IT Disputes – 7 Key issues

We deal with loads of software and website legal disputes. These can focus on lots of different issues.

Rather than bore you with the legal niceties, I shall examine 7 key factors which should help you determine where you stand.

1. Who owns the Intellectual Property Rights?

Under English law, the basic rule is that it is the author of the code who owns the copyright in the software or website. This is not affected by the fact that the person commissioning the work has paid for the work. There are 2 major exceptions to this rule. The first is where the work was done by an employee of a company. In that case, it is the employer who will own the copyright. The second is where the author has transferred the ownership of the copyright by means of a written document which provides for the assignment of the ownership from the author to another party, usually the client.

2. What is the extent of our rights in relation to the software or website we have paid for?

Certainly, if you are commissioning software or a website, you should have a written contract in place which provides, as far as possible, for transfer of all copyright and other relevant intellectual property rights to you.

However, if you do not, as explained in Key Issue 1 above, the fact you have paid for a software program or a website to be created does not mean you will own the copyright in it. However, you will have certain rights of usage. The extent of these will usually be set out in the contract under which you commissioned the work. The rights can be exclusive or non-exclusive and can cover the object code or source code of the code. By way of explanation, object code is the term for the machine-language output of a compiler that is ready for execution on a particular computer and source code is the programming language statements in a program before they are compiled into object code.

3. We want to change Service Provider – Is that a problem?

If you are unhappy with the IT company providing services to you and are considering a switch, you need to bear various factors in mind:If the current provider is the owner of the copyright in the software or website you are using, another provider may not be able legally and/or physically to access or use the code underpinning the software or website. This will usually depend on the contract governing the relationship with the existing provider.
If the current provider is in financial difficulties or is failing to provide support in accordance with the terms of your contract, you may be able to access the relevant source code under an escrow agreement whereby a third party holds such code and can release it to a user if certain trigger events such as insolvency occur.

If your current service provider is not in breach of contract and you have no contractual entitlement to terminate the contract, you may put yourself in breach of contract if you walk away from your current provider.

4. We want to sue an IT provider but the contract contains liability limitation clauses – what should we do?

The fact that the contract appears to protect the IT company against various or all forms of potential liability does not mean that you have no prospect of success. Under English law, to be effective such clauses have to be reasonable. Whether they are reasonable typically depends on lots of different factors, such as the relative bargaining power of the parties at the time the contract was entered and the parties’ respective abilities to insure themselves against potential losses.

Having said that, you need to get expert input from expert IT lawyers who can advise you as to your prospects of success if you were to start legal action. Amongst other matters, the lawyers need to assess whether the service provider is in breach of contract, whether this led you to suffer recoverable losses and what impact those liability limitation clauses would be likely to have on the prospects of success of any claim that you made.

5. Are we better off going to Court or should we try Alternative Dispute Resolution (ADR)?

Before you do anything else, you should get the opinion of an expert IT lawyer as to the strengths and weaknesses of your legal position. Only once that has been determined can you sensibly formulate your legal strategy.

ADR is often very successful as it seeks to establish acceptable common ground between the parties and no decision is imposed on them so that any resolution is in accordance with each party’s freewill.

Often this works out considerably cheaper and quicker than court proceedings. Also, it is clearly advantageous if your best interests would be served by a continuing relationship with this supplier albeit that you don’t see eye to eye at the present.

6. If we win in Court, can we recover our legal costs as well as compensation for the losses we have suffered?

Before you start legal action, you need to evaluate very carefully your chances of success.

The bad news is that even if you are successful in court, the best you can realistically hope for is to recover about 70% of your legal costs and, of course, you may not be successful in which case you may have to bear not only your own legal costs but also approximately 70% of those incurred by your adversary.

7. If we terminate the contract, can we force our service provider to assist with migration of services and data to another provider?

Unfortunately, the answer is probably no unless the contract provides to the contrary.

© This article is copyright Simon Halberstam 2008 and should not be construed as legal advice or opinion in any specific facts or circumstances. the contents are intended for generic information purposes only. You are urged to contact a suitably qualified lawyer for specific advice.