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.
