Property rights to algorithms: Typical questions and legal answers

Time and again, clients ask the question: “Who actually owns the rights to an algorithm?” This question is not only of central importance for start-ups and tech companies, but also for developers, investors and business partners. Algorithms are at the heart of many modern technologies – from artificial intelligence (AI) to big data and automated processes. However, the legal classification and protection of algorithms raises complex questions, as they are not directly comparable with traditional intellectual property rights such as copyright or patent law.

In this blog post, I shed light on the legal basis, typical scenarios from practice and how I can support you in clarifying and contractually securing ownership rights to algorithms.

What are algorithms and why are property rights important?

An algorithm is a structured sequence of instructions or rules designed to solve a specific problem or automate a task. In practice, algorithms can involve simple mathematical calculations or control highly complex processes – for example in artificial intelligence or machine learning.

Why are property rights so important?

• Economic value: Algorithms are often the central asset of a company and decisive for its competitive advantage.
• Protection against imitation: Without clear property rights, there is a risk that third parties will copy the algorithm or use it without authorization.
• Contract design: When cooperating with developers, freelancers or partners, the rights to algorithms must be clearly regulated.
• Investment protection: Investors attach great importance to ensuring that intellectual property is legally protected.
• Promoting innovation: Clear ownership structures motivate the further development and use of new technologies.

Which intellectual property rights are eligible for algorithms?

The legal classification of algorithms is complex, as they are not directly covered by a specific intellectual property right. Instead, various protection mechanisms come into question:

Copyright

Copyright protects the source code of an algorithm if it reaches a certain level of creativity. However, the underlying mathematical logic or idea behind the algorithm is not protected by copyright.

• Example: The source code of an AI model could be protected by copyright, but not the mathematical logic behind it.
• Restriction: Copyright only protects the specific implementation (code), not the function or idea.

Patent law

Algorithms can be patented under certain conditions if they are part of a technical solution.

• Prerequisite: The algorithm must solve a technical task and be embedded in a specific technical context (e.g. in a machine or software).
• Example: An algorithm for controlling an autonomous vehicle could be patentable.
• Challenge: Patenting is often time-consuming and expensive, and there are also strict requirements regarding novelty and inventiveness.

Trade secrets

If an algorithm cannot be protected by copyright or patent law, the Trade Secrets Act (GeschGehG) offers protection.

• Prerequisite: The algorithm must be treated confidentially and appropriate measures must be taken to protect it (e.g. non-disclosure agreements).
• Advantage: The protection remains in place as long as confidentiality is maintained.
• Disadvantage: A trade secret offers no protection against independent development by third parties.

Contractual regulations

In many cases, property rights to algorithms are regulated by contracts – for example in license agreements, development contracts or cooperation agreements.

• Advantage: Contracts offer flexibility in the design of usage rights and can be customized.
• Example: A contract can stipulate that a company receives exclusive rights of use, while the developer retains rights of further use.

Typical scenarios from practice

In my consulting practice, the following typical scenarios occur time and again:

Development by freelancers

A company commissions a freelancer to develop an algorithm. Without a clear contractual agreement, the rights to the algorithm usually remain with the developer.

Solution:
A contract should clearly stipulate that all rights to the algorithm are transferred to the client (“work-for-hire” clause). Otherwise, the freelancer could use the algorithm elsewhere or sell it.

Cooperation between companies

Two companies jointly develop an algorithm. Without a clear agreement, there is a risk of disputes over use and exploitation.

Solution:
A cooperation agreement should define who is entitled to which rights and how the algorithm may be used. Mechanisms for resolving disputes should also be agreed.

Use of external tools or libraries

A company uses open source libraries to develop an algorithm. License conditions can impose restrictions here (e.g. copyleft licenses).

Solution:
A review of the license conditions is essential in order to avoid legal risks. It should be clear whether the developed algorithm must be published under the same license conditions.

How can property rights be contractually secured?

The contractual safeguarding of property rights to algorithms is crucial in order to avoid subsequent conflicts. The following points should be taken into account in contracts:

1. Clear definition of the algorithm:
   The contract should define exactly what is meant by the term “algorithm” – e.g. source code, documentation or the underlying concept.
2. Transfer of rights:
   It should be clearly regulated whether and to what extent the rights to the algorithm are transferred (e.g. exclusive or non-exclusive).
3. Rights of use:
   If there is no complete transfer, the rights of use should be clearly defined – for example in terms of duration, scope and geographical reach.
4. Confidentiality:
   A non-disclosure agreement (NDA) protects the algorithm from unauthorized disclosure or use by third parties.
5. Liability and warranty:
   The contract should regulate who is liable if the algorithm is faulty or infringes third-party rights.

Why is legal advice crucial?

The legal protection of property rights to algorithms requires specialist knowledge in various areas of law – from copyright and patent law to contract law. Professional advice will help you with this:

• secure your rights as a developer or client.
• avoid conflicts with business partners.
• Minimize legal risks when using open source components.
• Protect long-term investments in your technologies.

My offer:

I support you in all legal matters relating to algorithms – be it the drafting of individual contracts, the review of license terms or the clarification of property rights in cooperations.

Conclusion: Clear regulations create security

Property rights to algorithms are a complex issue with far-reaching economic consequences for companies and developers. With clear contractual regulations and sound legal advice, you can ensure that your rights are safeguarded and your intellectual property is protected.

If you have any questions on this topic or need support in drafting your contracts, I will be happy to assist you!

Author: Marian Härtel

Marian Härtel ist Rechtsanwalt und Fachanwalt für IT-Recht mit einer über 25-jährigen Erfahrung als Unternehmer und Berater in den Bereichen Games, E-Sport, Blockchain, SaaS und Künstliche Intelligenz. Seine Beratungsschwerpunkte umfassen neben dem IT-Recht insbesondere das Urheberrecht, Medienrecht sowie Wettbewerbsrecht. Er betreut schwerpunktmäßig Start-ups, Agenturen und Influencer, die er in strategischen Fragen, komplexen Vertragsangelegenheiten sowie bei Investitionsprojekten begleitet. Dabei zeichnet sich seine Beratung durch einen interdisziplinären Ansatz aus, der juristische Expertise und langjährige unternehmerische Erfahrung miteinander verbindet. Ziel seiner Tätigkeit ist stets, Mandanten praxisorientierte Lösungen anzubieten und rechtlich fundierte Unterstützung bei der Umsetzung innovativer Geschäftsmodelle zu gewährleisten.