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Was just curious about this. With Intellectual Property, if there is no contract and you are a contractor, all the work you create is owned by the creator by default.

How does liability work though? If there is no contract, or no liability clause in the contract, are you liable?

I guess what I'm trying to get at is, whether it's better to have no liability clause at all, or whether you are better off having a liability clause. If you have a clause that indemnifies you I imagine that is probably better, but I'm not sure.

p.s. Just asking for thoughts on this, I understand that I should check with a lawyer.

p.p.s I also understand that this probably varies per country

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Here is a US focused answer. Let's assume you have a contract without any clauses relating to liability (if there is not a signed contract there is likely at least some kind of oral contract so it amounts to mostly the same thing). In this situation, your only liability is for breach of contract, ie, if you don't keep up your end of the bargain.

There is one catch though. In US law, there are implied warranties. These are presumed to be in the contract, so if you don't satisfy them, you could breach the contract. Furthermore, warranties may require you to indemnify the other party if you breach the warranty. Many contracts explicitly disclaim implied warranties, and it is perfectly fine to do this.

Sometimes, for clarity, contracts may contain explicit indemnification clauses. These clauses say that when a person fails to do something, they must pay money to make the other party "whole", meaning paying enough money to fully remedy the failure. Generally, to minimize your liability, you want the other party to indemnify you and you don't want to indemnify the other party.

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I would have answered but you gave a great answer here. You definitely need a contract with limitation of liability clauses for every significant contract project that you take on. A contract's indemnity clauses can be an area of negotiation with many clients. IE, many clients will want to shift all risk onto you. – user2757 Dec 8 '11 at 1:10
Thanks for a really good, well written answer Jeff. Don, that sounds like good advice as well - my currently client doesn't want to negotiate the liability, but they are going to have to if they want me to work for them. – Roger Dec 8 '11 at 1:35
Roger, what I usually tried to do on all past software development contracts was this: have the client indemnify me to third parties from responsibility for errors in the code. In other words, if I get sued as a consequence of writing their code, they are supposed to protect me (via legal representation). The principal here is that once I deliver the code to my client, how it is used is out of my hands; and liability for an ultimate use of the code is properly the client's responsibility. (continued) – user2757 Dec 8 '11 at 3:58
...A certain portion of clients see this issue in exactly the opposite terms and will want (or try to get) a smaller consultant to absorb their business liability. One past client of mine made their employees indemnify the employer. Which is morally just plain wrong as well as possibly illegal. In general, all clients who demand to pass their business risks on to the contractor are lousy clients to be avoided. Their mindset will usually be antagonistic, blaming, and they do not take responsibility for their own businesses. I have regretted taking on every such client. – user2757 Dec 8 '11 at 4:00
Yeah, I understand that clients want to protect themselves, but that's why they write Software License Agreements and such, so they are protected from their own clients and they shouldn't need the contractor to have liability. I was trying to explain to them that it's not reasonable for me to be liable for a work that they are going to modify, and use however they want (it's also in the contract that they use use the work however they want). Luckily most of the people at the company agree with me, it's just their lawyer who doesn't have experience with software contracts. – Roger Dec 8 '11 at 10:32

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