Non-technology founders who are paying a software agency to build their software need to look out for two things when it comes to OWNERSHIP of their MVP – one of which is pretty well known, and one of which is much less well known.
This came up this week on the weekly livestream that I do at 7pm Thursdays UK time – please join me for the next one – and I did a short on the first one, but the second one is so complex I’ve had to do a longer post.
The thing that doesn’t usually come as a surprise is that you need to get the SOURCE CODE of the software that is built. So software is built as two pieces – there’s the software that you download and install on your device if it’s an app, or the software that you install on a server and access via a web browser. That’s called – for simplicities sake – the “installable code”.
You can’t change “installable code” – you can only install and run it.
Installable code is created from “source code” – this is the actual stuff that, this feels like a gross simplification but it actually isn’t – the actual stuff that someone physically types into the computer.
You cannot change the software without the source code. Notionally the installable code is like a PDF that you can read on the screen or print out, and the source code is the Word document used to create that PDF document.
Make sure your agency gives you the source code. Some agencies will try and hold you to ransom over this – if you are already being held to ransom or think that you are, you already have a problem you need to deal with and need to get immediate advice on and support with this, but I digress.
In the contract there should be some mechanism by which the source code comes to you. Oftentimes it’s related to whether you’ve paid the bill.
The second issue that is misunderstood by the majority of people – even CTOs with 20, 30 years experience – is that of intellectual property transfer.
I am not a lawyer, and this is not legal advice, what this is is me telling you that most people WHO THINK THEY KNOW WHAT THEY ARE DOING will stagger backwards in horrified surprise when faced by the reality of how much more complex IT transfer is than people portray it to be.
As an overview, the issue with IP transfer is that the agency building your software, statutorily, will own the intellectual property rights for that software. In order for you to use it, you either have to have those rights transferred to you, or be granted a license to benefit from those rights.
Normally, in the contract with the agency you will see a clause that says that the agency INTENDS to transfer this right once given milestones are passed, a very common one being “when the invoice is paid”. However, the fact the contract talks about intent is not enough – there has to be a formal, explicit transfer of IP in order for those rights to transfer from one party to another.
For example – and this has happened to me twice. The customer commissions an agency to write software, and they agree that when the invoice is paid, IP will be transferred. The agency writes the software, issues an invoice, the customer pays the invoice. Five years go by and the customer wants to sell the business, and the commissioned software is classed as an asset to be included in that sale.
The laywers for the buyer look at the software and look at the agreement and say to the customer – the rights still lodge with the supplier. The problem here is the UNCERTAINTY. If the supplier hears the customer has been bought by a much bigger company, they may be minded to try their luck by applying to the High Court for an injunction to prevent the software being used. (I have also seen this happen once when a company I did some work for was bought by a major supermarket in the UK.)
Unless the new owner can show the agency EXPLICTLY transferred that IP, the court may grant that injunctive relief. At trial, the court may be with the agency that the rights are still with them.
So this one is really easy. Whatever you think is happening with your IP transfer is not what is happening. In every case, even if you think you’ve got this sorted, you need to find a good IP lawyer and get them to come up with a framework whereby both parties can properly achieve and record correct transfers of intellectual property.