Virtually every business has some sort of website or presence on the internet, and it is often an integral part of the business.

At the same time, many organisations use bespoke or customised software internally on a day-to-day basis, and undoubtedly attribute significant value to these assets, not least because the development of them probably required a significant investment via a third party developer providing the software.

But businesses risk limiting the value of these assets if they do not establish correctly with the third party developer at the contracting stage who will own the intellectual property rights (IPRs), and on what terms the developed product will be licensed on completion of the development.

How will the developed product be used?
This may seem like an obvious question, but it is fundamental to understanding the expectations of both the commissioning party and the developer when it comes to agreeing what rights each party has in respect of the developed product.

Often, developers will provide companies with standard terms and conditions for providing development services which state that the IPRs in the developed product will be owned by the developer and licensed to the commissioning party.

In certain scenarios this may be a suitable contractual approach. However, take the example where a commissioning party invests significant money into a function of a website that will be unique to their business in their industry.

If the developer owns the IPRs and licences the developed functionality under its standard terms and conditions, there would be nothing preventing the developer selling that functionality to the commissioning party's competitors.

A more suitable approach may be to state that the IPR is owned by the commissioning party, and it licences the developer to use the underlying coding in its business, subject to a contractual restriction on it providing that functionality (or any material part of the functionality) to a business that could reasonably be concluded to be a competitor to the commissioning party.

Of course, it is equally fair to point out that developers must be mindful of their own interests when developing coding for clients.

A developer should never sign away the IPRs to coding he has developed, when that coding could be used for future clients and the developed product is in no way ‘unique' or ‘proprietary' to the commissioning party.

That is, if a competitor of the commissioning party obtained a copy of the developed product for its own use, this would in no way detract from the value of the developed product to the commissioning party.

To do so would be highly prohibitive to the developer's future business.

Modifying the developed product
Equally, consideration should be given to future modification of the developed product, particularly if the developer will not be providing maintenance services.

Two practical points to consider would be whether or not the commissioning party has access to the source code, and (in respect of a website) on whose servers the developed product will be hosted.

If the developer does not provide access to the source code, this will further restrict modification of the developed product, again potentially limiting the value of the asset - this is particularly true of bespoke or customised software.

In the case of a website, if the site is hosted on the developer's own servers, they will rightfully be reluctant to allow unrestricted access to make modifications to the developed product. Therefore, the applicable contract should make specific provision for dealing with these considerations.

Our advice
It is essential for both the commissioning party and the developer to establish early on precisely the reasons why the developed product is being commissioned, and the respective expectations about its future use.

The contract for the development services between the parties must then accurately reflect these considerations by making appropriate provisions in respect of ownership of IPRs, the terms of any license granted, and in respect of access to source code and hosting arrangements.

Both software developers and businesses must be prepared to accept a flexible and reasoned approach to IPRs ownership and licensing to enable the parties to derive value out of the developed product and to avoid potentially costly disputes further down the line.