5 Things to Remember in Your Software Development Agreement.

Short answer: when you outsource development, five things decide whether you actually own and control what you paid for. They are IP ownership, termination, the expectations gap, where your source code lives, and which law governs.

As a software attorney, I work on a lot of these deals. Outsourcing is common now, even for smaller software, SaaS, and IT companies. So here are five practical things to get right in the software development agreement.

1. Get Ownership Rights in Writing.

You probably saw this one coming. Still, most disputes start here. Address “work for hire” copyright, pre-existing code, open source, and patents head on. Also watch one key trap. Under U.S. law, a contractor’s work is not automatically “work made for hire” the way an employee’s is. The Copyright Act defines work made for hire narrowly. And 17 U.S.C. section 201 says the copyright first belongs to the author, who here is the developer, unless there is a written transfer. So do not lean on the phrase “work for hire.” Instead, get an express, present assignment of all IP in writing.

2. Nail Down Termination Rights.

This relationship will not last forever. So you will use the termination terms, probably sooner than you think. Spell out what happens when the deal ends. For example, say how the developer returns your hardware, software, and other property. Also give yourself a shorter notice period to end the deal without cause than the developer gets.

3. Close the Gap Between Expectations and the Contract.

This one is not purely legal. In a way, though, it is the most important. A contract exists to say who does what, and when. So own these details yourself. Do not hand them entirely to your attorney. In short, the contract should match reality and match what both sides expect along the way.

4. Always Know Where Your Source Code Lives.

Keep control of your source code, and know where it sits at all times. That means your server, their server, or the cloud. You do not want to depend on a contract to claw your code back. The goal is simple. If a dispute hits, you can take control of your own assets without the developer lifting a finger.

5. Decide Which Law Governs.

This one is complex, and it is easy to overlook. So decide up front which law governs the deal and where disputes get resolved. Arbitration is often a good option here. If your developer is offshore, also hire an in-country attorney to review the IP and local-law issues. Local law will often decide who owns what, no matter what the contract says. Good in-country lawyers are easy to find online and reasonably priced. In fact, I recently used one in Europe for a client, and it worked out well.

The Two That Go Wrong Most.

Ownership and source-code control blow up most often. So nail those two first. A vague assignment clause plus code that lives only on the vendor’s server is a bad mix. Together, they can turn a routine breakup into a lawsuit over your own product.

Frequently Asked Questions.

Does “work for hire” in my contract give me ownership of a contractor’s code? Not reliably. For an independent contractor, U.S. law treats the work as made for hire only in narrow cases. So include an express present assignment of all IP instead.

Should I use U.S. or foreign governing law for an offshore developer? It depends, so think it through. Even with a U.S. choice-of-law clause, local law often controls who owns the IP. So have in-country counsel review it.

What is the single most important protection? Keep possession and control of your source code. That way, a dispute never depends on the vendor handing it back.

Any company that outsources development should work through these five issues first. For the framework behind the IP rights you are allocating, see Intellectual Property Basics for Software Companies. And we handle these grants as part of our software licensing work.

Disclaimer:

This post is for informational and educational purposes only, and is not legal advice. You should hire an attorney if you need legal advice, which should be provided only after review of all relevant facts and applicable law.