You have an idea for a game application which could be a huge hit. Now you need developers to bring it to reality. If all goes well, the result can be profitable for everyone involved. However, it's crucial to make sure you handle the rights properly, from beginning to end; otherwise the profits could be disputed by entities that contributed to creating the app, and your business could become embroiled expensive and protracted litigation.
You own it
The first step is to make sure that everyone involved has assigned your business all the rights and intellectual property. They get paid, but the product is yours. Employees need to sign an appropriate employment contract. If you contract out to freelancers, make sure the agreement assigns you all rights to the source code, the documentation, the deliverable product - everything. The agreement has to explicitly assign all copyright and trademark rights.
If anyone else is involved in founding team and financing the company or the project, the same applies to them. Be sure that any agreements make it clear that they have no claim to any rights to the product or IP. Investors holding an interest in the company or getting a percentage of the profits is normal, but the product should clearly and unambiguously belong to the company. Splitting ownership of a software product just doesn't work.
Clear all rights to the code
Software development often involves third-party code libraries. Without it, developers would have to re-invent processes that others have spent years perfecting. Many of these libraries are available for free, but not all are. Sometimes people think they're free, but they aren't.
As an example, developers have habitually treated all aspects of Oracle's Java as free. Lately, though, Oracle has been pursuing licensing fees. Some parts of Java are indeed free, but the licensing language that people seldom read says that other parts can't be used commercially without paying Oracle.
Some code is free for certain purposes but not others. It could be free for non-commercial purposes but not for commercial products. Be sure that your developers are using third-party code only according to its licenses, or negotiate an arrangement with the rights holder if necessary.
Watch out for "sticky" licenses
"Free" software isn't always free of costs. Many free software libraries are distributed under the GNU General Public License. If you incorporate them into a software product of your own, the license requires you to make your product's source code publicly available, and you have to make it available under the same license. This means you give up all exclusive rights to your product, as well as giving your competitors detailed information about how you created it.
This doesn't apply to software distributed under the GNU Lesser General Public License (LGPL). You can incorporate code distributed under the LGPL without giving up any proprietary rights to your software. But be aware that the Free Software Foundation does pursue legal action against businesses that it thinks have violated the GPL.
While the GPL is the best-known "sticky" free software license, it isn't necessarily the only one. Have your lawyer check the terms of any unfamiliar or modified licenses for software you use.
Guard against conflicting agreements
If your employees, contractors, or investors have other contracts that conflict with their agreement with you, that will be a problem. Be especially wary of people who have full-time jobs and are working for you on as a freelancer. They may have an employee agreement which says that every idea they devise belongs to the employer. You could end up discovering that you can't use their work in your product, or they might be forced to leave you abruptly in mid-project.
Sometimes employees have non-competition agreements with previous employers, saying that they can't work for some period of time in the area where they have the greatest experience and expertise. You could lose a valuable employee if the previous employer claims a breach of one of those agreements.
Software development is full of legal pitfalls, and those who know how to avoid them have the can avoid costly pitfalls. If you want to learn more about how to develop your product, please consider attending our event “Product Development in Life Science & High Tech Startups” on December 3, 2017 to network and learn from our expert panelists.