Protect | 8 January 2018

Software Development Contracts: how do I deal with IP?

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So, you’ve hired a developer to develop some software for your company, clearly because you are hiring and paying them to do that you will own it, right?

Not necessarily! Generally, software is protected under copyright laws and the person who creates the software will be the owner. Therefore, you should ensure that your software development contract specifically deals with what happens to the intellectual property rights (IP) in the software.

Should I own the IP?

There is clearly a benefit to your company owning the IP in the software as it means you have complete control over how it is used, including how it is commercialised, who can use it and for what purposes. If the developer agrees to this, your contract should contain a clear assignment of the IP in the software to your company.

However, a software developer may want or need to be able to reuse the software for its own business, including providing it to other companies who may be your competitors.

You should think carefully about whether it is essential for you to own the IP in the software or whether having a broad license will be sufficient. The benefits of having a license include lower fees and enjoying ongoing improvements the developer makes to the software.

You should think about the following:

•  Background IP: the developer may use some of its pre-existing IP to create the software for you. They probably won’t want to give up ownership of that pre-existing IP as they may need to use it for other customers.

•  Third Party Software: the developer may use third party software (including open source software) in the development of your software. You will not be able to own the IP in this, but you should ensure that the developer tells you what third party software it has used and either procures a license for you to use it or, in the case of open source software, makes you aware of the terms associated with such use.

•  Project IP: this is the IP that exists in what is being developed for you (but excluding the Background IP and any third-party software).
If the Project IP is bespoke to your company, the software may be of limited use to the developer, so they may be more willing to assign ownership of it to you or grant you an exclusive license. You will still be restricted by license terms relating to the background IP and third-party software which are included within the end product.

I don’t need to own the IP. What terms should I include in a license?

The terms of the license from the developer should be perpetual and sufficiently broad to enable you to use the software for its intended purpose. For example, you need to think about where you want to use the software, whether you want to sub-license it to others, make modifications and support the software. If you are granted a right to make modifications, then you also need to consider whether you want to own those modifications and license them back to the developer or whether the developer will own them and include them in the license back to you.

What else should I think about?

The developer should provide you with a warranty that it has not infringed a third party’s IP in creating the software and give you an indemnity if it does infringe a third party’s IP. An indemnity should provide you with monetary protection if a third party sues you for breach of their IP.