Businesses that engage third parties to develop software on their behalf should be aware of recent cases that emphasise the risk and potential costs of failing to clarify at the outset the ownership of the resulting code. These cases should also remind contractors and software development businesses of the importance of protecting their key asset ­- the rights in the code.

Earlier this year Mills & Reeve advised a developer during a dispute with a business that had commissioned software from him. The case reached the High Court.
The developer was Stephen Landamore, who wrote software to
enable after-sales audio equipment to interface with a car’s existing software system for Laurence Wrenn, who then marketed that software through his company.

There was no single clear agreement governing their arrangement, so the parties relied on emails, other documents with subsequently disputed meanings, and their own recollections of their intentions to support their arguments.

The court’s judgement covered a number of issues. In particular, it held that Landamore was entitled to royalties from Wrenn from the exploitation of the software he had written, but that Wrenn was entitled to an exclusive licence to use and exploit the software. The exclusive licence prevented Landamore from exploiting the software himself.

This outcome was in contrast to a case last year involving a firm called Clearsprings, in which the court decided that, in the absence of a written agreement, a non-exclusive licence would be sufficient to give effect to the parties’ intentions.

The non-exclusive licence allowed the developer to continue to use the software with other clients, although in the Clearsprings case the developer was not permitted to use information about the original client’s systems in its work for other clients.

Disputes over the ownership of software are inevitably time-consuming and costly, particularly where the software offers valuable opportunities for exploitation.
In their eagerness to put the software into operation ­whether it is a web site homepage for a company or a bespoke application ­businesses and developers often fail to consider the ownership of the rights in the software.

And, of course, by the time the parties realise the value of the software that has been developed, it is increasingly unlikely that they will reach an amicable agreement on who owns the rights in it.

There are important lessons here for businesses commissioning software. Ask yourself and your developer a number of questions at the outset of the project:

• Who will own the software?
• If the developer owns the software, will you be able to sub-license the software or only use it yourself?
• If you can sub-license it, will your developer be entitled to royalties from sales?
  Will your developer be able to use the software elsewhere?
• Always put your agreement into writing.

If there is any dispute, try to reach a settlement with your developer before you spend money on legal proceedings ­ it is often difficult to predict what the court will decide.

Peter Wainman is a senior solicitor in the IT and telecoms team at law firm Mills & Reeve