November 1, 2002
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| Legal Expertise: Establishing Web development agreements |
| By David M. Adler |
Web development and hosting contracts are at the core of today’s new media practices. With the exponential growth of online commerce, these agreements are tailored to cover all the critical aspects of the online experience for all parties involved. If negotiated well, Web development and hosting agreements will provide predictable boundaries in a medium whose risks, rights and responsibilities are still being developed. If negotiated poorly, they can open a Pandora’s box of unintended, unforeseen and unfortunate consequences. Similarly, well-drafted licensing agreements will address both today’s realities and tomorrow’s possibilities.
Both the Web site developer and the Web site owner should examine Web design contracts in light of the issues discussed in this article.
Development Agreement Basics
Before any contracts are written, the designer and the client should begin with a candid conversation of how the site should look, feel, and function. One good way to stimulate this discussion is by looking at Web sites and Web site elements that the client does or does not like.
Once the design and functional elements of a Web site have been defined, businesses either develop internally by hiring full-time programmers and project managers or they hire third-party Web development firms to translate their visions into an interactive, reliable experience existing only in the virtual world.
A Web development agreement is used to define the development, performance, ownership and service expectations of the parties. Critical points to include in an agreement are: a thorough explanation of the short- and long-term expectations of the relationship; a clear explanation of any technical issues such as software and hardware interoperability; and a clear statement of the goals of the project.
Here are some additional steps to take when creating a Web development agreement:
Define Deliverables
The Web development agreement must set forth, in as much detail as possible, the deliverables that are to result from the developer’s efforts. This includes, but is not limited to: a description of the functional and design specifications, user interface requirements, operational flowcharts, software descriptions, training materials and documentation, network accessibility information, interactive elements, information-capturing capabilities, browser and platform compatibilities, electronic commerce requirements, audio/video format requirements, linking structures, database structure requirements, code standards, screen and file layouts and general “look and feel” elements.
Set a Project Schedule
After the scope of the project is defined and mutually understood, the parties need to address the project schedule. This schedule should set forth development milestones, testing and acceptance periods and payment timelines.
For example, phase one of the project usually entails the completion of the coding of the basic functional components of a Web site. After the completion of the phase one deliverables, the parties will test the functional components for defects or errors. If the product thus far is accepted, then either the developer is paid its fees for the completed portion, or in an alternative situation, the client can pay a deposit toward completion of the next phase.
When establishing the schedule for milestones and testing and acceptance procedures, it is important to be realistic. Keep in mind that the time periods for defect corrections should have a built-in payment reduction component. In other words, if certain functional aspects do not test properly and the Web site owner provides written notification to the developer of the defect, then the developer shall have, for example, only one week to correct the defect or, if no such correction is accomplished, the Web site owner is entitled to an incremental reduction in total development costs.
Discuss Intellectual Property Rights
The creation of a Web site regularly involves a variety of intellectual property. From purely aesthetic design elements to the structure, sequence and organization of database systems, user interfaces and graphics, the rights of such property can ultimately prove extremely valuable. For this reason, their ownership must be clearly established in the Web development agreement.
Although developers prefer contract language that exclusively grants them ownership rights to their creations, the Web site owner should secure ownership of most of these rights through negotiation. Notably, under 17 U.S.C. §101 (Copyright Act of 1976), the project deliverables can be designated “works for hire” in the Web development agreement. Of course, the Web site owner may acquire rights to all customized creations, while the developer receives a license to use certain scripts and/or tools that the developer developed and that are likely to be reused on future projects.
In addition, development will also involve the use of third-party intellectual property rights. In these circumstances, counsel for the owner should seek to secure the broadest possible scope of the license grant. In particular, the owner should seek a license grant that will not create restrictions in how, where and by whom the licensed rights can be used. Licenses to software updates released during a specific period of time should also be sought.
On a related note, a Web site owner who is obtaining a license to use particular software should secure from the licensor a source code escrow, thereby enabling the site owner to access the source code (human-readable coding language of software) under certain pre-defined circumstances, such as bankruptcy of the licensor or its failure to perform. Source code escrows will help ensure that a Web site owner will be able to maintain, error correct and/or modify the software under circumstances where the licensor is itself unable to do so.
Cover Domain Name Registration
Ownership of a domain name and responsibility for its registration should be addressed. If the developer will be registering the domain name, the site owner should insist that it be identified as the owner of the domain name. In addition, the Web site owner should be designated as the administrative, technical and billing contact.
Scrutinize Confidentiality and Disclaimer Information
Oftentimes, development of a Web site is integral to an ecommerce business model and the development process will involve an exchange of confidential information between the Web site owner and the developer. Confidential information should be defined and the agreement should set forth the obligations of the receiving party to not disclose or otherwise use the conveyed “confidential information.”
Developers will often demand extensive liability disclaimers and/or limits. For example, disclaiming liability for failure to protect credit card or other sensitive user information provided by the owner. A developer can also seek to limit its total liability under all circumstances to the amount it is paid under the development agreement for any damage that results from its negligent and/or intentional acts and/or omissions.
These disclaimers are usually one-sided and overly broad. Therefore, counsel should carefully scrutinize these provisions to ensure that the Web site owner is not exposed to unfair risks. Disclaimers or liability limits for intentional conduct, as well as broad disclaimers regarding permanent data loss, should almost never be accepted.
Incorporate Warranties
Both parties should be required to warrant that the content utilized, including the software, links, meta-tags, frames and business models, does not infringe the copyrights, trademarks and/or patents of any third party. In this regard, the developer should specifically warrant that it has secured all necessary third-party licenses in third-party products that are incorporated into the Web site.
In light of recent patents for business models (such as for Amazon.com’s one-click buying method), this warranty provision should be carefully scrutinized. In fact, where appropriate, the advice of patent counsel should be sought to ensure that third-party patent rights are not infringed.
Experienced Web site owners will ask the developer to warrant that the Web site or specific applications will operate “free from any substantial defects” for a specific period of time, such as ninety (90) days after final delivery. In such cases, the developer should be required to warrant that any additional efforts to correct the problem would not materially alter the Web site owner’s original goals. The developer should be required to warrant that it has utilized industry “best practices” in development, safety and security measures and performance criteria, e.g. the optimal loading time of Web pages.
Finally, as with all services contracts, the developer should warrant that 1) the services will be performed in a professional and workmanlike manner and that none of such services or will be inconsistent with any obligation the developer may have to others; 2) the developer will employ adequate personnel and deliver the services in accordance with the specifications set forth in the agreement; 3) all work shall be the developer’s original work and none of the development, use, production, distribution or exploitation thereof will infringe, misappropriate or violate any intellectual property or other right of any person or entity; and finally, 4) the developer has the full right to allow it to provide the Web site owner with the necessary assignments and rights.
NOTICE. The information provided in this article is of a general nature and is designed for informational purposes only. The information does not constitute legal advice. Because every business situation is unique, and every legal situation dependent on the particular facts of the case or transaction, you should seek the personal assistance of a qualified attorney who can thoroughly review and analyze all aspects of your specific business or legal situation.
David M. Adler, Esq. & Associates, PC is law firm
focused on the needs of media, science and
technology companies.
David can be reached at davidadler@ecommerceattorney.com.
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