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As a software development agency, Newpath has witnessed a growing trend where businesses approach us after discovering they do not fully own their digital assets. Whether it’s custom software, a CRM solution, website, or mobile app the issue often stems from unclear intellectual property (IP) agreements or developers maintaining control over critical infrastructure.

This article explores the key considerations businesses must be mindful of when engaging a software development partner to ensure they retain control and ownership of their technology investments.


 

Cloud Infrastructure Ownership: The Azure Tenancy Problem

One of the most common issues we encounter is when a CRM solution, application, or website is hosted in the developer’s Azure (or AWS/GCP) tenancy instead of the client’s. This means that the business does not have true ownership of their platform and may face access issues, increased migration costs, and even operational risks if the relationship with the developer deteriorates.

How to Avoid This Issue:

  • Ensure that any cloud-based infrastructure (Azure, AWS, or Google Cloud) is set up under your own corporate account (tenant) and not under the developer’s control.
  • Maintain full admin rights and ensure developers have appropriate but limited access.
  • Specify in the contract that all hosting and cloud services should be under client ownership from day one.
  • Demand a handover process at the end of the project to guarantee full control over your digital assets.

Intellectual Property Clauses: Who Owns the Code?

Another common pitfall is developers inserting clauses that grant them ownership of the code and database after the project is completed. This is not standard industry practice for most business solutions and can create significant legal and operational complications.

Ethical and Standard Practices:

  • In most cases, the client should own the source code, database, and related assets once the development is complete.
  • Developers should only retain rights to pre-existing frameworks or libraries they bring into the project (if any), and this should be clearly defined in the contract.
  • Ensure that any intellectual property agreements are reviewed by a legal professional before signing.

When Might a Developer Retain Ownership?

  • If the developer is providing a Software-as-a-Service (SaaS) platform, they may retain ownership and only grant a license to the client.
  • If pre-existing proprietary code is integrated into the project, the developer may maintain rights over that portion, while the new custom developments belong to the client.

Defining Ownership of Newly Developed Code

When working with a development partner, it’s crucial to outline who owns the newly developed code. Some key aspects to consider include:

  • One-Party Ownership: The business fully owns the software, and the developer has no rights beyond contractual obligations.
  • Joint Ownership: Both parties own portions of the code based on their contributions, which can complicate licensing and future modifications.
  • Component-Based Ownership: Developers retain rights to their pre-existing code, while the client owns the custom features developed specifically for them.

Licensing Rights: What Can Either Party Do with the Code?

Once a project is complete, it’s essential to clarify what either party can legally do with the code:

  • Can the business modify, enhance, or update the software without the developer’s permission?
  • Does the developer have the right to reuse the code for other clients?
  • Are there any restrictions on reselling, distributing, or sublicensing the software?

A well-defined contract should state whether:

  • The client has an exclusive, perpetual license to use and modify the software.
  • The developer retains a non-exclusive right to use generic components of the code for other projects.

Knowledge & Know-How: Can It Be Used for Other Projects?

Developers naturally gain experience and insights from every project. However, businesses should ensure that proprietary methodologies, business logic, or unique functionalities are not repurposed for competitors.

Best Practices:

  • The contract should specify what knowledge and techniques the developer can reuse in future projects.
  • Any unique business processes, algorithms, or trade secrets should be protected under an IP clause.
  • Consider implementing non-disclosure agreements (NDAs) to prevent misuse of sensitive information.

Third-Party IP Infringement: Who Bears the Risk?

A major legal risk in software development is unintentional infringement of third-party intellectual property. If a developer integrates third-party code without the proper licenses, the client may face legal consequences.

Mitigating the Risk:

  • Ensure the contract states that the developer is responsible for securing proper licenses for any third-party components used.
  • Conduct an IP audit before launching the software to verify no unlicensed code is included.
  • Define who bears the cost if a legal claim is made due to an IP infringement.

Final Checklist for Businesses

Before engaging a development partner, businesses should follow this checklist to protect their intellectual property rights:

✅ Cloud Ownership: Ensure the infrastructure is set up under your name (Azure, AWS, or GCP tenancy).

✅ IP Agreements: Clarify ownership of custom-developed code and pre-existing components.

✅ Licensing Terms: Define what both parties can do with the software post-development.

✅ Modification Rights: Ensure you have the right to enhance or update the code.

✅ NDA & Knowledge Protection: Prevent developers from reusing proprietary business logic.

✅ Third-Party Compliance: Verify that all third-party software and libraries are legally licensed.

✅ Exit Strategy: Include a detailed handover plan in case you switch development partners.

 

Real life scenario: ACME vs. Devs R Us

Background: ACME, a growing not-for-profit organisation, engaged Devs R Us Pty Ltd to develop a Dynamics 365 CRM solution to manage their customer data and interactions. The project was completed successfully, and ACME was initially happy with the outcome.

Issue: A year later, ACME decided to switch development partners due to pricing concerns. However, they encountered significant obstacles during the handover process. It was discovered that Devs R Us had hosted the Dynamics 365 CRM solution on their own Microsoft tenant, and maintained control over the cloud infrastructure. Additionally, the contract contained clauses that granted Devs R Us ownership of the source code.

Impact: This situation left ACME in a precarious position. They were unable to migrate their own customer data without Devs R Us’s permission which caused a major breakdown in the relationship. The migration to a new provider was also hindered and became significantly more expensive due to the need to rebuild the CRM functionality from scratch. ACME also faced potential legal action from Devs R Us if they attempted to modify or enhance the CRM solution due to the ownership clauses in the contract.

At a board level, thorough risk analysis ensued: they assessed the impact on the company’s operations and reputation if they were unable to access or control their CRM data and functionality during the transition to the new provider. Concerns were also raised with the executive team’s procurement and contract management processes.

Resolution: After weighing all options, ACME engaged in lengthy and costly legal negotiations with Devs R Us to regain control of their CRM system and data. They eventually reached a settlement, but it involved significant financial compensation to Devs R Us.

Lessons Learned: This case highlights the importance of clear IP agreements and ownership from the outset of a software development project. Businesses should ensure that they retain ownership of their data, source code, and cloud infrastructure. Contracts should be carefully reviewed by legal professionals to avoid potential pitfalls and ensure a smooth transition between development partners if necessary.

Conclusion

Intellectual property ownership is one of the most critical considerations in software development. Businesses must take proactive steps to define and secure their rights before engaging a development partner. At Newpath, we strongly advocate for transparent agreements that protect our clients’ investments while ensuring a fair working relationship between both parties.

If you’re unsure about your IP rights or need expert guidance on structuring your software agreements, feel free to reach out to us at Newpath. We’re here to help you navigate the complexities of software ownership and ensure that your business retains full control over its digital assets.

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