I Paid For It, So I Own It, Right? Well…
You’ve formed your company, and you’ve qualified to do business (if you haven’t, see last week’s blog). But more than that, you’ve engaged a third-party web designer (not your employee) to create a web site for you. Furthermore, you had a written contract, you paid the web designer and the web designer delivered. Your site is hosted and up and running. You are all set, right?
Do you own your website? Let’s talk about that.
There are really two separate issues here. First is the domain name (e.g. startup-information.com). For purposes of this discussion, let’s assume you did the right thing and registered your domain with your company as the registrant of the domain. In a future post, we will discuss issues around domain names in much more depth.
What we are talking about today is the second issue: do you own the code of your website? This issue is relevant even if you only hired someone to build a website based on one of the popular templates (such as WordPress). If you want to modify it (or have a different web designer modify it for you), do you have the right to do that? Can you sell and transfer the code along with a sale of your company?
“I paid for it, so I own it, right?”
Not so fast. The intellectual property represented by that code (including, but not limited to, the copyright to the code) isn’t yours just because you paid a third party to create it. What you have, arguably, is just an implied, non-exclusive license arising from your payment. For full (and exclusive) ownership, you need to have a written agreement with an assignment transferring that ownership to you.
“Someone told me that designer’s work is a ‘work-for-hire’....”
Section 101 of the Copyright Act has a very specific definition of a work-for-hire (outside the context of an employee preparing a work within the scope of his employment). If your website code was created by an independent contractor and falls into one of the specific categories (most of the time, this will not be the case) AND if you have to have a written instrument specifying the work is a work-for-hire, then the work-for-hire doctrine does transfer ownership. Many, many times, those two conditions are not met, so it’s really best not to solely rely on the work-for-hire concept.
“I actually brought this up, and the web designer said that she reuses certain code over and over again and she can’t give me ownership of that or she’d be out of business.”
Excellent point. This is a legitimate concern of many web designers and consultants. The solution is actually quite simple: bifurcate ownership. You get to own the specific custom portions of your website, and you get a broad, non-exclusive license from the web designer to use the web designer’s “reusable elements” (whose ownership will be retained by the designer).
“The web designer is concerned that by granting me ownership, I’m going to be able to prevent her from doing other work for companies that may be competitive to mine.”
Once again, this is a concern that comes up often; unless you are seeking a non-compete of some sort from the web designer (which, in some cases may be applicable, though it will generally come at a significant increase in cost to you), it is generally best to address the web designer’s concern with a few statements that expressly address this issue as well.
“OK, what would all of these concepts look like in a contact provision in the agreement?”
So glad you asked. Let’s call you, the company, “Company,” and let’s call the third-party web designer the “Consultant.” Below is a provision, along with some additional exposition, that addresses our discussion above:
Company shall own, upon payment of fees incurred hereunder, all right, title and interest in all deliverables (including code, documentation and other related data and any other deliverables specified in the Scope of Work) prepared by Consultant (“Deliverables”), including all intellectual property rights therein, but specifically excluding the Consultant Tools (as defined herein). All Deliverables shall, to the extent possible, be considered a work made for hire for Company within the meaning of 17 U.S.C. § 101. Subject to Company's payment of fees incurred hereunder, Consultant hereby assigns and agrees to assign, any right, title, or interest Consultant may have in and to the Deliverables to Company.
This shows our “belt and suspender” approach: Company owns the code, the work-for-hire doctrine (if applicable) is included as well, and Company also gets a specific explicit assignment of ownership from Consultant to Company.
Upon the request of Company, Consultant shall take such further actions, at Company's expense, as may be reasonably appropriate or necessary to confirm such rights.
This is called a “further assurance” clause, which you can use in the future if you need Consultant’s signature or further acknowledgment of this ownership.
Company acknowledges that part of the Deliverables may contain certain generic and reusable templates, tools, processes, methodologies or materials developed by Consultant, which have been and/or will be used by Consultant for other customers (collectively, the “Consultant Tools”). Consultant retains title to all such Consultant Tools and grants Company a nonexclusive, royalty-free, perpetual, license to use, reproduce, modify and prepare derivative works of such Consultant Tools as such Consultant Tools are embedded in or otherwise relate to the Deliverables.
This is where the Consultant maintains ownership of their reusable items and you, the Company, get broad rights in the form of a perpetual, non-exclusive license to modify, replicate or otherwise use those reusable items to the extent they are part of the Deliverables.
In recognition that Consultant may perform similar services for others, this Agreement shall not prevent Consultant from providing services or developing materials that are competitive with those developed or provided under this Agreement. Subject to the confidentiality restrictions contained in this Agreement, each party shall be free to use its general knowledge, skills and experience, and any ideas, concepts, know-how and techniques used in the course of providing or receiving the services, on other engagements, and each party’s other clients shall have the right to use materials incorporating such ideas, concepts, know-how and techniques.
Finally, this is where we address the Consultant’s competitive concerns, and we make clear that each party retains the right to use its general knowledge and know-how used in the course of the agreement.
If your written agreement contains provisions substantially similar to the above, then you can say if you’ve paid for it, you own it (or, more specifically, you own the custom portions and have the requisite rights to the reusable portions still owned by the third-party web designer), and you can do with it what you want in the future as your business grows: copy it, modify it, sell it, etc. etc. Plus, in any due diligence process, you can show the written agreement with the assignment provision to demonstrate the chain of title in the code.
Critical Lesson
Have the important conversation/negotiation with the web developer BEFORE the development work is done to make sure the contract covers the ownership issue and so that you can’t be “held hostage” by being forced to negotiate the issues after the code has been developed but before it has been turned over to you.
“Got it. Any suggestions for further reading on this subject?”
And that brings us to the plugs portion of this post. One of my fellow partners (and chair of the Technology Transactions Group that I am in), David Gurwin, actually wrote an entire book on these types of agreements (line by line). It’s available on amazon.com: Information Technology Consulting and Other Professional Services Agreements Line by Line
David also has his own law blog, Gurwin’s Keyboard, covering legal entertainment and technology issues that is worth a look, too.