Logic Sold Separately - Legal Issues for Developers

Of what stuff is a Website made? Or, more to the point, of what stuff is it not made? To me, that was the real legal question when a colleague consulted me about a dispute involving his client, a Web host-turned-developer.

The client had recently expanded and upgraded its in-house technical resources. However, it had neglected to refocus its legal mindset to reflect the technical shift it had made from building simple Websites, to developing powerful, software-driven sites and Web-based software. That oversight resulted in ill-suited contracts, and eventually jeopardized the company's copyright to a valuable source code library that it leveraged in projects for many different clients.

Fortunately, if you allow your technical insights to guide you in drafting contracts, you should be able to avoid this company's mistakes.

Whose Site Is It? What’s a Site Anyway?

Very often a customer will demand ownership of the intellectual property rights to a Website it orders. A customer can well argue that it would be tethered to the developing host if it didn’t own the site. This is a deceptively powerful argument that, in fairness, is difficult for many developer-hosts to refute. But therein lies a trap.

What does the customer bargain for when it orders a Website? What does the developer-host offer? With changes in Web development technology, the answers to these questions may not be as clear these days as they once were.

Before: Website = Look and Feel = Customer’s Brand

In the past, Websites contained only pure hypertext mark-up language (HTML). A Web page was a static display of visual elements: logos, graphics, layout, color themes, and, of course, text. HTML alone implemented the design and arrangement, the "look and feel" of a Website.

Custom-designed visual elements of a Website go to the heart of a customer's unique branding. Of course, a customer makes a compelling business argument for the ownership of these elements of a Website. And it’s fairly clear that the customer's interest in these elements of its site may be legally protected (though ironically, much of that “look and feel” protection may come from trade dress law more than copyright law).

So Web developers often enter contracts that grant the customer ownership of the customer’s “Website”. But what exactly does that mean today?

Now: Website = Logic = Developer’s Toolkit

Pure static HTML Websites are increasingly rare. Today, we have client-side scripted interactivity. We also have numerous platforms for server-side database handling and other server-based logic manipulations, or, in other words, full-blown programming.

Whether on the server-side or on the client-side, the logic powering a Website does not visually brand the Website.

Sorry, Logic Sold Separately ...Maybe

So, how compelling is the customer’s argument for ownership of the back-end logic that powers its Website? In my view, the customer is not fairly entitled to own the logic that powers the site -- unless the customer clearly bargained, and paid a premium, specifically for the ownership rights to the code (though of course, the customer is entitled to license, non-exclusively, the use of the logic).

What does the law say about the software behind the site? In my view, the answer is often unclear. If there is no contract, a non-employee developer generally owns the copyright to software they write and other intellectual property they create.

Note, however, that there are some important exceptions to this rule, and courts sometimes define "employee" differently to the way we might as regular people.

Make the Contract Say What You Mean

In practice, usually there’s a contract between the developer and the customer. Unfortunately, that contract typically refers to “The Customer’s Website”, without defining that term. The contract then purports to transfer to the customer ownership of that undefined “Website”. To me, this begs the question of whether site-enabling software is included in “The Website”.

Transfer of the ownership of software-powered Websites should raise some concerns in developers. If you don’t get your contract right, you may jeopardize ownership of your valuable source code.

The good news is that, with proper care, you should be able to give your customer the desired and deserved ownership of the branding features of its Website, and still retain rights to your software. That's a win-win scenario.

To achieve it, all you have to do is clearly distinguish the software powering the Website from “The Website” itself. As is usually the case, that is a manageable task if addressed head-on in the contract.