, Non-Solicitation, Confidentiality, and Non-Disclosure.

3. Sign Non-disclosure Agreement

Signing a non-disclosure agreement (NDA) can be an additional layer of protection that ensures that all shared assets will remain confidential between you and your service providers. Also, vendors typically have a back-to-back NDA signed by their employees who have access to your source code and other IP assets.

The NDA is drafted broadly enough to clarify what can’t be circulated or shared by the vendor and its employees. Every employee working on your project is aware of your untouchable areas as well as the protection measures that the NDA demands. You can explore why freelancers are reluctant to sign an NDA, here.

4. Use Non-competence Agreement

Together with the NDA, the Non-competence Agreement (NCA) with the service providers can prevent the revealing of your IP assets to the competitors. The idea is to keep the employees from revealing your trade secrets to your potential competitors. Essentially, you get dedicated employees working on your project prohibiting them from working on other projects. However, NCA typically has a reasonable time frame as it can limit the company from taking future projects even after it has completed your projects.

5. Share Information Selectively

Another simplest way to protect the source code and your idea is to be selective with what you are sharing. Explaining the whole idea will be vital in certain cases when outsourcing your development, but you don’t have to go deeper than necessary. Restrict your specifications to the limit of the project requirements.

6. IP Protection with Carefully Crafted Contract

When you hire a service provider, especially outside of your country, the importance of a well-crafted legal contract can’t be understated. The contract can come in many names like Invention Assignment Agreement, Proprietary Rights Agreement and Patents & Inventions Agreement but its essence is the same – who owns the IP assets.

The contract deals with ownership issues, ensuring all the IP created for you during the contract is considered as “Work for Hire.” That means the IP over code/technology is transferred to the employer. You can also have an attorney review before signing the contract.

If the source code IP is created or compiled specifically for your business, then you can own it. In case the IP is generic to the service provider or important for them to offer services to others, then they will typically retain its ownership.

We Understand Your Concerns

At Clarion, we take the client’s confidentiality, Intellectual Property, and data security at topmost priority.

  • We indulge in a formal NDA and NCA, along with the contract before going into business.
  • We always pay special attention to Physical security, Project-based IP segregation, Data security and Network security.
  • The ownership of the software, rights to the code and the design solely lie with the client.
  • We work towards preserving any exchange of information performed during the project as confidential and bound to that project.
  • We feel gratified to highlight Clarion has not had a single IP security breach over our last 19 years since inception.

To Conclude

The above practices can help lay a foundation of trust with your service provider. This reduces the fear that your source code IP can easily be leaked to your rivals. Considering all the potential IP risks, it is recommended to work with a reputable company you trust, get proper agreements in place and move forward with having ethical and reliable business partnerships!

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