Software development agreements

How BC law treats it

Copyright in software belongs to its author unless an exception applies. Code written by an employee in the course of employment is owned by the employer, but code written by an independent contractor or development agency belongs to the contractor unless it is assigned. Under s. 13(4) of the Copyright Act, RSC 1985, c C-42, an assignment must be in writing and signed by the owner. Authors also have moral rights, which cannot be assigned but can be waived under s. 14.1, so the agreement should include a waiver from each individual developer. Business to business development agreements are governed by common law contract principles. The Business Practices and Consumer Protection Act, SBC 2004, c 2 protects consumers, not businesses, so a company commissioning software must secure its protections in the contract itself. The Electronic Transactions Act, SBC 2001, c 10 allows the agreement to be formed and signed electronically. The Sale of Goods Act, RSBC 1996, c 410 may apply to packaged software sold as goods, but custom development is generally treated as a contract for services. Key terms include a detailed specification, milestones and payment schedule, a change order process, acceptance testing criteria and deadlines, ownership of new code versus the developer's pre-existing tools and open source components, confidentiality, warranties, limitation of liability, source code delivery or escrow, and transition assistance if the relationship ends.

What it means for your business

For a startup, the code is often the company's main asset. If the founders hired an agency or freelancer without a signed IP assignment, the company may not own its product, which can stall a financing or sale until the gap is fixed. A clear scope, acceptance process and change order clause also prevent the most common disputes: budget overruns, missed deadlines and arguments about whether the software works. Example: A Vancouver health tech startup hires an Ontario agency to build its app. The agreement assigns all project code to the startup on payment, includes moral rights waivers from each developer and licenses the agency's reusable libraries to the startup on a perpetual basis.

Risks and common mistakes

Starting development on an email or quote with no written IP assignment, leaving the contractor as copyright owner. Forgetting moral rights waivers from the individual programmers. Defining the scope so loosely that every change becomes a dispute over extra fees. Assuming consumer protection law will protect the business if the software fails. Ignoring open source licences in the delivered code, which can restrict how the product is used or sold.