The right to use software as security for the fulfillment of an obligation

Under Ecuadorian law, economic rights derived from copyrights are considered movable property exclusively for the constitution of encumbrances. Since the licensee does not have ownership in the software whose use has been authorized by a license, a security right cannot be created in it. However, in the event that the license agreement does not prohibit it, it is understood that this right of use may be created as a security right.

Intellectual property and copyright:

Intellectual property, in a general context, grants the author, also considered inventor or creator, the right to be recognized as the owner of the work or creation and, therefore, is entitled to benefit from this right. For Ecuadorian legislation, intellectual property includes: a) copyright and related rights; b) industrial property; and, (c) plant varieties.

Copyright as intellectual property rights, through legal rules and principles, grants moral and patrimonial rights to authors for the simple intellectual creation, whether it is a literary, artistic, musical, scientific, technological (software) or didactic work, regardless of whether it is disclosed or unpublished.

The moral right is a very personal right of the author, whose main characteristics are: unrenounceability, inalienability, unattachability and imprescriptibility (the latter being applicable only to the right to claim paternity and access to the unique or rare copy that the author has with respect to his work or creation). The purpose of moral rights is to protect the author as a person through his work, for example: to ensure its integrity.

On the other hand, economic rights, understood as those of an economic nature in favor of the author, unlike moral rights, are characterized because they can be transferred, allowing third parties to become the holders of these rights without having the quality of author/creator/inventor. The right that authors have over their creation with respect to third parties necessarily implies the right of ownership, allowing them to freely use, enjoy and dispose of their work.

The software and its license of use:

In relation to the above, focusing on a creation such as software, which is considered a work, since its creation alone gives rise to a copyright, entitling its creator to exploit both moral and economic rights, the question arises as to whether the license, by means of which the licensee authorizes third parties to use the work, can be used by the licensee to guarantee an obligation.

In a general context, a license is an act or contract by means of which the owner of the software grants permissions to third parties for its use or exploitation. The scope of the licenses of use varies depending on the business relationship between licensor and licensee and is delimited in the contract. For example, there are licensing contracts that allow sublicensing or transferring this right of use to third parties, others that limit the use of the license to a specific territory, others that determine a definite or indefinite time of use by the licensee and others that may be agreed between the contractual parties.

The licensee has a right to use the software. This right of use, as mentioned above, arises from a contract generally entered into between the copyright owner (licensor) and the licensee. The right acquired by the licensee with respect to the use of the software is a personal right (similar to a lease). The licensee does not have a security interest in the software and, therefore, is not entitled to create a lien on such right.

However, if the license agreement does not prohibit it, it is understood that this right of use may be created as a security right.The license is not granted as a lien, but simply as security for the performance of an obligation, which in this sense is considered as an assignment of the right to use the license as security, and it may be contractually determined that, once the obligation has been fulfilled, the license will be transferred back to the original licensee.

In conclusion, since the licensee does not have ownership of the software whose use has been authorized by a license, it cannot create a security right in the software, the purpose of which is its assignment for the performance of an obligation. However, in practice and reviewing in depth the contract through which this right of use called “license” is granted and in the event that it does not prohibit its transfer, since there is no legal provision limiting it, the license as such could be given as a guarantee for the performance of an obligation.

The answer to the question posed above, entails a merely contractual approach rather than a normative one; and we are well aware that it is the parties who stipulate both the conditions and contractual parameters under which the transfer and subsequent exercise of intellectual property rights will proceed, ensuring a balance between owners and users.

By: Camila Jaramillo