Practical Ecommerce

Web Development Contracts

We get an interesting mix of client inquiries each week. Sometimes we are asked to draft a “simple” or “basic” contract, neither of which really exist in the online world. We don’t even attempt to do that. Or, in the other extreme, we are asked to review and provide a legal analysis of the website, affiliate program, systems, processes, vendors, and all contracts and issues related to the business. In almost every instance, this request comes because something has happened, and the client feels like its business is at risk.

As Internet law litigators we have a unique perspective on the legal risks and liabilities of doing business online; what will get you in trouble, and what will not. And it is incredibly complex. Over the coming months I will be discussing the law of your web site and web business. Each month I will focus on one aspect of your business, explain the issues, identify the problems, and hopefully offer some suggestions that you can actually implement yourself.

We refer to a review of a website and web business as a “website audit”, even though it is more properly an “e-business legal audit”. Our work sometimes focuses on a particular area such as an affiliate program, or data policy and protection, or online advertising, but more often is broader in nature. Let’s start with a rather universal issue: website development.

I’ve been immersed in the online world since 1994, the first seven as a founder and CEO of venture backed companies. As the chief architect of a suite of banking industry ecommerce and software applications, I saw a lot of interesting things from our programmers and vendors. It is now twelve years later, and little has really changed. Developers still “borrow” code, under-estimate jobs just to get them, try to own all of the intellectual property of a project, and create barriers to attrition. If they steal code for your site, your business can be pulled down with no notice or sued by the owner of the code for copyright infringement. If they underestimate your job, and you won’t pay up, then your site can be held hostage through a form of extortion. If you don’t get ownership of everything in a particular way, they can license your site functionality (and sometimes even the appearance!) to a competitor for pennies on the dollar. And, if you ever try to leave them, they may resist giving you the source code. Of course, even source code is of limited value without the code documentation, which is supposed to be detailed in the coding as a road map for the next developer or programmer.

Not all developers pull this stuff. Most don’t. Some do. And you will never really know until problems arise. So, the answer is a carefully drawn web development contract. It will address these issues, establish protocols for change control, create economic incentives tied into delivery of the site and related code and intellectual property, tie up the developer and its employees (a huge, and overlooked, risk factor) to avoid theft, and not only establish contractual rights, but also contractually mandated processes, so that in the end you have managed, and minimized, the risks. You will find out a lot about the developer by its reaction to your contract proposal. I would like to be able to tell you that you can do this yourself, or that this is simple or basic or easy. As we progress through the coming months there will be instances in which I give you “do it yourself” advice. This isn’t one of them. Find a very good computer or Internet lawyer, and get it done right.

The information in this article is not intended to be legal advice. Always consult your attorney when faced with legal issues.

John W. Dozier, Jr.

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Comments ( 2 )

  1. Legacy User January 30, 2008 Reply

    A couple of additions to this stimulating article – Make sure you oversimplify the entire process of modern, custom website development – it's all so simple – custom code is so easy to create, anyone can do it. And design is just design – all sites look alike, so just deal with the least expensive website designer you can find and make sure they make your website do all of the database integration and control functions you can imagine. Change your mind a lot during the development process because it shouldn't cost you any extra for them to do what you are paying for already.
    Don't worry about security issues or hosting – only overpriced greedy development firms care about that stuff anyways – it's probably so simple even a monkey can do it – So, insist on owning everything the custom development firm is creating for you or the development firm you are dealing with is just probably full of themselves because they have a bunch of overpaying clients who don't understand how super simple developing custom application development is.
    Who cares if their site is more successful than yours anyway? So what if they generate more revenue thanks to their fancy website – just keep reminding yourself that you own the code. After all, isn't that really what matters most – who owns the code?

    — *dave*

  2. SliveRock August 22, 2008 Reply

    Legacy User… are you serious or are you being sarcastic?!?

    "And design is just design – all sites look alike, so just deal with the least expensive website designer you can find and make sure they make your website do all of the database integration and control functions you can imagine."

    There is good design and bad design. There is user friendly, intuitive sites, and there are messy confusing sites. Also, I would limit the database integration and control functions to what you need not everything you can imagine.

    "Change your mind a lot during the development process because it shouldn’t cost you any extra for them to do what you are paying for already."

    You realize that you pay web developers for time not for product, if you changing your mind makes them take more time… you should owe more money. Better idea… plan heavily before speaking to a developer, and know exactly what you want, and expect nothing less.

    "Don’t worry about security issues or hosting – only overpriced greedy development firms care about that stuff anyways – it’s probably so simple even a monkey can do it"

    You are being sarcastic, aren’t you?