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Ways to Protect IP and Source Code Ownership While Outsourcing

Posted by: Mariya Parackal | On: 10th Mar, 2021 | Web Development

Nowadays, software outsourcing is a common practice. It is because of the apparent advantages that customers are entitled to. These include low cost, access to professional experience, short development time since a team is always ready to start working immediately, and the facility to get things done from anywhere in the world.

However, since while outsourcing a project, it is evident that ideas and innovations will be revealed to the partner. Therefore, it is natural for the outsourcing firm to be concerned about the protection of sensitive information. There are a variety of ways by which the safety of the rights can be maintained.

The first and foremost happens to be selecting the right outsourcing entity. It is advised that you thoroughly check the credibility of the partner company over and over again. Go through the reviews, revise the portfolio, re-evaluate the work and projects completed by them. Such research can help to have a clear understanding of whether the partnering company is worth trusting or not.

source code ownership

Despite that, there are still a few things that must be taken care of apart from good faith while outsourcing work to ensure IP protection. Given below are a few useful tips that can be quite effective:

Defining And Establishing Intellectual Property

In case of matters related to IP, one has to be extremely precise at the time of representing the intellectual property. Prior to signing an agreement with an outsourcing company, or even an individual contractor, prepare an inventory of the IP and check whether everything that is needed is well-documented or not.

It would be best if you also had an idea about what is intellectual property. Here are a few basic things:

Patents – Any innovative methods or ideas.

Trademarks – Unique identification of any product/program.

Copyright – Restricting unauthorized use by others.

There must be a legal document in place of all the intellectual property. The documents must contain accurate details of the IP. Before initiating the co-operation with the outsourcing partner, figure out which IP will be disclosed. Once this is done, it becomes easy to formulate the agreement. In case of a third-party IP, go through the agreement with the IP holders to check any clause related to disclosure.

In the case of outsourcing outside the country, check out the country’s IP rules and regulations. Also, verify whether the rules apply to the jurisdiction of the partner company or are universal. In short, due diligence must be done with respect to intellectual property. It is best to take legal help if needed. Know more about how to protect your intellectual property when outsourcing.

NDA (Non-Disclosure Agreement)

The NDA must necessarily cover the following aspects:

The partner or partners who agree with the non-disclosure of confidential information – The agreement must categorically mention both the IT company and the outsourcing partner. It could be both mutual or unilateral.

Information Classified As Confidential – The parties signing the agreement must be clear about what information would be disclosed. In the event of any conflict, the agreement will be the basis for the solution.

Scope Of Obligations – The NDA must mention what things are prohibited, like duplicating, copying, distribution, reverse engineering, and so forth. By including the various information disclosure, the level of protection goes up.

Exclusions – Most of the NDAs are valid for several years, including the total time of project development. Once the term of the agreement expires, the non-disclosure obligations will cease to be in effect, whereas the IP rights will persist.

Whether concerned with their own product development or involved in outsourced projects, most IT companies go for individual NDAs with each of the employees who have access to sensitive data. It is a good practice since it helps to strengthen the level of protection of intellectual property. It’s best to ask upfront whether there is any provision for such a policy.

Software Development Contract

In case the partner company has been contracted just for an estimation or consultation, the NDA should be enough. However, if it is decided to appoint this company to develop something, a separate development contract will also be required.

The contract is supposed to cover many aspects such as the scope of work, details of co-operation, payment terms and conditions and details of liabilities. No matter what, the mandatory provisions of intellectual property must be outlined.

IP Related Provisions To Be Included In The Contract

There has to be an explicit provision for ownership of any IP that might be created at the time of executing the contract. The agreement should be applicable even in the case of ownership of the source code. In such a scenario, the developer company would act as a service provider and not as the owner of any IP. You, as the client, will have full rights to the code that you get by paying the partner company.

Any requirement related to the management of sensitive data by the partner must be exclusively mentioned. It is never enough to erase the data that may no longer be needed making it irrecoverable. It has to be written over. The contract must impose such an obligation on the partner company. In the section on governing law, the jurisdiction law should be the basis of the governing law of the contract. It will ensure that any violation will be taken care of as per these laws.

Work For Hire Agreement

In case you are planning to hire a contractor temporarily, it’s better to go for a work for hire agreement to help ensure that both you and the partner company are clear about what the collaboration entails and what precisely you can expect from the contractor.

Such an agreement is useful not only for protecting your interests but also for the protection of the partner company. Since the agreement encompasses the welfare of both, independent parties may also go for such an agreement while signing contracts with clients. A work for hire agreement includes the following:

  • Project Timeline
  • A work schedule that is detailed enough
  • Project Milestones
  • Payment Terms and Conditions

Finally, most people believe that they have the right over any work that they have paid for. In the absence of any documented Work For Hire Agreement, it may not be so. Therefore, it’s better to have an agreement with the contractor to guarantee a claim on the work. It assures clients that they will be the owner of the work paid by them.

source code ownership

Source Code Ownership of Armia Projects

If we are working on a client-based custom project, then the client will get the complete source code, IP, and copyright.

If the client needs some custom requirements in our product, then the project’s copyright is issued to the client, but the product’s copyright will only be issued to Armia. 

Whether the ownership issues regarding jointly created IP or IP assets developed by the vendor during outsourcing, make sure that it is explicitly addressed. It is essential to clearly define who will own the ownership rights of newly created information that is established on the customer’s IP data. Most outsourcing agreements executed in the USA use “US work for hire” rules. You should verify if that’s the case with vendors from other countries.

Outsourcing can create legal and payment complications that hiring your own workforce doesn’t. It can also be more difficult to know what kind of people you will be working with, to ensure quality, and to enforce deadlines. If you outsource through an agency, it can also be more expensive than hiring someone yourself. Just like advantages are unique to your situation. However, you may not encounter all of these challenges.

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