Software Development Agreement – Who Really Owns The Intellectual Property?

By | Copyrights, Intellectual Property, Licensing, Licensing Agreements, Open Source, Software, Software Agreements, Software Lawyer | No Comments

software development agreementWhether you’re a developer or a client, one of the most important things to cover in your software development agreement is who owns what intellectual property (IP) rights.

Surprisingly, most developers and their clients either don’t know or having conflicting views on the subject.

Imagine you’re a client that’s just obtained an advantage in the marketplace with new software. Then you discover your developer now works for one of your biggest competitors on a similar software project.

Or, let’s say you’re a software developer. At the end of a project, the client is happy with your work but makes an off-the-cuff remark about owning the new software lock, stock, and barrel. You wonder if the client understands that’s not the case.

According to Dallas Software Lawyer Mike Young, there are two competing interests at play. “The client wants ownership while preventing the developer from re-selling the software to others,” he said. “On the other hand, the developer wants to keep ownership because some code can be recycled and used on projects for other clients instead of having to reinvent the wheel from scratch.”

So, how do you balance these competing interests in a software development agreement?

One method is to use a combination of licensing with non-competition provisions.

How does this work?

The developer retains IP ownership, licenses the software to the client, and agrees to restrict the purposes for which the code can be recycled. Often, this means the developer is agreeing that for a period of time, the developer will not use the software to compete with the client or recycle the code and sell it to one of the client’s competitors.

What if the developer doesn’t own some of the code used in the software?

The general rule of thumb is you can’t convey what you don’t have.

When it comes to software development, there’s often is some code the developer does not own. For example, a developer’s license has been purchased from a third party, the developer is using open source licensed code (e.g. GNU General Public and Creative Commons licenses), or some of the code has been taken freely from the public domain.

In other words, there may be multiple tiers of intellectual property rights associated with a single piece of software. And if those are not clearly identified in the software development agreement, it’s a recipe for confusion, hard feelings, and litigation.

What if the developer is the company’s employee?

Even if employees are doing software development for an employer, it’s risky to assume the software is the employer’s intellectual property as a work made for hire for two primary reasons.

First, certain criteria must be satisfied before the software is considered a work made for hire.

Second, the employee(s) developing the software may have licensed some of the code, used open source code, or taken code from the public domain.

Employers can reduce these risks by taking preventative steps before development begins. These actions can include written employment agreements that cover works made for hire, implementing employment guidelines to ensure the work-for-hire criteria is satisfied, and establishing a clearly defined project scope of work to identify the coding resources for the project and related intellectual property rights.

IP Ownership Is Negotiable

Whether you’re an independent contractor, client, or an employee involved with a software development project, it’s important to understand the intellectual property rights are frequently negotiable, i.e. there’s no one-size-fits-all standard to apply across all projects.

Before negotiating, work with your software lawyer to identify what you must have, what would be nice to have, and what you can live without. This makes it easier to cut a deal where each party gets what they want from the project.

Protect Your Brand With The Right Licensing Agreement

By | Licensing, Licensing Agreements, Technology Contracts | No Comments

brand licensing agreementThere’s a well-known fashion designer who’s currently suing for breach of a licensing agreement because she alleges, among other things, that the licensee is hurting her brand by selling inferior merchandise.

Whether or not that’s true, the key takeaway from this lawsuit is that when it comes to protecting your brand as a licensor, your licensing agreement must contain specific terms and conditions that makes it difficult for the licensee to harm your service marks and trademarks through misconduct.

Important Brand Licensing Agreement Clauses

Some of the key provisions you may want to include in the contract are:

  • Limit the scope of the license (e.g. term, geographic, revocable, nonexclusive, etc.);
  • Choice of law and forum for resolving disputes (preferably your home territory, not the licensee’s);
  • The ability to obtain injunctive and other equitable relief to protect your brand;
  • Significant liquidated damages per violation;
  • Alternative dispute resolution (mediation and arbitration) for most issues unrelated to protecting your intellectual property (IP);
  • Award of attorneys’ fees and court costs to the prevailing party in a dispute (loser pays); and
  • Confidentiality and non-disparagement clauses.

According to Texas Internet Lawyer Mike Young, unequal bargaining power may become an issue when interpreting a license agreement because courts (particularly juries) are inclined to favor the underdog if one party is significantly larger than the other.

If you have all of the leverage (e.g. the licensee is a micropreneur), it’s important that your company’s attorney draft language that mitigates this disparity in bargaining power while protecting your interests so that there’s a perception of fairness when it comes to enforcement.

Plain Language

Using simple plain English will prevent many common disagreements as to your respective rights and obligations under a licensing agreement. When each party clearly knows what he is supposed to do, the odds increase that your deal will be profitable while protecting your brand too.

A good way to get what you want when licensing your brand is to have an experienced business transactional lawyer draft the contract based on your unique needs and use that draft as the starting point for all negotiations with prospective licensees.

Joint-Employer Liability: How To Avoid It As A Business Owner

By | Dallas Business Lawyer, Dallas Business Lawyer, Employment Agreements, Featured Articles, Franchising, Licensing | No Comments

joint-employer liabilityAs noted by the Wall Street Journal in the editorial “A Joint-Employer McDouble,” both the federal government and class action attorneys are working hard to impose joint-employer liability on franchisors for alleged misconduct by franchisees with regard to employee claims.

Business Opportunity Licensors and Joint Liability

According to Dallas Internet Lawyer Mike Young, the theories being used to shake down franchisors like McDonalds may also be applied to those who license rather than franchise their business systems. In other words, if franchisors can be held jointly liable as employers, it’s not too far of a stretch for the same legal arguments to be applied in suits against business opportunity licensors for claims made by licensees’ employees.

Indirect Control and Joint-Employer Liability

The National Labor Relations Board (NLRB) is attempting to impose joint employer liability under the theory that a franchisor indirectly controls at least some of a franchisee’s employees.

Ostensible Agency and Joint Liability

As noted in the Wall Street Journal editorial, it appears that plaintiffs’ attorneys may succeed if they can show that franchisee employees reasonably believed that franchisees were acting as ostensible agents for the franchisors when committing misconduct.

How to Reduce the Risk of Being Held Jointly Liable

License instead of Franchise

In addition to less regulatory burdens, licensing your business system (instead of franchising) reduces the odds you’ll be on the hook as a joint-employer. Unlike franchising, there are many ways to structure a business licensing deal so that a licensee’s employees don’t even know of the licensor’s existence.

Lacking knowledge of a licensor-licensee relationship, it would be difficult for a licensee’s workers to argue joint employer liability under ostensible agency or indirect control theories.” – Dallas Internet Lawyer Mike Young

Indemnification and Defense

It may be appropriate for your franchise agreement or business opportunity license agreement to make it clear that if an employee of a franchisee or licensee brings a claim against you as an alleged joint employer, that your franchisee/licensee will indemnify and defend you against such a claim.

Written Employment Agreements and Policies

Of course, whether you’re a franchisor or a business system licensor, you may want to ensure that your respective franchisees and licensees make it clear in employment policies and any written employment agreements that you do not control their employees (directly or indirectly) and that your franchisee or licensee is not acting as your ostensible agent with regard to employment matters.

Your business lawyer can prepare related provisions for use in employment contracts and workplace policies.

Breach of Contract: Is Jay Z Getting a Bad Rap?

By | Business Lawyer, Dallas Business Lawyer, Intellectual Property, Licensing | No Comments
breach of contract rapper

What you can learn from Rapper Jay Z’s alleged breach of contract

As a Dallas business lawyer, I find valuable lessons in breach of contract lawsuits involving sports and entertainment stars. Today’s example is Rapper Jay Z’s dispute with a Long Island perfume vendor that’s ended up in a New York state court lawsuit.

According to news reports, Jay Z (a.k.a. Shawn Carter) may have violated a licensing deal to promote “Gold Jay Z” perfume. Among other things, he was allegedly compensated with a total of 1.1 million in company stock and stock warrants.

However, the vendor says Jay Z didn’t honor his contractual obligations to promote the fragrance to the public, such as mentions in social media and participating in interviews about the product.

Even if you’re rich as a successful rapper, the perfume company’s demands in court are enough to keep you awake at night wondering how to pay if you end up losing — $18 million in alleged damages, a demand for punitive damages, and other remedies.

So, what’s are the lessons to learn from this licensing deal gone bad?

1. Due Diligence

Whether it is a licensing deal or another contract that’s important to your company, performing due diligence on the other party is essential.

A simple Google search for “Jay Z lawsuit” would have revealed that the rapper has been involved in multiple lawsuits, including claims for breach of contract. Regardless of the merits of such claims, a litigation track record is a warning sign that you should prepare to end up in court if things go south…and use that factor to help you decide whether or not to go forward with the deal.

In contrast, if you were considering doing a business deal with NBA Hall of Famer Michael Jordan, due diligence would reveal that his litigation typically involves misuse of his name in advertising without compensation (i.e. someone wrongfully profited using his name without a license to do so). And when he’s donated the damages awarded to charity, it’s an indication that Jordan’s primary interest is in protecting his brand.

On the other hand, you’d also discover that Michael Jordan does not “do deals for anything less than $10 million.” That piece of information might deter you from approaching him to star in commercials for your company’s products or services.

2. Clarity Reduces Breach of Contract Risks

Without having the actual agreement to review, it’s unclear what was said (or left unsaid) about Jay Z’s obligation to promote the perfume. However, simple clear instructions in a contract for each party eliminates many misunderstandings that lead to lawsuits.

If I were the business attorney that prepared this licensing deal, I would have encouraged my client to insist on specific action items to be taken by the rap musician to market the fragrance.

For example, promotion in social media would have included specific identification of the media platforms (e.g. Facebook, Twitter, Google+, Pinterest), a minimum number of promotions for each platform, and ideally a timetable for such activities. If necessary, the business agreement would have provided for the company to create the content to be distributed by Jay Z in his social media accounts so that one of his assistants could simply copy-and-paste the material into the platforms for distribution.

If Jay Z was supposed to do interviews as part of the marketing campaign, the licensing agreement would ideally describe each media outlet conducting the interviews and set a base number of interviews as being acceptable.

3. Performance-Based Compensation

As with any business deal, it’s rarely a good idea to give the other party on the front end what he wants and then hope for performance to occur later.

The perfume seller could have tied the award of stock and stock warrants to specific measurable marketing and advertising activities to be done by Jay Z. For example, for every 10 tweets about the fragrance, the rapper would receive XX shares in the company. There could even be a bonus structure in place where Jay Z received additional compensation by exceeding the minimum promotional requirements and/or when perfume sales met certain targets.

No matter the type of deal, your business lawyer can follow these tips to help you get what you want without suing for breach of contract for damages.