‘Tis the season for giving – but don’t give too much away!
 
It’s December 14, heart of the holiday season.  You rely on your website for most of your company’s sales and it just crashed! Every hour the site is down costs you thousands of dollars in lost sales.  You just called the company who designed your site to get them to send you the code so that you can have your CTO fix the bug that apparently caused the crash. To your stupefaction, they respond that they –not you- own the code and they will fix the bug themselves if they receive a substantial additional payment. What do you do?  a) cave in because you have no choice; b) call your investors to tell them you might need a bridge loan in the next 24 hours; c) promise yourself to never sign another contract without reading it first; d) ask your friends if they know a good lawyer; e) all of the above…
 
You’ve no doubt heard horror stories about what can happen if someone builds a website for you and you don’t have a good contract in place. Inevitably, something goes wrong and you’re stuck. What to do? In short, you need a web development agreement so you’re not at the mercy of your web developer before or once the initial work is completed.
 
What is a web development agreement?
Any company that wants to have a credible web presence must have their website designed by a professional. Large companies might have the staff and resources for in-house web development, but smaller businesses will typically resort to hiring an external web developer. A web development agreements sets out the obligations and expectations between you and the developer including – most importantly-, ownership of your website’s code, and licensing of any intellectual property contained within the website. Since designing a website entails technical as well as artistic creation, you will need to address both aspects carefully.
 
 I want to own my own website, including the code.  
It only seems fair: you hired a developer to build a website for you, so the website - and its code - belongs to you. Right? Not necessarily. If your company lacks any written agreement with the developer, or if the one in place is inadequate, your ownership interests are very much at risk. Courts have held that if the web development agreement doesn’t clearly spell out that ownership of the code lies with the client, then the client has no legal recourse for conversion (including loss or erasure) of the code. See Conwell v. Gray Look Outdoor Marketing Group, Inc.
 
How could this be, you ask? It seems so counterintuitive. Well, under copyright law, in the absence of an agreement to the contrary, a web developer will by default retain copyright title to the code they developed. For this reason, web development services are usually placed under a “work made for hire” contract, which endeavors to shift that default ownership to the client, the party commissioning the work, and further assign said rights to the client. Incidentally, a mere clause that “the work is made for hire” will generally not suffice and you need to add a specific IP assignment provision in the contract.
 
The case of State of New Mexico v. Kirbyis a rather extreme illustration of a developer’s ownership of the code in absence of a written agreement to the contrary. A dissatisfied web development client was convicted of criminal fraud – and sentenced to jail time! – after refusing to pay the developer and blocking access to the website (and consequently the code). The court held that, unless expressly agreed otherwise, the “owner of the website” is usually the creator of the web pages – i.e. the website designer – rather than the client who hired the developer and for whom the website is developed. 
 
Perhaps you want to make edits to the code yourself, or hand the reigns over to a different developer. As the client, you stand to forfeit a substantial investment if don’t have a copy of the code, because you may have to start over from scratch.  Remember that the developer is not automatically obligated to provide you with that code, unless your entitlement to a copy of the code is included in the ownership provisions in the contract.
 
From the developer’s perspective, signing away ownership of code can be very disadvantageous ,, since they often reuse and recycle code components from previous projects for efficiency and standardization reasons. You can see how code ownership provisions can quickly become a tug-of-war between developer and client. So for the web developer, the less said the better, since the default rule is that they own the content he created. Hence, developer-drafted agreements tend to be very short and plain and may indirectly encourage the client to forego legal review as a result.  That’s a mistake.
 
The bottom line is this: if you’re the client, the web development agreement should clearly specify that you have ownership of the code, or at least a broad license to use and modify the code with no further obligations. If you don’t negotiate that web development agreement carefully, you may find that you don’t own and/or can’t modify your own website!
 
I want artwork on my website.
 
Website development and design agreements address licensing issues too. Since websites usually contain a strong artistic component, they may contain artwork, photos, plug-ins, videos, text, or other intellectual property owned by third parties, and they could be improperly licensed. If the developer provides any intellectual property at all as part of the website, you need to know whether or not they really own it, and what rights you're getting to use that intellectual property. You also need representations, warranties and indemnity language to help protect you in the event that a third party is unhappy with some of the content on the website and seeks legal redress.
 
Make a list, and check it twice.
 
A good website development agreement must also address a lot more issues than just ownership of code and licensing of intellectual property. There should be language about client vs. designer responsibilities (who provides what?) and the acceptance process (when is it good enough?). As stated before,  a website is both a technical and artistic creation, so client satisfaction can be very subjective, and writing clear specifications is paramount.The agreement must also address delivery schedule and payment terms, including deadlines and cost overruns, as web development often takes much more time and resources than originally anticipated.  It should cover who si responsible for technical support and the expected SLA. Finally, outsourcing website development overseas could expose you to a variety of other risks and ambiguities. Choice of forum and choice of law clauses are important to make sure any dispute that arises can be settled close to home and in a cost effective manner (i.e., mediation and arbitration). 
 
The pitfalls and resulting headaches outlined above are easily avoidable through proper contractual communications. Don’t make the mistake that so many startups make: signing that short and sweet contract without understanding the terms and implications. Refuse to sign anything less than a carefully vetted and fairly negotiated agreement. A competent attorney can rapidly review the contract you are asked to sign and help you and include some language that protects your rights and meets your legitimate expectations.
 
As a modern business, your online presence – your face to the customer – is one of your most valuable assets. Don’t give it away! 
 

In a shot at IBM, Microsoft invests in TurboHercules. Microsoft has made an undisclosed investment in TurboHercules, a French software company which has accused IBM of anticompetitive tactics in Europe related to mainframe computers. Founded in 2009, TurboHercules is an open source program that allows users to run mainframe software on personal computers without accessing the mainframe hardware.
 
Kraft Sues Starbucks Over $1B Distribution Deal. Kraft Foods Inc. is seeking a court order to block Starbucks Coffee Co. from terminating an estimated $1 billion contract under which Kraft has the exclusive right to distribute the coffee giant's products in grocery stores. Law360, December 6
 
Viacom Claims YouTube Ruling Imperils Copyrights. Viacom International Inc. launched an attack Friday in its appellate fight over a ruling that Google Inc. is not liable for infringement of Viacom programs on YouTube, contending in its opening brief that the decision would radically transform the nation's copyright system. Law360, December 6
 
Groupon's Appeal to Google Likely Is Patent-Related, Expert Says. Google Inc.'s potential purchase of the online site Groupon Inc. made headlines this week because of the eye-popping price: $6 billion. The price might be right if Groupon's patent turns out to withstand court challenges by competitors; the most valuable asset of an online startup may be its patent, said Patrick Arnold, a shareholder at McAndrews, Held & Malloy, a Chicago intellectual property boutique. National Law Journal (law.com), December 3 (Related: Groupon Hit With IP Suit Amid Google Merger Rumors. As rumors swirl of a massive $6 billion deal between Google Inc. and Groupon Inc., the daily coupon company is facing litigation alleging that it infringes four patents obtained by a rival. Law360, December 3)
 
The secret of Silicon Valley, and where Seattle ranks as a tech hub. How did Silicon Valley become the center of the tech universe? And where does Seattle rank as a tech hub? University of Washington history professor Margaret O'Mara, author of the book Cities of Knowledge: Cold War Science and the Search for the Next Silicon Valley, sits down with with the UW's Hanson Hosein to talk about those issues and more in the latest episode of Media Space. TechFlash, December 2
 
Facebook Hit With Database, Search Patent Suit. Indacon Inc. has hit Facebook Inc. with an infringement suit accusing the social networking behemoth of violating two patents related to data acquisition and search functions. Law360, December 2
 
The Importance Of I4i V. Microsoft. On Nov. 29, 2010, the U.S. Supreme Court granted Microsoft's petition for certiorari in the patent infringement case i4i LP v. Microsoft Corp. The outcome of this case could potentially affect the strength and value of all issued U.S. patents, say W. Edward Bailey and Veronica Mullally of Hogan Lovells LLP. Law360, December 2 

Costco Files Fresh Antitrust Suit Against LCD Makers. Costco Wholesale Corp. is the latest to bring litigation against major players in the liquid crystal display panel industry, targeting Hitachi Ltd., Toshiba Corp. and others in a new price-fixing suit after pulling out of a direct purchaser class. Law360, December 1
 
Isilon Shareholder Sues To Block $2.25B EMC Merger. An Isilon Systems Inc. shareholder has filed a proposed class action to stop EMC Corp.'s $2.25 billion proposed acquisition of the company, a provider of so-called scale-out network-attached storage systems for data management. Law360, December 1
 
Novell Shareholders Lambast $2.2B Attachmate Bid. Novell Inc. shareholders are up in arms over Attachmate Corp.'s $2.2 billion takeover offer, accusing Novell's officers and directors of unlawfully inducing them to vote in favor of the "grossly inadequate" bid. Law360, November 24 
 

Lending to Small Businesses Fell in Q3. Though it was the smallest drop since early 2009, the results of the Fed report show small companies are still struggling to emerge from the recession. Bloomberg, December 9
 
Chinese startups invade U.S. IPO market. Want your startup to go public on a major U.S. exchange? Then perhaps you should consider moving to China. Thomson Reuters data shows that 21 Chinese companies with VC backing have gone public in the U.S. so far this year, raising over $2.2 billion. That's still well short of the 42 U.S.-based, VC-backed companies that have raised nearly $3.7 billion, but the gap is narrowing. Fortune, December 10
 
For VCs in green tech, it's time for Plan B. Venture capitalists, who once thronged into clean technology, are finding that they need to rethink their strategies in order to succeed, with some of them apparently moving out of the field altogether. There's often a mismatch between the large amount of money required to commercialize new energy technology and the capital to which a venture fund has access. As a result, venture investors are increasingly seeking to invest in green-tech start-ups that are less capital-hungry, a trend which will accelerate next year, according to experts. CNET, December 8
 
What To Do When Seed Money Gets Personal. Typically, neither friend and family investors nor angel investors in medical device startups are motivated purely by financial gain and usually (but not always) have a good understanding as to the risk associated with investing in fledgling enterprises. However, in situations where personal relationships are being leveraged to create a business partnership, it is important for all participants to understand the dynamics of such a relationship and set clear expectations, says Jacob D. Babcock. Foley & Lardner LLP (www.foley.com), December 3 

  
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