Website Development Agreements/Licensing of Website Content

Transcription

1 Website Development Agreements/Licensing of Website Content By Helen H. Richardson Counsel, Zane Management, Inc. One Liberty Place (21 st Flr.) 1650 Market St. Philadelphia, PA (215) Introduction and Scope Note This paper is an overview and "issue spotter" of the most common types of contract and intellectual property considerations involved in developing and operating a website, and in the licensing of content distributed via the internet. Given that virtually all forms of content licensing involve at least one of the exclusive rights granted by the Copyright Act, 17 U.S.C. 101 et seq., the legal analysis is confined to issues arising under copyright law. Section One sets forth the business environment and considerations for website proprietors in the website development process. Section Two addresses the deal points and concerns for licensors and licensees of website content in a downloadable digital format. Section Three outlines the current legal environment for drafting and interpreting license agreements and conducting downloadable content licensing transactions, and the effect of recent changes in the law upon consumers and providers of web-based content. Section Four contains sample forms of agreements for website development and common types of licensing arrangements involving downloadable content. Section One: The Creation and Operation of Websites

2 This section deals with the physical environment for online transactions. The creation and operation of a website encompasses agreements for website development, internet service providers, web hosting and off-site data storage. A. Business Considerations in Website Development One of the threshold issues for organizations considering establishing a website is whether or not to outsource the technical and content development of the website. Making this decision involves a cost/benefit analysis, taking into consideration the amount of development-related expertise the organization has available in-house; the amount of resources the organization will have to commit to the development project across a broad spectrum of skill groups, and the speed with which the organization is likely to be able to coordinate and complete such a project. Many companies see it as an advantage to be able to engage an outside developer to provide technical and creative services under one roof and offer savings through economies of scale and working from established blueprints. An important part of this process includes deciding who will prepare the content for the website. A company's marketing and advertising staff may have expertise in preparing materials for trade shows or industry journals, but have no idea how to write and design for a website visitor. In that case, engaging an outside developer either to develop content from scratch or to adapt a customer's existing materials for internet audiences will generally prove a sound investment, but requires a different and additional set of agreements to protect the company's rights. Many companies, however, find middle ground and control costs by keeping the creative function in-house and subcontracting only those technical tasks they cannot efficiently perform themselves. More and more companies are electing to outsource website development and operation overseas. Although the internet has blurred, if not eradicated altogether, traditional notions of borders, those borders, and the diverse laws and regulations within them, create an additional set of considerations for offshore outsourcing contracts. If a company elects to develop its website without outside assistance, it will likely enter into a far smaller number of agreements, and those agreements will typically cover licenses for web development customized software packages, along with the purchase of additional hardware on which to create and maintain content. If, on the other hand, an organization outsources its website development, it will need to enter into a developer s agreement with a third party. 1. Critical Deal Points for Website Development Agreements - Technical There may be more than one agreement with various developers providing different portions of the website in the event of a larger, more sophisticated project, but the transactional framework will remain basically the same for each. These points include the following: a. A clear definition of services and a very specific statement of work, which is usually set forth in some sort of exhibit or appendix to the terms and conditions of the deal.

3 For example, a developer may be asked to design the website s user interface, create an overall graphic theme for the site, create customized content or to adapt content the customer provides to it, or to perform one or several of these services. The statement of work also typically contains the technical specifications for the project. b. A list of milestones, with dates, progress payments associated with the dates, and penalties for failing to meet the milestones. Milestones for software development agreements typically include a date for the initial meeting with the client to assign tasks and begin the necessary research and investigation of the client s operations; a date by which a detailed outline of site features, proposed user interfaces, sample screens and graphics will be delivered to client team members; a date for completion of a development version of the website suitable for in-house testing and evaluation by the client; a delivery date for a beta version with copy and graphics, and a go live date for the finished version of the website software, copy and graphics. c. A detailed and objective as possible set of acceptance criteria, covering subjects such as the overall look and feel of the website; the ability to move within and to and from the website; acceptable percentages for anomalies in the user interfaces; transaction speeds; ease of access to content, and the content itself. The acceptance criteria also should state how many editing passes a client is permitted to make to the copy without being charged for author s alterations. d. There should be a list of deliverables, such as the delivery of HTML files in a specified medium necessary to activate and operate the website. e. If the website developer will perform ongoing maintenance on the site, this needs to be specified. Additionally, if the developer will provide upgrades to the website operating system and content, the frequency and any additional costs associated with the upgrades also need to be set forth. The presents a good opportunity for clients to lock in a more favorable license rate for future updates than they might otherwise be able to secure on the open market. f. The agreement must include mutual indemnities in connection with the use of any third party software in connection with the development of the website, as well as a warranty from the developer that its work product does not infringe any third party s intellectual property rights. Typically, such an indemnity affords the developer an opportunity to work around or otherwise secure for the client the right to use any software accused of infringement before the clients can invoke their indemnity obligations. Most developers are loathe to extend a warranty of merchantability and fitness for a particular purpose, despite the fact that they are creating a product to a customer s particular requirements and have been informed of those requirements, although in states adopting the Uniform Computer Information Transactions Act ( UCITA ), the law imposes such an implied warranty in most types of sales of software products and services.

4 g. The price and payment schedule for the agreement also needs to be nailed down before any work begins. The client should secure an estimate beforehand and require that it authorize in writing any amounts in excess of the estimated price. In exchange for such a concession, however, developers will often require the client to acknowledge that significant changes in the scope of project once work is underway will increase the cost. Most developers also will agree to be paid in a series of progress payments, typically involving a deposit upon execution of the contract, in part to defray initial expenses; an additional payment at acceptance of each of the various draft stages, and a final payment upon acceptance of a satisfactory, operational website. 2. Critical Deal Points for Website Development - Content Ownership The developer s and the client s respective ownership of intellectual property rights in and to the website and content also need to be set forth as specifically as possible. Although most developers will agree to designate a work product as a work made for hire within the meaning of applicable copyright laws, and/or assign ownership of any intellectual property created in the course of the performance of the agreement to the client, where the developer has used pre-existing intellectual property and know-how (such as customized software tools that are not specific to that specific project), it may reasonably wish to retain ownership rights to such existing work and reserve the right to use it in other projects. In that case, the client should insist on having as broad a license as possible to use such material on an ongoing basis. 3. Web Hosting Services If we regard website content as the window-dressing and stock in trade for a web-based business, a company must make a decision about whether to buy or rent its electronic showroom by outsourcing its web-hosting capabilities. This decision depends on the sophistication of the organization s information technology staff, as well as its budget to acquire the necessary, often expensive, and quickly obsolete hardware and software. The decision to outsource hosting services may well require a larger up front investment, but can prove less expensive over time if an organization lacks the wherewithal to update equipment frequently. 4. General Considerations for Outsourced Hosting Agreements When a company outsources its web hosting capabilities, it typically engages contractors to provide appropriate hardware and software to support internet servers, the means to connect the servers to a network, and data storage capabilities. There are many similarities to the deal points clients should consider in engaging web developers (e.g. strict definitions of services and specifications, clear milestones and acceptance criteria, maintenance and upgrades and the usual indemnities and warranties), but there are some hosting-specific issues that should also be on a contracting party s checklist.

5 a. A one-stop web hosting contractor will typically offer hardware, usually on a leased basis because of the speed of technological developments; telecommunications equipment to connect servers to the web; storage space on the host s own systems and the actual operation of the back end of the website. The client must make clear and specific choices of the services it requires. b. Service levels and the remedies for deficiencies in them are absolutely critical to the smooth operation of a website. The typical hosting agreement states that the host will provide a system which is operable 99.47% of the time without being out of service for more than 15 minutes in any given day, and with minimal time lags in the transmission of data. In the event the host fails to meet these service levels, the client is typically entitled to a service credit consisting of a pro rata reduction in the monthly fee to cover the time the website was out of service. The agreement also needs to make allowances for disaster recovery of client data. c. Given the amount of sensitive data that can pass through a website, there must be clear understanding of each party s obligation to protect the other s confidential information, and to maintain a given level of security on data used and collected at the website. For example, if a web host provides services to competing companies, the client must secure adequate assurances that its confidential information will be protected from disclosure to its competitors. d. The agreement also must specify who owns data collected at or through the website. For example, some companies offer web hosting service to consumer product manufacturers for the manufacturers customer service lines, but retain the right to keep and use the data collected from such websites. Also, both client and service provider must establish and comply with their respective privacy guidelines. e. Since being able to analyze customers use of a website is a critical tool, the client should obtain the most detailed possible activity reports for the website. f. The price terms of the agreement also should include progress payments before the website goes live, and are typically based on a monthly cafeteria set of fees for particular services, determined at least in part by number of transactions. 5. Special Considerations for Overseas Outsourcing In addition to the general guidelines set fort above, companies considering sending any portions of their website development or operations outside the United States must take into account several factors above and beyond those necessary for domestic projects, including: a. Lessening the effect of differences in internal laws of foreign nations, cultural differences in contract negotiation and differing work rules by making the U.S. affiliate (e.g. a wholly owned U.S. subsidiary of the overseas parent, or vice versa) of a foreign contractor the named party to the contract, then having that affiliate