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   Custom software ownership prior to payment?
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   Author  Topic: Custom software ownership prior to payment?  (Read 1327 times)
softwaredeveloper
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Custom software ownership prior to payment?
« on: Dec 14th, 2005, 12:15pm »
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An Agency was hired by Corporation to develop a custom software applciation.  The Agency in turn outsourced the devlopment of this application to a 3rd party.
 
The application was finished by the 3rd party and delivered to the Agency.  However, the Agency has decided not to pay the 3rd party the final payment.
 
Can the 3rd party seek any kind of action to prevent either the sale of the product to the Corporation until the product has been paid in full?  Or can the 3rd party seek to have the Corporation not use the software until the Agency settles their balance?
 
I'm wondering on where ownership of custom software lies when it hasn't been paid in full.
 
Any suggestions on where to look for legal references appreciated.
 
« Last Edit: Dec 14th, 2005, 12:34pm by softwaredeveloper » IP Logged
Isaac
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Re: Software ownership?
« Reply #1 on: Dec 14th, 2005, 12:39pm »
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The first place to look would be the text of the agreement between Agency and 3rd party.   That will allow establishing whether 3rd party can pursue copyright infringement related actions or is limited to pursuing contract related damages.
 
A point of inquiry might involve whether the agreement includes a transfer of the copyright and whether the transfer has been partially or wholly completed.
 
A second relevant question might be, what remedies if any are defined in the agreement?
 
If Agency does not have legal ownership they cannot transfer rights to Corporation, and Corporations activities, however innocent might be copyright infringement.
 
The size of the final payment might have some effect on whether the contract breach is a major or minor one.
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Isaac
softwaredeveloper
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Re: Custom software ownership prior to payment?
« Reply #2 on: Dec 14th, 2005, 1:46pm »
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Thanks for the feedback Isaac.
 
The agreement between Agency and 3rd Party only included:  
1) a detailed list of features to be included in the software
2) a list of the Agency's deliverables
3) a project timeline
4) a project cost
 
The agreement did not include anything about copyright or remedies.
 
The outstanding payment is for exactly 1/3 of the total cost of the contract.
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Isaac
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Re: Custom software ownership prior to payment?
« Reply #3 on: Dec 14th, 2005, 3:53pm »
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Interesting.
 
Under the circumstances listed, I suspect that you would own the copyright to the software even after final payment, while your customer would have only a license of some sort to use the code (or to transfer to his customer to use the code).    
 
Not resolving copyright ownership and license details in writing is a big mistake that can bite contractor and  clients in the "A" even though in this case it seems that the open issue gives *you* some negotiating power.  
 
If you do include terms transferring ownership, you can protect yourself by specifying when that ownership takes place and what happens during a breach.   There are some issues with assignments involving software that I won't go into here, but those issues cause me favor licensing over an assignment.  That may not be acceptable to some clients.
 
A couple of noisy letters from an attorney licensed locally might be a tool getting this issue resolved.   The letters need to be artfully done to prevent leaving your self open to be the defendant in a declaratory judgment suit to clarify ownership.  You want to be the plaintiff if an action is necessary.
 
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Isaac
softwaredeveloper
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Re: Custom software ownership prior to payment?
« Reply #4 on: Dec 14th, 2005, 4:26pm »
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Thanks again for the very useful information.  
 
I'm going to follow up with finding a local attorney.  I'm located in NY if you or another attorney in this forum is interested.
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