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Software Development Issues in the Agency/Client Contract These complex electronic development projects require product specific separate contracts. Mary M. Luria Craig M. Mersky e-mail this article URL Every advertising and public relations agency adapting to the electronic world needs to consider its umbrella contract with its clients to determine, first, whether software development is included (it often will be, as a result of the definition of agency work product) and, second, whether software development should be included (with few if any exceptions, software development projects should be excluded, for the reasons indicated in the balance of this article). The software development projects in issue range from simple creative content for Web banner ads at the low end (probably OK to include in the agency contract since these are merely electronic commercials and commercials have been included for years) to substantial development projects for client Web sites and for the electronic work flow systems that the agency uses to communicate with one client or several clients and to manage the client relationship (e.g. intranet/extranet connections, ftp sites for reviewing creative work in progress, searchable/ retrievable digital archives of ad images, ad formatting and printing systems, etc.). These complex electronic development projects require product specific separate contracts. The major reasons are outlined below: 1. Software development is often done outside the agency, through independent contractors (with whom written contracts are essential). Developers rarely agree (nor are they usually able to agree) that 100% of their work product is work for hire, unlike other independent contractors with whom agencies deal regularly (e.g. artists and graphic designers). The agency can only pass on to its client what it receives from its developer and needs to make this clear in its contract with its client. 2. Even if the agency does some or all development in house, its programmers will probably be using and incorporating third party software in the client software since little software is written entirely from scratch. Hopefully, the agency has a value added reseller contract or the right to sublicense the third party software to its clients as end users. However, what the agency can issue in user licenses is determined by the agency's contract with its licensor and should be so limited. An end user license is usually nontransferable, for internal use for a specified number of authorized user terminals for particular purposes, for a specified term (or number of run times), unless terminated for breach such as attempted disassembly, decompilation or other forms of reverse engineering. If the agency gives clients more rights than it has, it will be caught in breach of contract with both its licensor and its licensee-not a happy situation. The agency may have to make it clear to the client early in the project that the client will be expected to purchase software licenses directly from third parties and that these fees are not included in the agency's estimates. 3. Few developers and licensors of software offer extensive warranties of anything, whether freedom from infringement or freedom from defects. They disclaim warranties and limit remedies available to their licensees, both in type of remedy and in dollars (usually, a 90 day warranty concerning conformity to specifications, remedies limited to repair or refund with no exposure beyond license fee or other contract price). The agency must be certain it does not promise its client more than the agency has been promised by its licensor, since it will then be left with funding the remedy itself, assuming the problem is remediable; if not, the agency will be caught in breach. 4. An agency with a substantial electronic business may want to use and reuse certain kinds of software, rather than delivering software with all rights (even patents!) to the first client for a project that requires development of the software in question. This protects the agency's profit and enables it to price its services competitively for its client base, since it does not have to create software from scratch every time it does another client project of this nature. Independent developers (not part of an ad agency group) do not part with all rights to all clients under work for hire contracts or they would soon be out of business. To build from scratch every time either raises prices beyond competitive levels or diminishes profit to the slim to nonexistent level. Agencies need to reserve rights to reuse Web site generic programming, toolkits and administrative routines in building future Web sites for other clients. As to workflow systems, these are agency assets (like computers and telephones) that must be available to support the agency's entire client base in an efficient manner. The concept of significant retained rights is foreign to the normal agency contract, which treats agency creative as the client's property (once paid), usually under a work for hire acknowledgement coupled with an assignment. This approach may be OK for billboards, but not for software. 5. When developing and/or placing electronic ads (including single sponsor Web sites), the agency will want to assure that its client contract includes the agency's own disclaimers and limitations appropriate to the problems of electronic media, which (for better or worse) are simply different from other forms of advertising. For example, the agency may want to disclaim responsibility for surrounding content, hyperlinks, frames, technical problems which reduce or impair availability, the client's privacy practices, etc. Moreover, software is cranky and rarely operates perfectly and continuously, at least when first delivered. The appropriate remedy is warranty service which repairs or remediates the problem, not rejection by the client accompanied by claims of contract breach. Alas, the reasons are more than five, but...The point is clear: use a separate software development contract prepared by the right group effort of legal, business and technical people and reserve to the agency the rights it needs to conduct its own business in an efficient and profitable manner. © 2001 Davis & Gilbert LLP       Davis & Gilbert LLP • 1740 Broadway • New York, NY 10019 tel: 212.468.4800 • fax: 212.468.4888   Privacy Policy • Terms & Conditions