Best Contract Provisions When Hiring App/Software Developers

BY LEIZA DOLGHIH

In 2011, Marc Andreessen, a co-founder of Netscape, famously wrote that “software is eating the world.” What he meant, of course, was that software was going to disrupt traditional industries. He was right. While companies continue to offer traditional goods and services, many business models now rely on the use of applications and software programs to accommodate consumer access to those goods and services. These platforms also allow companies to gather and analyze consumer behavior data. Airlines, coffee shops, gyms, and myriad other companies have been rolling out their own applications to better connect with consumers. Companies often have to hire outside developers to create custom applications or software programs. In the last few years, lawsuits involving allegations of trade secret theft and intellectual property theft between companies and their hired developers have been on the rise. In some cases, companies have claimed that their developers took confidential information they learned while developing an application and used it to create a competing business, or shared it with competitors. In other cases, developers accused companies of taking the developers’ software and re-creating it in- house in order to avoid paying the developers’ royalties or fees.

This article goes over five best contract provisions for those companies that are considering hiring outside developers or software engineers to create a custom application or software for them.

Confidentiality

A mutual confidentiality clause that states that a receiving party agrees not to disclose or use the confidential information belonging to the disclosing party is absolutely necessary if the parties intend to exchange confidential information, such as the business processes of the hiring company or the work processes of the developer company. Moreover, the confidentiality clause needs to specifically state that the receiving party must ensure that any of its employees who work on the company’s project must also sign a confidentiality agreement.

Non-Competition/Moonlighting

A company should ensure that the developers working for it are not simultaneously working for a competitor or engaging in “side hustles” that may take their focus away from the project. In addition to spelling out these restrictions in writing, the company should also include a clear timetable for phases of the project and competition deadlines.

Intellectual Property Ownership

The software developed as a result of the project is the property of the customer, and the contract should clearly state that. In particular, companies should make sure to include the following provisions in their agreements: (1) that the source code belongs to the company, which means the company can use or modify it in any way it sees fit; (2) if the project is terminated mid-way, the company owns whatever code has been completed so far; (3) that any materials created during the development, such as wireframes, designs, or plans, are to be destroyed; and (4) that employees of the developer company also sign agreements by which they assign all of their intellectual property rights in the project to the hiring company.

Dispute Resolution Process

This clause is often addressed by the parties as an afterthought. However, it becomes very important if a conflict arises. Therefore, the parties should negotiate up front whether they will resolve their disputes in court (and if so, where) or via arbitration; whether they will waive the right to a jury trial; and, whether they will waive any defenses to the venue clause.

Acceptance Testing

The software development process is not linear, and a company hiring an outside developer should make sure that it has an internal or an external expert who can determine how acceptance testing will be implemented. Acceptance testing is a quality assurance (QA) process that determines to what degree an application meets the end users’ approval. Depending on the organization, acceptance testing might take the form of beta testing, application testing, field testing, or end-user testing. While not all details of acceptance testing can be described in the contract, the general framework and the deadlines associated with such testing should be clearly set out in the contract in order to avoid disputes over whether the software was completed on a timely basis.

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