Technology And Law: Five Practical Tips for Using an Offshore Software Developer

June 3, 2010

As a software attorney, I think there are a few practical things to think about when using an offshore software developer and negotiating that contract. As you know, this has become commonplace, even for companies looking for expansion capital. Here are a few thoughts from the perspective of an attorney adviser to a Boston Venture Capital firm.

  1. Ownership Rights. While I am sure you saw this issue coming, make sure you document it very clearly, and address ‘work for hire’ copyright, pre-existing code, open source licensing, patent issues, etc. There is a lot to think about so dig in and get it right. 
  2. Termination Rights. Think about it. You know that this relationship will not go on forever, which means that these termination rights will be exercised (relatively soon). I would spend a fair amount of time with your lawyer detailing what happens upon termination and how your property is returned to you (hardware, software, etc). Also, I suggest you should be able to terminate on much shorter notice than the service provider, so think about that too. 
  3. A gap between Expectations and the Contract/SOW. While this is not purely a legal issue, in a way it is the most important one. One of the main purposes of a contract is to communicate and outline which party is responsible for what and when. Take ownership of these important details, and don’t delegate this to your attorney. I think the contract should be 100% consistent with reality and what the parties expect to happen along the way. This may not be easy, but it is worth striving for. 
  4. Where is my Source Code?  I always recommend that you keep control of your source code and know where it is at all times (your server, their server, in the cloud, etc). You don’t want to rely on a contract to get your code back. The thinking should be that if a dispute arises you can take control of all your intangible assets without the other party doing anything (keep that in mind). 
  5. Which Law Governs? This is a complex issue, but the importance of it should not be overlooked. Think through which law will govern the transaction and where disputes will be resolved (arbitration may be a good option too). Also, if you are contracting with a developer off shore, get an in-country attorney to look at the IP and local law issues. Regardless of the contract, local law will be important in figuring out who owns what in the case of a dispute. There are lots of reasonably priced in-country attorneys you can find on the web. I recently found and used one in Europe for a client and it worked out well. 

Any company outsourcing part of its software development and looking for investors should consider these issues.

Disclaimer: This is for educational and information purposes only, and does not constitute legal advice. Contact an attorney before taking any action based on this.

President and Shareholder

<strong>Jeremy Aber</strong> consults OpenView portfolio companies on legal and contract matters. Jeremy runs his own IT focused law firm, the <a href="http://www.aberlawfirm.com/">Aber Law Firm</a>, and has over 18 years experience in technology and corporate law.