How to Protect IP When Outsourcing Software Development

We live in an era when technology permeates every aspect of our lives. Amazon and app-based services have changed our shopping habits, strangers control our hospitality experiences, and human connection takes place online as often, or possibly even more often, than it does in person.

Our commercial marketplace is ripe for innovation, and if you’re building a business right now, you’re probably thinking about how to streamline or disrupt an industry that’s been stagnant—just doing business as usual—for decades.

For a lot of non-technical founders—that is, entrepreneurs with a business idea but without technical expertise—sourcing software development talent is critical. In many areas, however, the high demand for tech talent appears to be larger than the supply of qualified tech and software developers for hire.

As a result, a lot of founders are turning to international outsourcing. While this may be an innovative solution to your immediate need for tech talent needs, the question of how to protect your intellectual property when outsourcing software development has probably crossed your mind.

The last thing you want is to have simply handed your idea and your intellectual property over to a potential competitor. It’s a valid concern. The best thing you can do is create an IP protection strategy and document it in a business plan, so you’ve integrated it into your larger business strategy.

If you’re in the early stages of starting your tech-based or SaaS business, it makes good sense to consider IP (intellectual property) protection a critical part of your business model. The benefits of obtaining protection will be far-reaching if you ever find yourself needing to deal with infringers. It’s a way to reduce your business’s risk.

IP protection is especially important when your company’s ethos is unique and one-of-a-kind, and you want to protect against the possibility of copycats. It also comes in handy with monetization and licensing opportunities.

So how can you protect your intellectual property when you outsource software development work? Start with a contract.

Protect your IP with a carefully-crafted contract

Ultimately, it’s up to you to make sure you’ve covered your bases in all areas of risk management. One of the best ways to do that right out of the gate is to start with carefully-crafted contracts.

Even if you’re just hiring a project-based, short-term software development freelancer, you will need to have an airtight and carefully-constructed contract—even with one-time freelancers—especially if you decide to hire internationally.

JD Houvener, CEO and founder of Bold Patents, says, “The first big step is to make sure that your contract with the software hire will be enforceable in all countries involved. To do this correctly, you should hire an attorney from the home country of the person you will be working with, or any other countries you find necessary to involve, to make sure it will be binding there if breached.”

Use non-disclosure agreements

Confidentiality is key, as is specificity around what exactly you intend to keep confidential. In outsourcing to hire an international employee, a non-disclosure agreement (NDA) is crucial.

Your NDA must be worded broadly enough to cover anything under the scope of the outsourced talent’s work, as well as specific enough to clarify what cannot be shared, circulated, or kept by the employee. It is acceptable to have one standard-form NDA to utilize for every hire, as long as the document is flexible enough to accommodate modifications as needed.

When it is time to end the arrangement with your contractor, it is important to reinforce what the NDA covers once you part ways. Be sure to conduct an exit interview and reiterate what exactly they’re obligated to keep confidential.

Include these crucial clauses in your employment contracts

When you hire an employee, especially an international independent contractor, the importance of a well-written employment contract cannot be understated. The following are crucial clauses that you must include in any employment contract.

IP assignment clause

This specifies how any intellectual property generated by the nature of the work will be owned by the business entity doing the outsourcing/hiring.

Work for hire clause

This specifies how any work performed by the talent during their time working with the hiring company shall be considered “Work Made for Hire” as defined in the U.S. Copyright laws. This means that any work the independent contractor does shall be owned by and for the express benefit of the hiring company so that an employer is considered the author even if the outsourced employee actually created the work.

The contract should specify that this clause would apply to the development of any software. While the actual software code itself would be considered a trade secret, any software that is published, shared, licensed, or sold is akin to copyright and should be protected that way, much like a book is written. For example, source code will likely be kept internally as a trade secret, but the functionality or UX of software will be protected.

Compensation

For a contract to be binding, there must be consideration. This comes from a quid pro quo or a bargained-for-exchange of values.

This means that there must be adequate compensation for the talent’s work, such as equity or a fee so that the relationship is two-sided. Make it clear how, when, and what types of compensation your working relationship will contain.

Governing law and forum for dispute resolution

These clauses clarify which set of laws the parties to the contract will follow if there is a breach, and what country’s courts will be used to adjudicate the dispute.

Overall, while these guidelines are a great jumping off point to be on the right track with protecting your IP, it is a good idea to work with your attorney as well as an attorney from the country of the person you will be working with.

Keep in mind that software talent is in high demand and the pool of talent is likely aware of this, so your contract should be fair and beneficial to both sides so your talent is willing to agree to your strict terms about IP protection. In addition, your willingness to strike a fair and honest deal can make you a more desirable employer, and even be a leg up in the future if you decide to maintain a longer-term working relationship with your contractor.