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Service agreements & ownership of online stores

by Carla Koutroulis. What to consider when appointing someone to design your website, online store, or app.

by Carla Koutroulis. What to consider when appointing someone to design your website, online store, or app. During the Covid pandemic, we saw a rapid rise in the need for retailers to make their goods and services available online. This resulted in an exponential increase in online stores and shopping applications.

Because the need for providing customers with access to such platforms was one that happened so quickly, many retailers may not have properly considered certain key aspects of the appointment of the freelancer or agency that they hired to create the online store or application for them. Here we look at what are the key considerations when appointing a person or agency to develop a website, online store or application; including the importance of recording the agreement in writing, as well as intellectual property considerations.

It is always recommended when appointing a service provider, that a carefully considered and comprehensive service agreement be drawn up between the parties. When appointing a freelancer or agency to develop a website, online store, or application, there are various key performance indicators that need to be dealt with, including exactly what services will be performed, and strict deadlines, to ensure completion of the project timeously. Such an agreement will also carefully set out how the retailer will be liable for the costing of the project, particularly any unexpected or additional costs that may arise should the scope of work change for whatever reason in the course of the completion of the project.

Another often overlooked aspect of such a relationship is maintenance of any development or software. One needs to establish a maintenance schedule with the developer to ensure that the website or application is maintained and updated, and that if there are ever bugs or downtime, that the errors can be swiftly resolved to ensure that the website or application will be offline for as short a period as possible. Extended downtime could have a severely negative effect on traffic to the website or application and future sales.

Ownership considerations

When looking at ownership of the development, it is vital that the agreement deals with the transfer of ownership from the developer to the retailer. This is because in terms of section 21(1)(a) of the Copyright Act, ownership of a copyright vests in the author, and for the purposes of development, the author is the person who exercised control over the construction of the programme. There is a distinction here where someone creates something whilst employed by another – in such instance the material produced by the employee automatically vests with the employer.

The question of ownership of programmes has been a widely contested issue and formed the topic of many landmark court rulings, including at the Supreme Court of Appeal, where the court has had to determined what constitutes “control” in considering who the author is. This will be dependent on a case-by-case basis, however, generally factors to be considered include the level of instructions and approval provided and payment for the services. These are also important considerations when a retailer appoints a third party to manage the development on its behalf. For example, the retailer appoints a marketing agency with a mandate to develop the online store, and the agency then appoints a developer. The control test may indicate that the agency is the owner of the development should they exercise control over the creation of the development.

Expensive litigation can be avoided by making sure that a proper agreement is put in place setting out that the developer waives his or her right to ownership of the intellectual property, and that the retailer, despite involvement of an agency, is the owner of the development.

It is clear that when considering the development of a website, online store, or application, that retailers need to ensure that a comprehensive agreement is drafted taking into account all the necessary key nuances. Such development will hold great value and play a role in creating and maintaining sales for the retailer, and therefore any money spent in obtaining the necessary legal advice will be invaluable in ensuring that the retailer is properly protected.

 

Main image credit: Pixabay.com.

Carla Koutroulis is a Senior Associate at Consilium Legal, a boutique legal and business advisory.

 

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