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	Software Development Arrangements: Get It In Writing or You May Get Nothing Business  By Kent M. Clayton Both large and small companies routinely engage the “outsource” services of third party software developers to design and develop customized Internet “home pages” and e-commerce Internet sites and other custom software applications. Unfortunately, most outsourcing parties are under the mistaken impression that by simply paying money to the third party software developer, the outsourcing party is entitled to ownership of the software and the content and other materials developed by the third party software developer or produced by the software (e.g., the various on-screen images displayed by the software). However, without a written agreement that expressly states that ownership of the software and all such content and material is assigned to and belongs to the party that engages the third party software developer, most jurisdictions (including California) recognize the software developer as the owner of the resultant software – and, in some cases, the content generated or managed by such software as well. In addition, the party that has engaged the third party software developer may find itself liable for infringement of the intellectual property rights of others due to the efforts of the software developer. The federal and state legislative and legal systems have long recognized and protected the rights of authors and inventors of creative works to the exclusive ownership of such works. Article I, Section 8 of the U.S. Constitution states “Congress shall have the power to promote the progress of science and useful arts by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.” In more recent years, federal and state laws been adopted that recognize the rights of an employer to the creative works of its employees where those employees have been compensated by the employer and where other conditions of “true” employment status have been met. But most jurisdictions, including California, still do not “automatically” endow ownership of creative work produced by a non-employee third party to the person or entity that has contracted with such third party to produce the creative work, regardless of the fact that the third party has been or will be compensated by the person or entity requesting the work to be done. Accordingly, a written agreement clearly identifying the respective ownership rights of the parties involved must be executed prior to the commencement of the creative work by the third party developer. More often than not, however, companies and business owners will simply orally agree with a third party software developer as to the design and development of the software application, thinking that the payment of money to the developer alone is enough to secure legal ownership of the resultant software and content or intending to draw up a written agreement at a later time – which often leads to a dispute with the software developer, resulting in no written agreement in the end. In such circumstances, the company or business owner may be deemed merely to have an implied non-exclusive license of an indefinite length, which can be terminated by the third party software developer at any time. To avoid this potentially disastrous result, persons and entities arranging with third party software developers to design and develop Internet web sites or e-commerce solutions or other custom software that they want to own must be sure to enter into a written agreement with the third party software developer prior to the developer commencing work. The agreement should expressly provide, at a minimum, that all work produced by the developer is perpetually, unconditionally and irrevocably assigned to and owned solely and exclusively by the party requesting such work to be done. Such agreements also typically state that such work is a “work made for hire” by the developer for the party contracting for such work, and such language is advisable to include, but such language alone is not enough. There must be clear and unequivocal language whereby the software developer fully and forever assigns and conveys all rights of ownership in the software (and all elements and aspects thereof and generated therefrom) and all content and materials created by the developer to such contracting party. The agreement should also contain a representation and warranty (and corresponding indemnification) by the developer to the effect that the work produced by the developer will be original and will not infringe the intellectual property rights of other persons. Appropriate provisions with respect to the obligation of the developer to maintain the confidential nature of such work and any non-public information provided by the outsourcing party to the developer should also be included. If the software developer will provide any content or material that is not original to the developer (such as software from another party or pictures or other graphic elements which are not owned by the developer), the agreement should also contain a representation and warranty (and corresponding indemnification) by the developer that the developer has secured all rights, licenses, releases and other legal authorizations necessary to allow the outsourcing party to use such software, content and material without interference. As with all important contracts, persons and entities desiring to outsource any software application, Internet web site or e-commerce development work should consult with competent legal counsel with respect to the negotiation and documentation of such arrangement. Failure to have legal counsel involved until after payments have been made to the software developer (or worse, until after work has been fully or substantially completed) will greatly reduce the outsourcing party’s negotiating leverage and, as often happens, can result in the failure to conclude an agreement in writing with the developer, which may result in the developer retaining the ownership rights to the software, content and other material developed. © 2007 Kent M. Clayton. All rights reserved. Back
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