Something that clients often ask regarding software for which they have contracted the development of is whether they should own the intellectual property associated with that software.

There are many things to consider when thinking about this, and it’s easiest to imagine them in a business scenario.

For example, a contract warehousing company – let’s call it Acme Warehousing – rents its services to companies that bring goods into the country. They may not own any of the goods in their warehouse, but they need very complex systems to manage the intake, storage, and distribution of those goods. Acme Warehousing approaches a software development company – we’ll call them Beta Software – to design a program to manage stock control in their warehousing system.

So should Acme Warehousing own the intellectual property of the stock control software?

The first consideration is cost. If Acme wishes to own the software outright they will pay full rate for its development. If they do not, they may pay a reduced rate; because once the software is finished Beta Software can commercialise it and make money from it in other ways.

The second thing to consider is competitive advantage. If Acme can say they are the only contract warehousing company to use this advanced new software this will give them an advantage when it comes to tendering for contracts. They will also have an advantage when actually using the software as it will save them time and money. This can only be achieved by owning the software outright.

But perhaps Acme only specialises in warehousing dry goods. They then would have no competition from a warehousing company that only deals with electronics, or frozen goods. So Acme might decide that they are happy for their new software to be licensed to companies which deal in electronics or frozen goods, offsetting the cost of the software, while still retaining an advantage over their direct competitors.

The third thing to consider is which parts of the software have been directly developed for this particular use.

Like many developers, Beta Software uses pre-existing code for all of its projects to give them a base to work from. They need to be able to use this pre-existing code in other projects, which they would not be able to do if Acme owns the intellectual property.

Instead, even if Acme owns the software outright, that pre-existing source code will be given to Acme in a perpetual royalty-free license – meaning Acme can use this source code for free and forever, but only for that particular piece of software – they cannot take the code to another software developer and get them to build something.

The fourth thing to consider is ongoing support. All software needs updates and ongoing support, and the frequency of this should be written into the contract. However, if Acme owns the software outright, they will be the only user – meaning ongoing support and maintenance will be expensive, because Beta Software has to spend the time doing maintenance for just that one user. If the software is licensed and there are 10 users, the cost and difficulty of creating software updates is lessened.

For a business, whether to own the software which has been developed for them is a crucial decision to make. This means that the contract with the software developer should always have stipulations for who owns what, what can be licensed to who, and how support will be provided. IT Contract Templates provide clauses for all these requisites, which businesses can customise to their individual needs.