Source code represents the crown jewel for businesses. It runs websites, applications, internal applications, and client applications. However, business owners often misunderstand who actually owns the source code, and that can lead to serious problems down the road.
These misunderstandings can lead to business conflicts and control issues, including being locked out of software you paid for.
Understanding the basics of source code ownership is important for business owners. Keep reading to see five things about source code that all business owners should know.
1. Paying for Software Doesn’t Necessarily Mean Ownership Over the Source Code
One of the biggest misconceptions about source code ownership is that if you purchase software from a developer or agency, you own the source code. In almost all cases, this is not true. The developer or agency owns the source code unless specified otherwise in the contract.
If you’re hiring a software developer to create a custom application, ensure you understand who owns the underlying source code. And get it in writing so you have a point of reference if there’s a disagreement about source code ownership. It’s worth talking to a source code expert who can enable you to make informed decisions about your company’s intellectual property.
Unless you ask the right questions, you might pay for software and not own the source code. You may be granted a license to use the software, but meanwhile not own the source code. Do not assume ownership — ensure it’s spelled out in the contract.
2. Contracts Define Ownership, Not Good Intentions
Good intentions do not define contracts. Contracts define good intentions. The definition of source code ownership is determined by the contract. The contract language used should be phrases such as “work for hire,” “assignment of IP,” and “exclusive ownership.”
Again, working with a source code expert can be a good way to proceed since you can get the answers you need.
3. Employees Vs. Contractors: Different Rules
Ownership also depends on the status of the developer who created the code. In many jurisdictions, code developed by an employee within the scope of their employment contract will be owned by the employer without question. This is not the case for contractors, however.
In the case of independent contractors, unless there is a written agreement that the code belongs to the business, the contractor owns the code. This distinction often catches people off guard, especially in the case of a freelancer or an offshore development team.
4. Open-Source Code can Change Ownership and Control
In many software development projects, open-source components are powerful and useful, but also complicate ownership and control determination.
Open-source licenses define the rules for use, modification, and distribution of open-source code.
Some open-source licenses are more restrictive than others, and some may impose obligations that impact commercialization and the ability to keep software proprietary. It’s important to understand the nature of the open-source licenses that are in use and their impact on ownership and distribution.
5. Ownership has important implications for value
The determination of ownership is not simply a technical and legal exercise. It’s also a business exercise that has important implications for value.
If you don’t own the code, then in many cases, you are dependent on a single developer for maintenance and updates, which limits your options and flexibility.
Why Ownership is Often Overlooked
Source code ownership is often overlooked, as many people are focused on the features and delivery dates, and assume that the legal issues can be addressed later. But by the time the question of ownership becomes an issue, the software is already in use, and renegotiation may be impossible.
Software’s complexity also contributes to the ambiguity. Licensing, copyright, and IP-related terms are not always easily understandable. Without guidance, important issues with significant long-term implications are easily overlooked.
How to Safeguard Your Business
Protecting your software code requires awareness. Seek the guidance of legal experts familiar with software and IP law. Doing so can help you prevent problems. It can also promote good contracts, documentation, and the review of software development practices.
Additionally, having secure access to the code, as well as good backups, is important. Ownership of the code is not as important as having the capability to access the software that drives your business processes and procedures.
Understanding who owns the source code is vital for any business that depends heavily on software. Remember that contracts are more important than assumptions. Employees, contractors, and open-source software all have unique rules. All these issues should be addressed properly to secure your business, maintain control, and create lasting value.
In the world of software-driven business growth, software ownership questions need good answers.
