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Ahead of the Curve Auto Supplier Blog

October 08, 2021

Software Supplier Alert: Beware of Ford’s New Terms & Conditions

Ford’s new Production Purchasing Global Terms and Conditions (“Ford’s New Terms”), effective July 1, 2021, include significant changes to how Ford treats software incorporated into any related goods, services and tech products supplied to Ford. If your supply to Ford incorporates software, it’s important to know whether that software is classified as “commercial software,” “developed software” or “commercial off-the-shelf” software. In fact, this distinction generally controls whether you maintain ownership of the software and, therefore, have an ability to commercialize the software with other customers.  However, don’t expect Ford’s New Terms to help you make this classification, as these terms are not defined therein.

Historically, including in Ford’s prior terms, Ford has only been concerned with broad-use rights in supplier intellectual property (“IP”), which maintained a supplier’s ability to provide the same or similar products to other OEMs or customers. In fact, in Ford’s prior terms, suppliers maintained ownership in IP even if the IP was developed specifically for Ford, regardless of whether there was a Purchase Order (“PO”) for development services. In addition, in Ford’s prior terms, Ford was obligated to negotiate commercially reasonable licensing terms to suppliers’ background IP. This arrangement was viewed as a quid pro quo whereby a supplier would maintain ownership rights in IP developed for Ford, but Ford would have broad-use rights allowing for potential second sourcing from alternative suppliers (contingent on relevancy of suppliers’ background IP and a separate commercially reasonable license as necessary). Ford’s New Terms have changed the game.

Now, under Section 14.03 of Ford’s New Terms, all works of authorship or copyrights created under a PO are owned by Ford. There is no requirement that the PO be for design services, let alone be for engineering or software design and development. To comply with this Section of Ford’s New Terms, it’s critical to ensure that employment agreements between suppliers and employees have proper assignment obligations from employees for all works of authorship and copyrights (beyond obligations for inventions), and to be cognizant of any third-party contributions or source/status of any source code utilized.

Importantly, not only does Ford want to own everything outside of “commercial off-the-shelf” software, there is no grant-back license to suppliers. This means that any software developed under a PO for Ford cannot be commercialized with any other customers.

As an extension of the work for hire obligations under Section 19.01 of Ford’s New Terms, a supplier only owns “commercial off-the-shelf software,” as well as any registered IP, which was not developed specifically for Ford. Importantly, ownership of “commercial off-the-shelf software” also extends to derivatives, modifications or adaptions thereto (except for those associated with Ford’s configuration, workflow, settings and similar). Though advantageous for a supplier, the interplay between Sections 14.03 and 19.01 and the lack of formal definitions in Ford’s New Terms, creates ambiguous ownership and rights with respect to software.

For example, in practice, it’s not uncommon to recycle or reuse portions of source code in connection with iterative or even wholly new developments. When that’s the case, suppliers may be able to take the position that any newly developed software is a derivative or modification of commercial off-the-shelf software. However, Ford can still maintain that such software falls under the work for hire obligations of Section 14.03 or that the modifications are tied to Ford’s “configuration, workflow, settings, and similar.”

As for source code, the only express obligation to provide source code to Ford is detailed in Section 19.03 of Ford’s New Terms, and is generally only implicated when a supplier discontinues maintenance and support of Goods and Tech products, or files a petition/is subject to an involuntary petition under the Bankruptcy Code. However, though not expressly addressed in Ford’s New Terms, Ford will surely desire source code for any software that is owned by Ford, even if this software incorporates portions of otherwise proprietary or recycled source code not specifically made for Ford.

It’s critical that all suppliers carefully consider these implications and have an IP strategy in place before accepting any PO involving software from Ford. If you would like more information regarding Ford’s New IP Terms or have any questions about formulating your IP strategy, please contact Randall Peck or any of the IP attorneys in Warner’s Automotive Industry Group.

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