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Create a watertight Web site design contract
Rapid growth in the high-tech sectors, specifically regarding
the Internet and related software and hardware, presents complex
issues for small-business owners and their lawyers. Not surprisingly,
many issues arise in contract negotiations between Web site owners
and their contracted developers.
Web development and hosting contracts are at the core of today's
new media practices. With the exponential growth of ecommerce,
these agreements are tailored to cover all critical aspects of
the online experience for all involved parties.
Negotiated poorly, contracts can open a Pandora's box of unintended,
unforeseen and unfortunate consequences. Negotiated wisely, Web
development and hosting agreements provide predictable boundaries
in a medium in flux. Risks, rights and responsibilities are constantly
Well-drafted licensing agreements address both today's realities
and tomorrow's possibilities.
Spell it out
Once design and functional elements of a Web site have been defined,
some businesses develop the site internally with full-time programmers
and project managers. However, the vast majority of small business
owners hire third-party Web development firms to refine their
visions into an interactive, reliable online entity.
A Web development agreement is used to define the development,
performance, ownership and service expectations of the parties.
Critical issues include understanding by both sides of short-
and long-term expectations, designers' proficiency with technical
issues such as software and hardware interoperability, and ensuring
project goals are clearly stated.
Key elements include:
Deliverables. The agreement must set forth, in as much
detail as possible, deliverables expected to result from the developer's
This includes, but is not limited to, a description of functional
and design specifications; user interface requirements; operational
flowcharts; software descriptions; training materials and documentation;
network accessibility information such as passwords; interactive
elements; information-capturing capabilities; browser and platform
compatibilities; electronic commerce requirements; audio/video
format requirements; linking structures; database structure requirements;
code standards; screen and file layouts; general "look and
Project schedule. After the scope of the project is defined
and mutually understood, parties need to address the schedule.
This schedule should set forth development milestones, testing
and acceptance periods, and payment timelines.
For example, the first phase usually entails completion of the
coding of a Web site's basic functional components. After coding,
the parties test the functional components for defects or errors.
If the product thus far is accepted, then either the developer
is paid for the completed portion or the client pays a deposit
toward completion of the next phase.
The Web site owner needs to be realistic when establishing a
schedule for milestones and testing, and acceptance procedures.
Time periods for defect corrections need a built-in payment reduction
component. In other words, if certain functional aspects do not
test properly and the site owner provides written notification
to the developer of the defect, the developer shall have a specified
time -- for example, one week -- to correct the defect. If a correction
is not made, total development costs will be reduced incrementally.
Intellectual property. Creation of a Web site typically
involves a variety of intellectual property rights issues. From
purely aesthetic design elements to the structure, sequence and
organization of database systems, user interfaces and graphics,
the rights are ultimately very valuable. For this reason, ownership
must be clearly established in the Web development agreement.
Although developers prefer contract language that exclusively
grants them ownership rights to their creations, the Web site
owner should secure ownership of most of these rights through
negotiation. Notably, under 17 U.S.C. Section 101 (Copyright Act
of 1976), project deliverables can be designated "works for
hire" in the Web development agreement.
The site owner may acquire rights to all customized creations,
while the developer receives a license to use certain scripts
and/or tools developed that are likely to be reused on future
In addition, development also often involves the third-party
intellectual property rights. In these circumstances, the site
owner's legal counsel should seek to secure the broadest possible
scope of the license grant. In particular, the Web site owner
should seek a license grant that won't create restrictions concerning
how, where and by whom the licensed rights can be used. Licenses
to software updates released during a specific period of time
should also be sought.
On a related note, if a site owner obtains a license to use particular
software, a source code escrow should be secured from the licenser.
This enables the site owner to access the source code under certain
defined circumstances, such as the licensor's failure to perform
or the licensor's bankruptcy. Source code escrows ensure the site
owner can correct and/or modify the software under circumstances
in which the licensor itself is unable to do so.
Domain name registration. If the developer will register
the domain name, the site owner should insist on being identified
as owner of the domain name. In addition, the owner should be
designated as administrative, technical and billing contact.
Confidentiality. Development of a Web site is integral
to an ecommerce business, and the process involves an exchange
of confidential information between the Web site owner and the
developer. Confidential information should be defined. The agreement
should set forth the obligations of the receiving party not to
disclose or otherwise use the specified information.
Disclaimers and limits of liability. Developers often
demand extensive liability disclaimers and/or limits. For example,
a developer might disclaim liability for failure to protect credit
card or other sensitive user information. A developer can also
seek to limit total liability under all circumstances to the amount
paid under the development agreement for any damage resulting
from the developer's negligence, intentional acts and/or omissions.
These disclaimers are usually one-sided and overly broad. Therefore,
legal counsel should scrutinize these provisions to ensure the
Web site owner is not exposed to unfair risks.
Disclaimers or liability limits for intentional conduct -- as
well as broad disclaimers regarding permanent data loss -- should
almost never be accepted.
Warranties. Both parties should be required to warrant
that content used, including software, links, meta tags, frames
and business models, does not infringe copyrights, trademarks
and/or patents of any third party.
Regarding this, the developer should specifically warrant that
all necessary third-party licenses in third-party products incorporated
into the Web site have been secured.In light of recent patents
for business models -- such as Amazon.com's one-click buying method
-- this warranty provision should be carefully examined. In fact,
where appropriate, the Web site owner should seek patent counsel
advice to ensure third-party patent rights are not infringed.
A savvy Web site owner will ask the developer to warrant that
the Web site or specific applications will operate "free
from any substantial defects" for a specific period of time,
such as 90 days after final delivery. In such cases, the developer
should be required to warrant that any additional efforts to correct
the problem will not materially alter the Web site owner's original
The developer should also be required to warrant that industry
"best practices" have been followed in development,
safety and security measures and performance criteria -- for example,
optimal loading time of Web pages.
Finally, as with all services contracts, the developer should
- The services will be performed in a professional and workmanlike
manner and that none of such services or will be inconsistent
with any obligation the developer might have to others.
- The developer will employ adequate personnel and deliver the
services in accordance with the specifications set forth in
- All work shall be the developer's original work, and none
of the development, use, production, distribution or exploitation
thereof will infringe, misappropriate or violate any intellectual
property or other right of any person or entity.
- The developer has the authority to provide the Web site owner
with the necessary assignments and rights.
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