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Watch Out for “You Don’t Own It until You Pay”

A start-up entrepreneur recently told me about the agreement he signed with the developer of his website. The agreement has what I consider, from the entrepreneur’s perspective, a most pernicious provision: Ownership of the website, and its intellectual property rights, does not pass from the developer to his client until the fee is paid in full.

I understand why developers like this type of provision: It gives them extra leverage to ensure that they are paid.

In my opinion, however, this type of provision is inappropriate, from the perspective of the developer’s client, for several reasons:

  • If development extends over a long time, the client is deprived of ownership rights throughout that entire period.
  • Sometimes a client has a legitimate dispute that justifies a reduction in payment – but the provision in question does not allow for this possibility.
  • There are other, less-disruptive means that can protect the developer, such as the granting of a security interest.

So here is my advice to anyone who receives a website development, or other professional services, agreement with a “you don’t own it until you pay” provision:

  • Negotiate that provision away, making sure that you own the deliverables, and all intellectual property rights in those deliverables, as soon as they are created.
  • If the service provider will not agree to this change, find another provider.

Photo credit: Sufi Nawaz via stock.xchng

Dana H. Shultz, Attorney at Law  +1 510 547-0545  dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.