The Waterfront Partnership

Case Studies

Developing

 

"I am a self-employed IT consultant and work for various clients. What type of agreements should I be entering into with sub-contractors while developing their software?" 

Our client is a self-employed IT consultant, who works alone doing software development work for various corporate clients.  She needs to ensure that she has back-up cover for the periods when she wants to take holiday, or for periods where the workload becomes too much for one person to handle and still meet client deadlines.  Ideally, she would need to have one or more sub-contractors lined up with contract terms already in place before she needed to call upon their services. 

We discussed with the client the need for different contractual arrangements with her sub-contractors depending on the arrangements she had with her clients.  For example, if she had been commissioned to work on ad-hoc projects, then an ad-hoc arrangement on a "time and materials" basis would be sufficient.  On the other hand, if she was contracted to produce a specific piece of software by a specific deadline, then a more comprehensive contract would be needed as a one-off. This could be by way of an amendment to some generic terms which she already had in place with the sub-contractor.

We reminded her that the standard legal issues arising from sub-contracting need to be taken into account.  Firstly, is her client happy that someone other than her will be doing part of the work?  Most IT consultancy or project agreements provide that services cannot be sub-contracted without the client's prior written consent.  Secondly, she must make sure that IPR and confidentiality issues are properly covered off.  She will need a written assignment of IPR from the sub-contractor ensuring that any intellectual property produced will be owned by her, so that she can assign it to the client, or will be owned by the client directly (sometimes a client will ask for a direct assignment from any developers who worked on a project, if it has any concerns about the chain of ownership being incomplete).  As regards confidentiality, her client may also wish to see that non-disclosure agreements are signed directly with all developers, or they may be happy with a clause saying that their contractor must ensure "equivalent" confidentiality agreements are in place with any sub-contractors.

Another highly important issue was to ensure that the key clauses from our client's contract with her client were duplicated in her contract with the sub-contractor.  Any differences could cause our client to be "out-of-pocket" or picking up the pieces if there were a problem. For example, if our client had a maximum liability to her client of one million pounds but her sub-contractor was only insured for one hundred thousand pounds and refused to accept a higher liability, then our client could end up having to meet the difference if a substantial legal claim against her was successful.  In terms of project specification, it was important to make sure that the sub-contractor fully understood the client's requirements and worked to those.  The relevant parts of the specification could therefore be attached to the sub-contract as annexes, so that it was completely clear what the sub-contractor was required to produce.

Our client agreed that as a general rule, it made most sense to ensure that the terms in place with sub-contractors were closely aligned to her own terms and conditions of business, wherever possible.

 

Exploiting

 

"We are licensing software from a company which benefits our customers. However can we have an agreement in place where we receive royalties too from the use of the software by our customers?" 

Our client ABC Limited is a medium sized software house providing IT solutions mainly used by customers in the financial services industry. 

ABC was approached by a third party company ("XYZ Limited") which was interested in partnering with our client to provide our client's software to its own customer base and to new customers.  ABC was obviously keen to take advantage of the commercial opportunity presented.  The proposal was that ABC Limited and XYZ Limited would develop a hosted solution which could be used by XYZ Limited to process data on behalf of customers.  The customers would not buy licenses themselves nor need to install the software on their own systems.

Therefore, XYZ needed to have a license to use the software but one which was extended to allow the software to be used for processing data on behalf of third parties rather than for its own business purposes.  As the third parties would be getting the benefit of the software without needing to buy their own licenses, a charging mechanism was needed whereby XYZ would charge fees and then royalties would flow back to ABC.  Rather than have us create a traditional type of reselling agreement for the deal with this partner, ABC asked us to assist in adding the required commercial "reseller" terms and the extended license rights into their standard license agreement.

The hosted solution also required a data input, via a datafeed sourced from a third party supplier. We reviewed the terms of the datafeed agreement and assisted ABC in negotiating terms which would cover the use needed. A fundamental misunderstanding of the data supplier during the negotiation was that their data would be accessible directly by the end customers, and this led to some reticence on their part in agreeing changes to their standard terms.  Together with our client, we were able to explain the technical and commercial set-up of the proposed arrangement and give the data supplier a sufficient level of comfort in order to be able to agree the necessary terms.

Another key area in the negotiations was around the issue of liability.  ABC wanted to ensure that they would only be liable to end customers in respect of problems which were caused by their software, and not problems resulting from other aspects of the hosted services.  This was achieved by careful drafting of the relevant clauses in the agreement between ABC and XYZ.

 

Protecting

 

"We've developed a software product, but my customer wants to own some modifications that I am making to it for them. How can I make sure that I protect our rights?"

Our client is a privately owned software company and has developed a .NET based technology platform which it licenses to clients and a suite of reconciliation software applications which operate on it (for the purpose of this case study we shall call our client .NETco).

.NETco's customers frequently require additional modules to be built for them to address specific business requirements, and always demand that they own the resulting Intellectual Property Rights.

The customers usually start from the (very unreasonable!) position of requiring ownership of .NETco's platform and all applications as well as their specific modules however if .NETco were to agree to this then they would no longer own any products to sell to anybody else. It is essential that they have a contractual framework in place which reflects their business practices and is flexible enough to cope with the demands of their customers.

Working closely with .NETco's technical and sales teams, to make sure that we completely understood the requirements, we developed a Framework Agreement for .NETco to use with their customers.

The Framework Agreement ensures that all rights to the underlying technology platform and the core software applications are owned by .NETco. Their customers are only ever given a licence to use this software and they have no rights to the source code. The Framework Agreement permits flexible licensing of the platform and applications to meet the customers requirements.

The Framework Agreement makes a clear distinction between .NETco's core software and the bespoke modules developed specifically for customers. If a customer insists on ownership of the specific modules then the Framework Agreement permits .NETco to give ownership of the modules to its customers, but without affecting ownership of its own software, which it retains. If a customer doesn't insist on ownership of the specific modules then .NETco can utilise the flexible licensing provisions to grant the licence that the customer requires.

We also provided some notes to .NETco to help them use the Framework Agreement in a variety of situations. This means that .NETco is able to tailor the agreement to the specific requirement of each of its customers without having to come back to us and pay more fees each time they have a new customer.