"The Website IS the Business" Legal Issues

[topmonkey]

I have had someone approach me wanting me to build a website for their concept - essentially an online booking portal (without giving the full idea away).

Whilst watching the UK version of Dragons Den (someone had commisioned a website but didn't own the source code) it occurred to me that I would be building this client's business - the website IS the business. So what happens if my client decides to sell the business or move elsewhere? I still own the source code and design and it's hosted on my servers - would they have to buy the rights of the website from me?

And no, I don't have a lawyer!

Any help much appreciated!

[TravisP]

I have been reading about the same thing. It seems to revolve around the contract between both parties.
Helpful link.
Bulletproof Web Design Contracts » SitePoint
*NOT A LAWYER*

[topmonkey]

I have been reading about the same thing. It seems to revolve around the contract between both parties.
Helpful link.
Bulletproof Web Design Contracts » SitePoint
*NOT A LAWYER*

Thanks for the link. In my 'standard' contract I state that I retain rights to both the design and development work. But perhaps a change to the contract stating that the design belongs to the client and the PHP, etc work would have to be licensed to them (at a price) would be better. I would find a license a very difficult thing to put a price on though.

[shadowbox]

I still own the source code and design and it's hosted on my servers - would they have to buy the rights of the website from me?

If I was looking for a developer to build a bespoke application for me, I would be looking to retain ownership of both design and source code for the application. I simply cannot understand who in their right mind would accept a contract where they pay good money for the design and development of an entire web application and then agree that the developer gets to retain complete ownership.

I understand the developer would want to reserve the right to re-use code in other projects, so IMO the best way is to create a license where the developer is given that right - i.e. the client owns everything but allows the developer to re-use elements for other work.

IMO, at no point should a web developer even be wondering 'what if the client sells the business, would they need to buy the site from me' - you get commissioned to build a site, you get paid, the client owns everything and gives you a licence to re-use elements of the code in other work. End of story.

But perhaps a change to the contract stating that the design belongs to the client and the PHP, etc work would have to be licensed to them (at a price) would be better

But hasn't the client already paid you for your time to develop the php application? Why should they then pay an additional licence fee on top of that?

If you had previously developed a CMS and they used that, I can see where they would have to pay a licence fee, but then the development costs for them would be much lower. But if you build something from the ground up for them, and they pay you for you time to do that, surely charging them a license fee on top of the development costs is a bit ridiculous?

I would argue that if you wish to re-use the code in other projects, you should pay them for the rights to use the code you developed on their time

[donmarvin]

IMO, at no point should a web developer even be wondering 'what if the client sells the business, would they need to buy the site from me' - you get commissioned to build a site, you get paid, the client owns everything and gives you a licence to re-use elements of the code in other work. End of story.

IMO, your opinion doesn't matter, what the law states is what matters.

In the U.S. you hire a developer to build and/or design a site, that's a work-for-hire, which means developer retains ownership and copyright of the code, client is paying for a license to use it. Unless both parties agree otherwise. In which case developer usually charges more for doing so.

With photography, you hire a photographer to take pictures, they own the "negatives" (or the digital version of such). They can print you copies for a fee (either included in their price or extra), but you don't own it.

[shadowbox]

In the U.S. you hire a developer to build and/or design a site, that's a work-for-hire, which means developer retains ownership and copyright of the code, client is paying for a license to use it.

Nope, a 'work for hire' arrangement means the client owns the work, not the creator.

Default copyright law gives ownership to the creator, but that wouldn't make much sense in your typical web development relationship where the client is footing the bill. Not many clients are going to want to give ownership to the hired help.

IMO, your opinion doesn't matter, what the law states is what matters.

In contract law, it is generally the contract that matters (assuming the contract is within acceptable legal confines) - as is clear in this example, where the contract overrides standard copyright law assignment of rights.

Hence, my opinion does matter, as it dictates the way I set up my, IMO wonderfully fair, contracts.

[topmonkey]

IMO, your opinion doesn't matter, what the law states is what matters.

In the U.S. you hire a developer to build and/or design a site, that's a work-for-hire, which means developer retains ownership and copyright of the code, client is paying for a license to use it. Unless both parties agree otherwise. In which case developer usually charges more for doing so.

With photography, you hire a photographer to take pictures, they own the "negatives" (or the digital version of such). They can print you copies for a fee (either included in their price or extra), but you don't own it.

This is why I have always assumed that was the way it worked - I came from the world of photography into web design.
In the past I have only built websites advertising physical businesses (hotels etc) so I have not encountered a client that wants me to build their whole business for them.
This was also the point the aforementioned dragon mentioned - if you commission a web design firm to build you a website, you don't own the source code and if that website IS your business, you don't have a business. But maybe she doesn't know as much as she thinks she does?

[Sagewing]

I have had someone approach me wanting me to build a website for their concept - essentially an online booking portal (without giving the full idea away).

Whilst watching the UK version of Dragons Den (someone had commisioned a website but didn't own the source code) it occurred to me that I would be building this client's business - the website IS the business. So what happens if my client decides to sell the business or move elsewhere? I still own the source code and design and it's hosted on my servers - would they have to buy the rights of the website from me?

And no, I don't have a lawyer!

Any help much appreciated!

This question is hard to answer because there are so many moving parts, but the essential information (in my view) is this:

1) A website is NOT a business.

A business is an organization engaged in the trade of goods, services, or both to consumers or other businesses. A business is essentially a legal entity that exists as the result of a legal/paper filing with a state/gov organization, and has a degree of personhood in that it can conduct business, execute contracts, own assets, and do many other things on it's own.

A website for a business is a series of files/images/assets that is hosted and made available on the internet, usually so that the public can interact with the site to conduct various transactions related to the business. The business OWNS the website and the website performs functions FOR the business, but they are not the same.

For example, the business could sell the entire website but the business would still exist without it. The website would no longer be associated with that business, but could easily be purchased and used by another business.

The website is a tool for the business and nothing more. Imagine a construction business that owns an expensive crane. The crane is critical to their business but it's just an asset and could be sold to another company easily.

2) Given that the website is simply an asset of the business, it can be bought, sold, shared, or otherwise transferred around according to whatever legal arrangements exist. If you sign a deal with the client that grants them exclusive rights and use of the website then they could own it outright. If you sign a deal with the client where you grand them a non-exclusive and maintian the right to sell the code, that could be OK to.

So, in your legal agreement you simply need to have some very clear language about what you are building for them and who will own what once the project is done.

[shadowbox]

This was also the point the aforementioned dragon mentioned - if you commission a web design firm to build you a website, you don't own the source code and if that website IS your business, you don't have a business. But maybe she doesn't know as much as she thinks she does?

Well first she'd need to ascertain if there was any agreement on which ownership of source code was laid out - maybe she did. Perhaps the business owner admitted there was no contract or other form of agreement, in which case the developers would most likely be the legal owners of the code. But if there was a contract, she couldn't make that kind of assumption without seeing the details within the contract first.

But Sagewing makes the great point - a web site is not 'a business', it's just one element of it, an asset of the business.

[Sagewing]

And yea, I would never sign a development deal that doesn't give me 100% rights over the deliverables, either. I know that lots of designers and photographers insist that this is 'how it works', but really how it works is that the contract dictates the transaction and that's it.

[littlened]

There may be circumstances where the developer has built the clients application on top of their own framework, so in these cases it would be difficult to transfer complete ownership etc over the client.

We work with marketing agencies and other web development agencies, and what we've done is develop a content management system for one of our clients that they then sell to their clients to manage their websites. In this case, we own the framework that powers the CMS, but they own the CMS' design and the controllers/models/views that were developed on top of the framework to make the application perform it's functions.

[felgall]

There would be approximately zero chance of a developer not using code that they have previously written and own as a part of any new project that they are being paid to create. That code already exists before the client makes the request in the first place and would not be something developed specifically for the client. At the very least you'd need the contract to specify that the code that the code that already existed beforehand is only being licenced to the client regardless of what ownership they receive for all of the work done specifically for them.

The next consideration for the developer is that a lot of the parts of what they build new for this project would make useful additions to their library of code for future projects.It makes sense that you would only charge part of the cost of creating those modules on the understanding that you retain ownership of those parts as well.

In order to be fair with the client it is also reasonable that you agree to not create any similar application for anyone else within a specified period or where they agree to your retaining ownership of the code that you agree that any other copies of the code you sell when you sell the same or an equivalent application will be at the same price as you charged them.

You need to make sure that everything is clearly specified in the contract. The basic modules of code you write are as much tools as a spade would be to a gardener and you don't want to be in the position of a gardener who has collected a large randge of tools over many years who ends up having to leave them behind because one garden they worked on gave the owner the ownership of all their tools.

With a decent set of modules that you developed beforehand you should be able to quote a much lower price for any project and make a bigger profit than if you had to create everything completely from scratch the fiftieth best way (making sure to not duplicate the code in any of your modules that already use the best way) simply in order to be able to hand over full ownership to one client (presuming you already used the second through forty-ninth best ways for prior clients who also demanded full ownership of the code). You'd need to charge way more just in order to figure out a worse way of doing the same thing that doesn't infringe on any of the better ways that you don't own any more.