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Contracted a developer to build a product. Contract was and we were halfway through the project before we had it in hand (realized mistake there, moving on....) We were under the impression that we would own the product (app, backend) as a whole but we were recently told we would only be given a license to it. This is a concern as we are continuing to raise money and down the road, in the event of a sale we are able to sell the product.

My question is, has anyone ever heard of a company that has a license instead of owning a product ever been aquired

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Also should say that the app has been submitted and the phase 1.0 build is complete less some final troubleshooting. We have so far paid 18k (50%) with the remaining due upon acceptance. We already have specs for 2.0 and had the intention of continuing our relationship. Would it be better to bring everything inhouse so we own the product while the company continues to build 2.0 or cut ties and build 1.0 and 2.0 inhouse while operation under our license while we rebuild everything – Eric Littleton Jan 6 '12 at 0:55
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Personally I would play hard-ball with them on this - you haven't signed that contact right as you've only just seen it so up to no its only a verbal agreement right? Well then refuse to pay up last 50% and tell them you will not continue with further development through them until you get a more standard ownership contract. If they want your continuing business they will probably comply. of course they could always take the finished product (half funded by you) and sell themselves in which case your left with legal remedies based on your verbal contract. As always all IMHO and you should – Ryan Jan 6 '12 at 9:09
almost certainly get a lawyer involved - if for nothing more than it tells them that you're serious and improves your negotiating position. – Ryan Jan 6 '12 at 9:09

2 Answers

up vote 2 down vote

This is unusual. What reason does your developer give for not letting you own the work you paid for?

Would the license be exclusive (the product is only for you), or not? I can't imagine a scenario where a developer would code an app for a client and keep the rights to resell the same app to everyone else.

Now to answer your other question, yes, Skype got acquired when it didn't own its core technology and only had a binary license (not even source). But they only pulled it off because the buyer didn't notice that the license was missing. So not a great reference (the founders did get rich though).

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up vote 2 down vote

The fact that you won't own the product is going to hurt your fundraising a lot. Dependence on a license is a huge risk for your business as it can be cancelled at almost any point (there are limits & exceptions). What's worse is that such a sneaky developer could have added royalties and protection against damages to the contract.

If you had a lawyer reviewing the contract, fire that lawyer ASAP because he/she hasn't protected your interests. If you didn't have a lawyer, retain one ASAP because this will be lengthy and complicated. The competent lawyer will advise you on the proper course of action to re-negotiate the contract and re-assign intellectual property.

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