Developing a website? First you need a contract

(1st of 2 parts)

I have been receiving quite a number of e-mails requesting an analysis of contracts for the development and maintenance of business websites. Two young entrepreneurs, one from Silliman University and the other from Canada, emphasized the necessity for some degree of clarification on the matter.

In business, we all know that contracts are vital to the creation of any important and successful business relationship, whether Internet issues are involved or not. Even love relationships culminate with the procurement of a license to marry. Marriage, we all know, is supposed to be an inviolable social contract.

Business relationships indeed necessitate the entry of the parties into a contract. However, contracts for the development and maintenance of business websites are especially important because they are used to create a company’s entire public presence.

Just as no bricks-and-mortar company would trust a contractor to build a physical storefront or office building for it, based on an informal discussion of its needs and a handshake, so, too, no company with a Web presence — either as its total existence or as a mere marketing tool — should expect to hire a website developer without a thorough contract.

Dr. Crayton Summers, a practicing dentist from Colorado who calls himself an “Internet aficionado” and the Internet expert in his family of six — the youngest being 12 and all computer-educated — sent me a very amusing e-mail on websites but asked me to do a piece on website development contracts. He says his world has changed because of the “wonders of cyberspace, which everyone should be given the opportunity to discover.” I agree with him completely. He, however, requested me to do a piece on business website development and the legal complexities resulting from such a process. Dental medicine, he says, has been progressing by leaps and bounds and a professional business website on this would be extremely useful in cyberspace.

In many ways, contracts for the development of websites are like contracts for the creation of physical buildings, such as houses or offices. They require significant advance planning, but regardless of the amount of detail included in the contract, the project is likely to evolve in unanticipated ways as construction proceeds.

On the other hand, because websites, unlike buildings, are intangible, website development contracts raise unique issues such as those relating to intellectual property ownership. You may be tempted to use the same stereotyped website development agreement, either something a friend at another company has shared with you, or one of those you can find on the Internet after a little searching.

However, just as no two websites are identical, no two website development contracts should be identical either, so trying the one-size-fits-all approach is not a good idea. While a form agreement may provide a useful starting point, the best website development contracts are drafted, negotiated, and redrafted multiple times to create a legally binding contract that is as unique as the company going online, and as enforceable and effective in the cyber-world environment of today.

Like most high-tech contracts, a website development agreement should include a detailed “statement of work,” that is, a description of what the developer is being hired to create. On the one hand, the statement of work should be as detailed as possible, including a site map, mockups of actual pages, descriptions of any applications running on the site, etc. On the other hand, though, many of these details either may not be known in advance, or may evolve as the development process proceeds.

Therefore, the contract also should include references to “change order provisions,” that is, procedures for how changes in the statement of work can be made, whether the developer is obligated to accept them, and how much they will cost.

Amazingly, many companies fail to understand that simply because they contract with a developer to create a website, the company does not necessarily own the intellectual property rights to the website. The consequences can be devastating, particularly if the company and the developer later part ways, and the developer wants to stop the company from using its own website any longer or contracting with someone else to update or modify it.

It is good to remember that the creator of a copyrightable work such as a website is by law deemed to be the owner of the copyright rights in the works, unless the work qualifies as a “work made for hire,” or the creator has assigned its rights in writing to someone else (such as the company). Thus, this issue should be clearly addressed in any website development agreement.

Without it, the company might wind up with only a limited license to use the website, as opposed to copyright ownership of it, preventing the company from making any changes to the site without the original developer’s permission.

If a website developer creates any independently copyrightable works for incorporation into a company’s website, such as graphic images or behind-the-scenes software applications, the company should be certain to obtain adequate rights to these works, too. In some cases, it may be appropriate for the developer to assign its rights in the works to the company, because the developer has no other need for the works and because the company would not want the developer to permit anyone else to use them.

In other instances, particularly with software, it may be appropriate for the developer to grant the company only a broad license to use the works, because the developer will want to license the same works to other clients and because the company has no need to obtain exclusive rights.

Each party to the website development agreement should also seriously consider timing issues related to these copyright topics. In particular, if the company for whom the site is being created is going to own the intellectual property rights to the copyrighted elements, when will the assignment from the developer to the company occur? Although the company may want this assignment to happen immediately upon creation or delivery of the works, the developer may want to withhold this transfer until it has been paid for its work. By doing so, the developer creates an incentive for the company to pay promptly.

If you or your employees create your company’s website without a website developer; in other words if an employee creates a copyrightable work in the course of his employment, copyright ownership vests by law (that is, without the need of a contract) in the employer under the work-for-hire doctrine universally accepted. Just be certain that the employees are indeed employees and not independent contractors working on a part-time or temporary basis, and not receiving company benefits, and that creating the company website or content for it is a part of their jobs (not something they volunteered to do at home on their own time). If you have any doubts, it may be beneficial to consider requiring them to enter into a contract with the company for website development. It is amazing and even ridiculous sometimes how many people and even successful companies do not bother to determine whether they have the right to publish something on their websites. For example, a company pleased that a flattering article was written about it in the local newspaper might want to post the article on its website for the world to see, but unless the company has obtained permission from the newspaper in which the article was originally published, doing so would most likely constitute copyright infringement.

Obviously, the law can be easily broken. There’s a simple rule to follow that can help you avoid online copyright infringement problems like these. Don’t publish anything on your website unless you know who created it.

If a company employee created it during the course of his or her employment, then it may be “work made for hire” in which the company owns the copyright and can publish it online without concern for copyright issues. If a non-employee specifically created it for the company, then unless it qualifies as a work for hire, someone else may own the copyright over it and the company should not publish it online without a copyright assignment (transfer of the rights to the company), or a license (permission from the copyright owner).

If you cannot identify or locate the copyright owner and obtain permission, the safest route is simply not to publish the work on your website. Although in some instances, your use may be protected because the work is so old and thus is already in the public domain (that is, copyright protection has expired). – HINDSIGHT By Josefina T. Lichauco, Philippine Star