Whether you are running a business online, or you are just in business to stay current, chances are you will need software development services at some point in your business. You will either have a software developer on staff, or you will use an independent contractor or a software development company. However the relationship looks, the software developer is one of the most important independent contractors you have for your business. So, what type of agreement do you need?
It depends. (Isn’t that what lawyers always say?)
It depends on who is drafting who will be developing the software for whom. There are two main variations on the theme of software development agreements:
- Custom Software Development Agreements – Typically used by a company specializing in providing custom solutions of software. Sometimes used by a veteran freelancer (who surely has limited his liability by now).
- Independent Contractor Agreement for Developer – Used by software companies to hire talent as independent contractors to fulfill their Custom Software Development Agreements. Also used by companies hiring an individual directly to create software.
Sometimes the type of agreement is dependent entirely on who drafted the contract. Technically, it doesn’t matter. A software development agreement is a glorified independent contractor agreement. The main concerns are about the intellectual property. Let’s focus on how to get from “I need a software developer” to having that developer work on your project instead of negotiating your contract. Of course, if you are working with a freelancer, you will have more flexibility over the agreement than if you work with a company that does software development regularly. There are reasons for that though.
With each of these types of relationships, there are important considerations. If you are looking to do business, and not spend all of your time negotiating contracts, you need to understand some of the nuances of Intellectual Property that play into software development agreements. For software development, the intellectual property issues concerned are trade secrets and copyright.
To protect your trade secrets (which you necessarily have to divulge to get your custom software) you need to include nondisclosure language. This is language that says your developer will not tell anyone about what you tell them. Nor will they use it to compete with you in any way.
The copyright protections are a bit more nuanced though. There are a few legal terms that needed to be translated to fully explain. These are each discussed in today’s episode.
- Work Made for Hire
- Background Technology
We also discuss how to make sure liability is released and what indemnification and holding someone harmless means.
When making decisions about the intellectual property clauses of your independent contractor agreement, you should consider whether you are hiring young talent to build you something completely custom that you want to own outright with no question (work made for hire) or if you are hiring a seasoned veteran or software development company for their expertise and body of work (license or transfer). Then you should consider the price you are willing to pay. Licenses are cheaper, like renting. Transfers are more expensive because you are buying property, intellectual property.
If you are looking for strong talent, lead with the idea that they can keep the background technology. You are not really in the business of building software, you are building software for your business, so why argue over points that don’t matter? You want to own the intellectual property created, you do not need to own everything created in the process. You do not necessarily need to own the pieces that make up the software you had created. You hired someone who makes a living doing this, they will use their libraries to make your code better. You save money by using these developers. Yes, they are expensive, but you save money using these developers. You save money because they use the work that makes sense. They use the libraries they have developed. If you want a “work made for hire” you better be prepared to pay for it, because you are asking your developer to reinvent the wheel. If they don’t they lose code they worked hard to develop.
Just like your contract can put a cork in your sales funnel , your software development agreement can put a cork in your software development project. Get to know the intellectual property parts of this contract. Understand the developer is not trying to fight with you, but protect their livelihood.
If you focus on the agreement instead of what you think you need to protect yourself, you will succeed in developing a strong relationship with your developer.