Legal considerations when developing and supplying software as a business

Developing and supplying software as a business requires careful attention to legal considerations to protect the interests of both your business and your customers.

It’s essential to understand the relevant laws and regulations and to take the necessary steps to comply with them. In this article, we explore the legal considerations businesses should make when developing and supplying software.

What is meant by the term software?

Before we get into the dos and don’ts of software, it’s important to define what is meant by the term software.

Software is an operating system and operates the primary function of a computer,  the foundation upon which other pieces of software can be placed, and the link between the computer’s hardware and the applications required for a user to carry out tasks.

Software can also support a computer’s infrastructure, such as anti-virus software. This is known as utility software. As opposed to software applications that benefit the computer user, utility software is there to protect the computer itself.

Ways to sell software 

SaaS

Software as a Service (SaaS) involves a business hosting the software and then renting out its software (and in most cases) not giving the option for a user being able to purchase it outright. The user will usually pay a subscription fee for the provision of the software or to unlock certain features.

This benefits the end user because they do not have the risks associated with hosting the software, they can access the application anywhere in the world and they can spread costs through monthly, quarterly or annualised payments.

There are, however, certain SaaS legal issues that you should consider before you go start this type of business.

Licensing

Software licensing allows third parties to download and use your software for a fee. A license will usually allow more than one software user without contravening any copyrights.

A license can also provide your clients with access to your software’s updates, ensuring that they have access to the most up-to-date version of your product.

A license ensures that your software is used following your terms, protecting both you and your customer. This form of selling is suitable for businesses looking to distribute their software on a large scale.

Protecting your intellectual property 

It’s important that if you’ve spent a lot of time, effort and money turning an idea to solve a particular problem into a software solution for commercial use, you consider how to protect your associated Intellectual Property (IP).

This protection can be achieved by making the client keep the software and its functions confidential. This is especially true if the client requests a free trial of the software before committing to paying a subscription fee.

Confidentiality is maintained by getting the end user to sign a Non-Disclosure Agreement (NDA). An NDA can keep the software uses and functions confidential between the business owner and the end user.

If the end user breaches this confidentiality and discloses confidential information about the software and its functions to a third party, the software business owner can bring a claim against the end user. The threat of expensive litigation usually ensures that parties keep to the terms of any NDAs they sign.

Can the end user modify the software?

The answer to this question also varies depending on what type of software you’re talking about — open-source or proprietary software.

Open-source software

With open-source software, the end-user has access to modifying the source code and changing how it functions based on their preferences (this is similar to being able to edit a document). Examples of open-source software could include a CMS or CRM builder, where the end-user is given more control and can add their own code to control functionality.

Proprietary software

This flexibility is unavailable with proprietary software, only those who create the program have full access to its source code. A hardware manufacturer might choose this option to maintain a certain level of independence from customers while still offering products that suit their needs.

Renting out your software

The idea of getting paid over and over again for the same product is very appealing to many business owners. Licencing out your software can achieve this, as it offers your the ability to licence out the same product to numerous customers who will all pay a fee to use the software.

When deciding how to licence your software, as a business owner, you should consider the following:

• Does the user want only one copy of the software installed on one or multiple computers? (To maximise revenue the software licence should be specific on these terms).
• How long can the customer use the software for? (This refers to how long your clients can use the software, how often they would pay, etc).
• How can the customer access and start using the software? (For example, you can provide a unique key code to activate the software or make the software accessible upon payment of the first licence fee).

You should ensure that the customer cannot use the software for their own commercial gain, so there will be a prohibition of reselling the software to another unlicensed party.

Customer protection

When a customer enters a contract to licence your software, they will expect to be protected against any claims made by a third party for the breach of their intellectual property.

This is common in instances where the business owner contracted out the development of the software to a contractor. If the contractor used the third party’s source code to write your business software, you and your customers would be exposed to a claim for breach of intellectual property by the third party.

The business owner will then need to provide a warranty promising compensation for any costs incurred by either themselves or their customers due to this breach of contract.

If you would like advice and support regarding the legal considerations when developing business software, speak to one of LawBite’s expert software lawyers.

Andrew Farrugia is an experienced commercial lawyer at LawBite. He specialises in assisting startups and SMEs with their commercial and dispute resolution requirements. Find out how LawBite can assist you and advise you on the benefits of different business structures.