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Who Owns Your Web Site Anyway? The Surprising Truth...
Excerpts from Clicking Through: A Survival Guide for Bringing Your Company Online

Most companies now turn to contractors, such as advertising agencies or dedicated Web shops, to design and build their Internet presences.

Hiring an outside contractor to design your Web site can be done in two ways: One, hire an agency, just as you would for a print ad, to design and implement creative promotional materials as a "work made for hire." Most advertising is owned free and clear by the client. The second model, from the software industry, is based on licensing. In most software development, the developer retains copyright to the code, and the client receives only a limited license to use the program. Often, when the client wants to make changes or otherwise customize the software, it doesn't even have the readable version of the program (called "source code") to make that possible.

THE QUESTION OF OWNERSHIP. Web sites usually consist of both creative material and software, so who owns the material that makes up a Web site? That depends on the contract you negotiate. Under U.S. copyright law, the creator of a work automatically holds the exclusive copyright to it. Therefore, the only way that copyright may be transferred to a customer is in a signed contract.

What happens if a business does not own the rights to its Web site? If the developer goes out of business, resigns, or is otherwise unsatisfactory, your company may not have the legal right to modify the site without the developer's permission. Even if your company has worked closely with the developer to create novel site ideas, the developer may be able to resell them, perhaps even to your chief competitor.

GET IT IN WRITING. Absolute ownership of a Web site may not be necessary or even desirable. For instance, some highly sought-after developers are known for a particular skill or set of functions they give their clients, such as novel software or electronic commerce solutions. Those developers probably won't grant copyrights to their unique elements. If you insist that they do, they may not accept your project. Or they may charge five or even ten times more to transfer rights.

Before entering into a contract with a developer, you must first decide what rights you and your company need to retain. Read the language on the proposed ownership division carefully. Analyze the elements going into the Web site, and determine what your company will (or might) need to do with them during and after your work with the developer. Then, negotiate ownership where you need it and licenses where you don't.

Most contracts will use the words "work for hire" or "work made for hire" to describe how the customer will own the developer's work. However, U.S. copyright law's specific categories of "work made for hire," may not cover most third-party developer Web-site projects. Even if the contract says the work is "made for hire," the customer may not own the developer's product. As a result, the ownership provision of the contract should state that if any materials to be treated as a "work made for hire" do not automatically belong to the company under the law, the developer will take the necessary legal steps to transfer ownership of the copyright.

WHO OWNS THOSE PHOTOS? Another wrinkle is the use of stock photos and other existing works acquired from third parties. The developer does not own the images, but may only license them on your behalf for limited purposes. Here, it is essential that the developer acquire all rights necessary for your present and future use, especially the right to transmit the images over the Internet. The developer must transfer these rights to you on or prior to delivery and launch of the final site.

Special software can make your web site more interesting. This software may perform animation, play video or music, connect the site with a database or make online communications secure. Generally, the software that a developer puts into a Web site comes from third-party vendors or the developer's library of software, or is custom made for your company.

For third-party software, the developer generally passes along the license it obtains from the vendor. That license must cover your proposed use and allow for changes in your business.

If the software comes from the developer's proprietary library, it's unlikely that your company will receive ownership of that code. A license is the most practical solution.

When software is custom developed, or existing software is heavily customized for your Web site, you may feel that your company should own it. But if your company isn't in the business of reselling Web-site software or services, you may not need the rights that come from ownership. In any case, the developer, who stands to gain from re-using the software, will hesitate to give up ownership.

The key question in customized software for a Web site is the price of the developer's services. Many developers acknowledge that they make money re-using newly written code that you paid for, and will give the customer the option to pay 100% of the development costs and own the copyright, or pay a discounted fee and settle for a license. If you choose the latter route, make sure that the license is of the appropriate scope, and the developer agrees not to resell or license the software to your competitors.

Another approach to negotiating the customized software is to create a joint venture. If the product has significant market value, your company may wish to join forces with the developer to license the product to outside parties. The deal can grant the developer ownership but provide that your company gets a royalty for each future sale. These deals can be lucrative, but they complicate the relationship. You and the developer remain affiliated long after the site is finished, or even after development terminates because of a dispute. You also rely on the developer's sales and management skills. Royalty deals always require a fair amount of trust and access to business records. If your company does not get its royalties, you may have to litigate or take the loss.

Ultimately, what makes sense for most nontechnology businesses whose sites require customized software is to negotiate a broad license on fair economic terms. In the event source code is needed for maintenance, most developers will agree to a third-party escrow arrangement, which protects their intellectual property from disclosure, but which enables you (or a consultant you hire) to keep the system going if the developer goes out of business or can no longer support the product. The key is to look carefully at what each party needs to continue its business after their relationship, and come up with an appropriate cost for providing (or receiving) those rights. A reasonable developer will work with you to accomplish that goal.

Jonathan Ezor is a corporate and new-media attorney with the Long Island (N.Y.) firm of Farrell Fritz. He has written on legal and computer topics for such publications as Business Week Online, @NY electronic weekly, Advertising Age, and Infoworld. For more information on Mr. Ezor, go to

From Clicking Through: A Survival Guide for Bringing Your Company Online. ©2000 by Jonathan Ezor.

Published by arrangement with Bloomberg Press. All rights reserved. Available in book stores or by calling 888-417-9597

May not be modified, copied, reproduced, republished, uploaded, posted, transmitted, or distributed in any manner."



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