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What Counsel Should Know About Website Development Agreements
Practical Law Legal Update 9-613-1806 (Approx. 3 pages)
What Counsel Should Know About Website Development Agreements
by Practical Law Intellectual Property & Technology
| Published on 19 May 2015 • USA (National/Federal) |
A discussion of some of the key issues counsel must address when representing a prospective website owner entering into a website development agreement. This Legal Update identifies those issues and the contract terms in which they arise and should be resolved.
Website design and development agreements vary in length and complexity depending on many factors, including the:
- Size, nature and complexity of the planned website.
- Extent of custom development, in contrast with sites built using the developer's standard templates and tools.
- Scope of services provided, including whether the developer is to host and maintain the site.
- Relative negotiating positions of the parties.
The customer should carefully consider the range of services it may require when selecting a website design and development provider.
Key Development Services Terms and Issues
For website development services, the most material or heavily negotiated issues to be resolved in the website development agreement include:
- Intellectual property ownership. Website owners often wish to own the IP rights in their websites, and there often are business advantages to ownership. However, the developer may charge substantially lower fees if it retains ownership of the software code and aspects of the site design. The customer should consider carefully whether it requires ownership of the website in its entirety or if its business needs can be met if it only receives a license to all or certain aspects of the site. The customer typically should insist on outright ownership of:
- all site content and any custom audio, visual or graphical user interface aspects of the site; and
- any custom software code that may give the customer a competitive advantage.
- Fee structure. Fee structures vary widely among website development agreements, but are most commonly based on:
- time and materials;
- a fixed fee; or
- a hybrid of the two.
Regardless of the fee structure, the customer should seek:- to condition payments on the developer achieving certain project milestones; and
- the right to hold back a portion of the fees until final website acceptance.
- Testing and acceptance. The customer should ensure it has a meaningful chance to verify that the website performs in the customer's production environment in conformity with mutually agreed functional requirements.
- Allocation of risk and liability. The following provisions of website development agreements are key in allocating risk and liability between the parties:
- Representations and warranties. Customers should seek extensive representations and warranties , for example, the quality of the services and deliverables and non-infringement of third-party rights
- Indemnities. Each party generally seeks to minimize its legal and business risk as much risk as possible by requesting broad indemnities from the other party
- Limitations of liability. The developer typically seeks to limit its potential monetary liability to the customer to a fixed amount (often the amount of fees it is to receive from the customer), and exclude most or all consequential and other indirect damages. The customer typically is better served by including no exclusions or limitations of liability.
Counsel should address each of these material issues as early as possible in the negotiation process to determine whether the customer should retain the website developer's services or look elsewhere.
For a more detailed discussion of these and other issues and a sample agreement setting out terms favorable to the customer, see Standard Document, Website Development Agreement (Pro-customer).