By Eric L. Abbott – Get in Touch
Sports betting software (some sports software is called a computerized bookmaking system) is regulated by state gaming regulators with different regulations in different states.
When sports betting companies expand into new states, these companies would generally like to use the same software across different states WITHOUT triggering additional licensing, suitability, or registration requirements of third-party contractors/vendors. The tighter regulation of sports betting software at the same level as a gaming device may, now or in the future, in some jurisdictions, require that the “manufacturer” of that software be subject to increased regulation. Other classifications of sports betting software by gaming regulators can also trigger registration, licensing, or an application for a finding of suitability.
For example, in Nevada, under NRS 463.0136(1), “computerized systems of betting at a race book or sports pool” is “associated equipment”. Manufacturers and distributors of associated equipment must register with the Nevada Gaming Control Board (“NGCB”) prior to having such associated equipment made available to a Nevada casino. The NGCB’s Technology Division’s Associated Equipment Approval Request form requires information regarding the identity of both: the holder of any copyrights; and the designer and developer of the software.
In the US, the best way to ensure that a sports betting company owns all of their third-party contractor/vendor’s intellectual property in the sports betting software is usually to have a written assignment in compliance with applicable law. However, there are potential pitfalls.
The most common mistake in this area is to assume that the copyrights in a “work made for hire” by a third-party contractor are automatically owned by the hiring entity. Under 17 USC § 101, for independent contractors, the work is a work made for hire only if: (1) there is an express agreement in writing that the work shall be considered a work for hire; and (2) the work itself must be one of the enumerated works in the statute (not all software are necessarily included). Note, as a matter of US Federal law, works created by US employees in the course and scope of his or her employment are works made for hire which makes the employer the “author” and thus the “owner”. So, for chain of title purposes, if a third-party vendor uses US employees who were hired to code software, then, the third-party vendor/contractor is the author and the initial owner. If the employees coding the software were hired to perform another job function, then, depending on the facts, there may be an issue with applying work made for hire. If the third-party vendor/contractor uses subcontractors, then there should be written copyright assignments from those subcontractors.
Unless there is a contractual limitation coupled with reasonable efforts to keep secret, the functionality of software is usually public knowledge, and thus usually not a trade secret in the US. However, the source code is usually not public and thus can possibly be a trade secret under applicable state law. There could also be patentable inventions in the software. The substance of written assignments of any patents and trade secrets are generally the province of state law, with, for patents, some US Federal legal issues that a practitioner should address.
Generally, written assignments of patents/trade secrets in accordance with applicable law from the subcontractors of third-party vendors/contractors will be necessary for chain of title. For employees, the issue varies by state. But, written assignments in accordance with applicable law would usually be the best practice in most situations.
The good news for Nevada practitioners is that Nevada has a clear and relatively automatic statutory provision regarding employer ownership of trade secrets and patentable inventions created by employees:
“[e]xcept as otherwise provided by express written agreement, an employer is the sole owner of any patentable invention or trade secret developed by his or her employee during the course and scope of the employment that relates directly to work performed during the course and scope of the employment.” See N.R.S. 600.500.
Open-source software is also used in a lot of software products. That software would be licensed to the user by a third party. Also, third party vendors may use contractors in foreign countries, and, if so, then those laws may apply which makes the legal issues potentially more complicated.
Eric L. Abbott is Managing Member of ERIC ABBOTT LAW PLLC, a Registered Patent Attorney, and licensed to practice law in Illinois, Nebraska, Nevada, and Pennsylvania.
