If you want to build a website for your company, but don’t know the first thing about coding, then you may be considering outsourcing your web development to a third party.
However, a lot can go wrong if you aren’t prepared, causing all sorts of headaches for you and your company.
Here is a list of some of the problems that can arise when outsourcing your web development and how you can avoid them.
You have paid a third-party developer lots of money to build your website and then when they’ve finished, they reuse that code to build a similar website for your competitor.
- Solution: Own the intellectual property rights to the code.
If you hire a third-party contractor to create or contribute to the creation of a website, you must be certain to obtain ownership of the copyright in the contractor’s work. Computer code is subject to copyright law, and as such, unless otherwise agreed, the copyright in the code belongs to the author, who in this case would be the third-party developer rather than your company.
Two ways you can obtain the copyright in the code for your website are:
- A work-for-hire agreement
- A copyright assignment
The main difference between the two is that a proper work-for-hire is a permanent vesting of copyright ownership in the buyer. But if there is no work-for-hire agreement, even if a full assignment of ownership is eventually executed by the developer giving your company exclusive rights in perpetuity, that copyright assignment will always be inalienably revocable by the developer after 35 years.
One way to obtain the copyright in your code is a work-for-hire agreement. Certain types of works created by independent contractors are considered works made for hire to which the hiring party owns all the copyright rights so long as (1) the hiring party and independent contractor sign an agreement before the work is created stating that the work shall be a work made for hire, and (2) the work falls within one of the following categories:
- A contribution to a collective work
- A part of an audiovisual work
- A translation
- Supplementary works such as forewords, afterwords, editorial notes, bibliographies, appendixes and indexes, etc.
- A compilation
- An instructional text
- A test and test answer materials
- An atlas
Websites are generally considered collective works and/or compilations, and thus can be the subject of a Work-for-Hire agreement.
Another way to secure ownership in the code of your website is a copyright assignment agreement. You’ll typically use a copyright assignment to transfer ownership obtain ownership of the web content created by the third party developer.
An assignment of a copyright needs to be in writing to be valid. However, an assignment does not need to be lengthy or complex. At the very least, it should contain: the names and addresses of the person creating the work and the person or entity paying for it, and a description of what rights are being transferred, for an assignment, the following phrase may be used: “Transferor hereby assigns all his right, title, and interest in [description of work].”
The assignment agreement may be signed before or after the work is created.
If the contractor does not sign a work for hire agreement or assignment, there are two possible consequences: (1) the contractor will be considered the sole copyright owner of the work he or she creates, or (2) the contractor and your company will be considered to be joint authors and share ownership.
First, unless you can obtain an ownership interest by claiming joint authorship or by virtue of some written document, the contractor will solely own all of the copyright rights in the work product. However, all will not be lost. At the very least, a company or person who pays an author to create a protectable work has a nonexclusive license to use it as intended. After all, you paid for it.
Alternatively, you and the contractor could be considered joint authors of the work. However, for a person or company to be considered a joint author, it must contribute actual copyrightable expression to the finished work. Simply describing how a website should function or contributing other ideas or suggestions is typically not sufficient.
You tell your idea to a third-party web developer and then they leave and do it themselves.
- Solution: Have the developer sign a non-disclosure agreement (NDA) as well as non-compete and/or non-solicitation agreements
1. Non-Disclosure Agreements
Businesses should consider using an NDA whenever they are disclosing confidential business information to others. Confidentiality is a particularly important form of asset protection in the computer industry, where technology is constantly changing and tech-based competitive advantages do not last long.
It is best to have your developer sign an NDA before you disclose any confidential information, but an appropriately drafted NDA may also protect information that was disclosed before execution.
It is important to carefully consider the definition of confidential information in an NDA. You need to ensure that the relevant information is covered and the irrelevant information excluded. You should consider whether information provided orally should be included within the definition.
While information does not need to be “top secret” to be protectable, an NDA may still be unenforceable on public policy grounds if the definition of confidential is too wide. Consider this problem from the developer’s point of view. A developer is unlikely to sign an NDA if it overly hinders their business activities, and then you won’t have anyone to build your website.
2. Non-Compete Agreements
The idea behind non-compete clauses grew out of employers wanting to make sure that when an employee left the company, he didn’t take any clients with him.
Most clauses are phrased so that the contracted employee can’t work in the same field for a specific period of time after leaving the company. It’s actually quite difficult to enforce a non-compete clause, but employers hoping to limit competition even for a short period of time still commonly use them.
3. Non-Solicitation Agreements
There are two types of non-solicitation clauses: customer non-solicitation clauses and employee non-solicitation clauses. A non-solicitation clause typically prohibits a person from directly or indirectly asking company employees (or customers in some cases) to leave the company and join the departing employee in his new business.
As with non-competition clauses, courts are loath to enforce non-solicitation clauses that pertain to customers, and reluctant to enforce non-solicitation clauses that pertain the company’s then existing employees, unless necessary to protect an employer’s trade secrets.
Unlike customer non-solicitation clauses which are typically unenforceable, employee non-solicitation clauses that prohibit a former employee from “raiding” or directly soliciting the employer’s existing employees for a limited period of time are generally enforceable.
However, inclusion of such a clause in an employment agreement may be of limited value because such a clause cannot prohibit the non-departing employees from contacting the former employee, or seeking employment with the former employee.
The third-party developer starts working on the project, but then they disappear. Now you have no code and your launch date is significantly delayed.
- Solution: Have the developers archive the code for your website in a code repository that you have access to, even after they leave. To the extent possible, be sure to have administrator status to the code repository as well as access to all passwords.
Once you have secured ownership in the copyright of the website, your need some kind of assurance that you, or at least your source code, will always be around, in case the software needs maintenance, updating, recompiling or reinstallation. You are going to want more than the developer’s word when making a major software purchase.
Software Escrow is that something extra. It’s a way of mitigating risk when two or more parties negotiate a software license. When you create a software escrow contract, your source code is placed in a secure escrow account held by a trusted independent third party.
That means if in the future the contractor is not able to support the product for reasons specified in the escrow agreement, such as bankruptcy, obsolescence, merger or acquisition, you will still have access to the source code you need to keep their mission-critical applications up and running.
The third-party developer starts working on the code for your website, but doesn’t have the skills to scale the site to fit your needs and now you have to start all over.
- Solution: Be sure the developer can build a website that fits your needs.
Not all websites are the same. You are going to want to be sure that the web developer that you hire can build a website that meets your needs, not only now, but in the future.
Whether you need your website to be scalable, to work smoothly on mobile devices, or to have E-commerce capabilities, you need to be sure that your web developer is capable of doing what you need them to do.
Building a website through services like Weebly or SquareSpace that build websites using templates do not take the same level as building a website from scratch using HTML or CSS.
Be sure to vet your web developer and check out examples of their previous work to see if they can handle the type of website you want them to build.
The third-party developer outsources your project to a foreign country where you can’t control your intellectual property.
- Solution: Research the developer and determine if this is something they have done in the past and whether they will continue the practice with your project.
Outsourcing requires the sharing of a wide array of proprietary knowledge. The nature and criticl importance of intellectual property will differ in every sector of industry and business. Nonetheless, every type of IP asset may be involved at the different levels of outsourcing relationships.
However, each type of IP asset is generally governed by its own distinct national law, which varies from one country to another, adding further complexity to managing IP assets in offshore outsourcing relationships, especially if there are many partners in different countries.
For these reasons, you should avoid partnering with developers that will outsource your project overseas.
If you do want to partner with a developer who is going to outsource your project, be sure to draft an agreement carefully so that you maintain control of your intellectual property at home and abroad.
With these tips in mind, you should avoid many of the common pitfalls that occur when outsourcing web development.
Author: Daliah Saper