First-time software contractor, building a system for a multi-site client; who should own the intellectual property?

Question

I'm very new to software contracting; this is my first project. I've just built a point-of-sale software system for a client, and neither of us put a lot of work into the contract. I wrote that the software was "jointly owned" with exclusive license for use given to the client. The client is using it at one store and is very pleased with it. The client is also planning to expand to numerous stores over time, and wants to use it in every store. The client also now wants full ownership of the software, with me as the exclusive developer. I am very hesitant to allow this, and I am seeking previous experience. Should I sell the IP but demand royalties for every site at which it's installed? Should I demand royalties for every sale made using the software? Should I really start talking to a lawyer?

A couple of other details: in terms of risk, it is fair to say that the client is assuming the risk, but the client is now using the software and exclaiming how great it is (and so I assume, how it is improving business). Also, the software is tailored to the client specifically, but could, with a bit of work, be repackaged and resold to other clients. Even if the client owned the IP I would certainly want to make sure that I then did have (significant) royalties on such sales.

Answer 1

I'd strongly advise you do two things:

1. See a lawyer. Figure out what contract you made; and
2. Sit down and talk to the guy. Figure out what he wants out of exclusive ownership.

Your goal should be to find a solution that makes you both happy.

I will say that with bespoke software development, you have a few common models:

1. Client contract developer to write something where the client assumes all the risk but owns the IP. The developer will get paid either fixed price or T&M (time and materials);
2. Developer retains IP. This should lower the cost to the client as the assumption is the developer can sell the software elsewhere to recover costs;
3. Developer creates something on his own and then sees whether he can sell it. This is generally only done when you anticipate being able to sell a lot of software. Hopefully this will be cheaper again to the client even though the developer has assumed far more risk.

To put it another way:

• The software is worth something. By definition, ownership is worth something;
• Risk is the other big factor. Who is assuming the risk in this relationship? If you're getting paid regardless, the client is;
• What potential market is there for this software? The bigger the market, the more the software is worth;
• The more you get paid upfront, the less risk you are assuming.

I've read about people who will develop software jointly with a client and assume joint risk, meaning the developer gets paid nothing but earns 50% of the profit. Others balance this out by taking less profit but get paid a certain amount upfront. That may be a factor of just paying bills and being comfortable with your level of risk.

You need to find something that suits you both.

Answer 2

Should I really start talking to a lawyer

Unfortunately, yes.

Also, do not take legal advice from a programming forum :-)