Imagine this scenario: your marketing team has decided that your company’s website is out of date and not particularly effective in serving existing customers or attracting new ones. Additionally, although the current outside web development company was once the recipient of lavish praise from your team back when the existing website was created, the developer has since fallen out of favor along with the website it created. Moreover, your customers have recently been experiencing increasing frustrations with certain website functionalities that no longer seem to work properly, and your sales team is fed up with these “technical difficulties.” To top it all off, the current web developer, who has sensed the dissatisfaction with the relationship and suspects your company may soon move to another provider, has become less and less responsive to your company’s needs. In light of all this, your team has decided to do exactly that – switch to a different website provider to fix the problems and revamp the website.
Sounds like a fairly straightforward issue, right? But out of caution, when you get wind of this issue, you decide to get your IP/IT counsel involved, just in case. They, in turn, ask to see your agreement with the existing web developer. So your assistant digs up the agreement and sends it over to them. That afternoon, they call you to discuss the situation, and your incredulous response is, “What do you mean we don’t own our website?” They go on to explain that the agreement expressly reserves to the web developer all rights, title and interest in and to the work product that they create for your company, and all your company has is a nonexclusive license to use the website during the term of the agreement. “But that’s preposterous!” you say. “We’ve paid those yahoos umpteen thousand dollars over the past three years to create and maintain this site for us – how can they possibly say we don’t own it?” But unfortunately the agreement is crystal clear on this point. Furthermore, the agreement includes a prohibition against modifying or reverse engineering the website in any way. Then the stunning implication begins to dawn on you: not only do we not own the website, but we cannot modify it on our own or have someone else do that for us!
But that’s not all. To make a bad situation worse, you then find out that your marketing team has already engaged a new web development company to take the existing website and pick up where the first team had left off. Unfortunately, when they tried to fix the problems, the well-meaning new web developers could not do so without access to the source code for the existing website, so they used an available online decompiler to generate the source code. The initial web development company has since discovered that a competitor now has access to their “proprietary” source code, and it’s all because of your website. The litigation sabers are beginning to rattle. What a fabulous mess!
Does this sound unbelievable? Unfortunately, it’s a scenario that plays out in the real world all too frequently. Not surprisingly, web development companies and their counsel routinely include provisions in their agreements like those noted above to protect their interests in their work product to the greatest extent possible. Understandably, they are reluctant to assign IP rights in work product created for their customers because they’re afraid of being put in a position in which they could be precluded from building certain website features for other customers that are the same or similar to those created for one customer. The customers, on the other hand, are usually unaware of the potential problems that may arise if such language is included. Without IP/IT counsel involved in the negotiation of the web development agreement on behalf of the customer, such provisions may go unnoticed until it is too late. The customer is likely to presume (incorrectly) that they will own the website since they are paying for its creation, not realizing the adverse implications noted above.
The good news, however, is that such nightmare scenarios can be avoided with careful attention to the web development agreement on the front end. Ideally, from the customer’s standpoint, the web development agreement should provide that the customer will own the website and all associated IP rights. The web developer’s concerns regarding its ability to build similar websites for others may be addressed by including a provision allowing such activity. Alternatively, if the web developer is not willing to assign such rights to the customer, the agreement may reserve ownership in the web developer but grant a perpetual, nonexclusive license to the customer to modify the website for its own use, either directly or through another third-party contractor. That way, the customer is not hamstrung by an inability to update or otherwise modify its website if it wants to move to a different provider.
A related consideration pertains to the inclusion of third-party software or platforms on which a website is built. Frequently, websites are not created completely from scratch but instead are built on other pre-existing applications or platforms, which themselves may be subject to applicable license agreements. In light of that, the agreement with the web developer should also address the rights and responsibilities relating to such third-party products. Among other things, the customer will want to make sure that the licenses for such third-party products either belong to the customer in the first instance or at least are transferable to the customer or the customer’s designee if the customer wants to switch website providers. Otherwise, the customer may find itself in the unhappy position of having to pay again for the needed third-party licenses in order to continue use of its website with a different provider.
Finally, in view of the likelihood that the customer will want to switch website providers at some point, the customer will want to include a provision that requires the web developer to assist the customer in the transition of its website to another web developer or hosting company upon the customer’s request. Although most if not all website development relationships start out like a marriage made in heaven, almost inevitably the honeymoon is over at some point and the customer wants to move on. Since websites are often critical to a customer’s business, it is imperative that such transitions be done in an orderly and timely manner. Accordingly, the website development agreement should account for this reality and deal with it appropriately.
Of course, many other provisions may be key components of a website development agreement, which should be tailored to a customer’s specific needs. By getting IP/IT counsel involved on the front end, many headaches can be minimized or avoided. To borrow a phrase from the medical field, “an ounce of prevention is worth a pound of cure.”
Note: This article is an educational tool that is general in nature and for purposes of illustration only. The comments in this article are not exhaustive, do not constitute legal advice and should not be considered a substitute for consulting with legal counsel. Likewise, the comments in this article reflect the views of the author, not Dykema Cox Smith or any of its clients. Dykema Cox Smith has no obligation to update the information contained in this article.
Published September 15, 2015.
