Specialist lawyers for advice on key issues when negotiating software contracts.

Technology contracts are fast-moving. To keep you up to date we have set out some reminders on how to protect your business.

There is a growing demand to create or customise technology to fit specific business requirements. Often this will involve customisation and merger of an existing software package or adding functionality and varying existing base technology. The asset in technology is the software behind it.

Copyright

Software can be protected by the law of copyright. Copyright can also protect preparatory design material such as flow charts and graphical user interfaces, as well as end product computer programmes.

Rights can be protected under a variety of contracts. For example, trade secret agreements, software collaboration agreements, and development contracts. We are experienced in tailoring these contracts to your technology and commercial outcomes.

Software development

There are generally two methods for developing software – waterfall and agile.

  • Waterfall method – where the software development process begins with a detailed specification which will be developed through design, coding and testing.
  • Agile method – where detailed demand for the end product is typically not specified at the outset, but overall project scope and goals are agreed.

Copyright will protect technology created under either method.

Securing revenue and ownership

You will only be able to benefit from the protection of copyright if you can establish you are the creator. If you cannot establish you are the creator the revenue arising from the software is potentially in jeopardy.

As a minimum, software creators should mark their software with a copyright notice. This is the copyright symbol © followed by their name and the year. Best practice is to keep the draft documents you used during the development of your software to reach the final product. This documentation creates a ‘paper trail’ to evidence the creator’s ownership should a dispute arise.

Contracts should ideally be in place prior to developing the copyright in the software. We appreciate this does not always happen. We help many clients by stepping in to see if we can plug the gaps to preserve the rights to income from the software.

Contractors

If you have outsourced entirely to an external software developer, there is a legal presumption that software is owned by that contractor unless you can prove otherwise. Good evidence could be a written contract detailing your ownership (but bear in mind any verbal or email variations).

In our experience it is when there is a sale that the issue of copyright ownership becomes acute. An inability to establish ownership will impact on the value of the asset and the business as a going concern. Sales are often held up whilst negotiations take place. Buyers of the business will not proceed without ownership. This hold up is often resolved with a cash settlement to the developer in exchange for assignment of the copyright but this may affect the purchase price.

Software escrow

Software developers can get into financial difficulty or be otherwise unreliable. If you are licensing software this is an important risk to your business.

With a software escrow arrangement a copy of the software source code is kept by a neutral third party agent. This enables you to access it if the relationship with the developer breaks down. These terms need to be carefully drafted. We are experienced in advising on these situations.

Protecting information

Software developers can get into financial difficulty or be otherwise unreliable. If you are licensing software this is an important risk to your business.

With a software escrow arrangement a copy of the software source code is kept by a neutral third party agent. This enables you to access it if the relationship with the developer breaks down. These terms need to be carefully drafted. We are experienced in advising on these situations.

Negotiation points – what is important

  • Exclusivity – is the licence limited to certain parties, industries or territories? ‘Exclusivity’ is not a strict legal term so you must be clear what you mean
  • Description – detail the technology being licensed/developed
  • Scope – what are the parties allowed to do with the product?
  • Duration – fixed term, rolling renewal, extensions, early termination (and consequences)
  • Payments – one off, annual or royalty-based?
  • Quality control and information sharing provisions to monitor sales and data visibility
  • Improvements – who owns any improvements to the product?
  • Sub-licencing? There is no automatic right so express provisions are needed
  • Assignment? Will there be conditions or restrictions?
  • Indemnities and warranties

Anti-competitive contracts

EU competition law prohibits agreements, decisions or concerted practices between businesses that are capable of affecting trade between member states and have as their object or effect the prevention, restriction or distortion of competition within the EEA.

Most small business contracts will not exceed the 10% market share threshold. This means they will be presumed not to be appreciably restricting competition. Software and technology contracts may also be excluded from anti-competitive restrictions if they comply with the Technology Transfer Block Exemption.

However, businesses are not immune to competition law. There are certain clauses which, if included, will be deemed to be anti-competitive regardless of market share or technology exemption. This includes clauses such as price-fixing and trading conditions, market-sharing, sources of supply and limiting output, production or technical development.

We do review technology contracts and provide guidance to minimise claims.

Registering your licence

Patents, trademarks and registered designs often need to be registered with the relevant registry. Failure to register may make the transaction ineffective.

We do review technology portfolios to minimise these risks.

Let us take it from here.

Call us on the number below or complete the form and one of our team will be in touch.
020 7438 1060