How good is your Software Development Agreement?

The following list enables you to run a first check of your Software Development Agreement. However, bear in mind that

• any contractual clause regarding the issues addressed in this list must be drafted in compliance with the law ruling your agreement, and
  
  
• an assessment of implementation and enforceability of any such agreement in Russia should be reviewed on a case by case basis by a lawyer familiar with Russian Law.

The term Supplier is used for the company offering software development. The other party is referred to as Customer.

1. Be specific

Be specific in determining the scope of the agreement. Which services/performances/results do you expect from the other party? The exact scope of the services/performances/results including the technical description of the intended application should be agreed upon in written form (Performance Description). Decide who will draft the Performance Description. If the Supplier is to draft the Performance Description, you may want to agree on payment in case the agreement is not implemented afterwards.

Distinguish between software development and adapting existing software to a new system.

Agree on the procedure in the (frequent) event that one of the parties wants to amend the Performance Description in the course of the implementation of the agreement.

Agree on the schedule of performances, the availability of the Supplier for this specific agreement and notification of performance by the Supplier.

2. Delivery

Decide on the obligations of both Supplier and Customer regarding delivery, installing, testing, adapting the software to the Customer's needs and training of the Customer's employees as well as on the delivery of the source code or it's deposit with a public authority.

If the Supplier's representative is Russian, when planning his stay with the Customer bear in mind immigration law (visa regulations) and labor law applicable to Russian citizens in the Customers' country.

Agree on a right of withdrawal of the Customer from the agreement in case of substantial delay of delivery and on the payment for partial delivery.

3. Terms of use

Agree on the terms of use of the software (exclusive right, time period, assignment, reproduction, modification, non-disclosure). If the terms include the use of intellectual property rights that are subject to state registration in Russia (for example a trademark), the agreement will also be subject to state registration in Russia.

Irrespective of the law that has been chosen to govern the agreement, Russian law must be taken in to account regarding the statutory rights of use granted to the author of the software.

4. Title to intellectual property rights

Your agreement should state who owns the intellectual property rights to the developed software. Irrespective of the law that has been chosen, Russian law determines the scope of copyright for software developed in Russia. Under Russian law, copyright is an inalienable right that belongs to the author of the software, or to the company that employs the author of the software (as a rule the Supplier), if that software has been developed in the course of regular duties, unless the employment agreement stipulates otherwise.

5. Warranties and damages

Clauses on warranties should focus on the beginning and the end of the limitation period for warranties and the procedure of determining software defect as well as the correction of that defect. They should include a warranty by the Supplier, that the software supplied is free of any third party rights. The terms of such clauses depend on the law governing the contract.

Bear in mind that not all damages allowed for by foreign laws are enforceable in Russia: A Russian court may hold that claims for damages exceeding the losses incurred by the claimant are not enforceable.

6. Payment

Think about various payment models (installments after milestones, license fees, profit sharing) and terms (currency / exchange rate, set-off). Whatever you decide, seek professional advice in order to perform the payments in compliance with the on the restrictive Russian currency regulations!

7. Termination

Agree on the terms of termination. These should address the question of return of all software and related documentation as well as post contractual obligations of the parties.

8. Additional typical clauses in international IT Contracts

For additional clauses that you should check when drafting your Software Development Agreement, have a look at the Ten Steps.

2001, Dr. Christian von Wistinghausen, LL.M. for BEITEN BURKHARDT. All rights reserved. Please note that the above information is intended for your information only. Where it refers to Russian law, it is based on Russian legal acts as of July 1, 2001. The above information may not be reproduced without the written consent of BEITEN BURKHARDT except for your personal, non-commercial use. It may not be regarded as legal advice provided by BEITEN BURKHARDT or the author.