Canada: Software Development And Licensing: What Retailers Need To Know

Last Updated: April 15 2016
Article by Lisa Abe-Oldenburg

Every retailer today uses some form of software, whether it be a computer program running on local hardware, a hosted web site or an application running in the cloud or on a mobile device.

Unfortunately, many retailers purchase such software or hire a programmer without thorough legal review of the contract.  Such retailers risk having wasted money on a software product or service that does not meet expectations, contains errors, costs way more than originally estimated, or even worse, infringes someone else's intellectual property rights or causes a security breach, resulting in expensive litigation.

These risks can be avoided with proper legal review by a lawyer experienced in technology contracting.  This article provides a summary of some of the key provisions and legal risks that need to be dealt with in a software development and licensing arrangement.

Ownership

Software consists of lines of written code which in Canada are subject to copyright protection. In addition, patents may be registered for any novel and useful processes that the software carries out.  When hiring a developer, whether it be for a large project or just a few customizations, the contract needs to clearly deal with ownership of the intellectual property rights in the deliverables.  If a retailer wants to ensure that it owns the software that it paid for, under Canadian intellectual property laws, it must have written assignments of all intellectual property rights and waivers of moral rights from the developer and all authors who wrote the code for the software. Otherwise, it does not own the software and the owner could stop the retailer from using it or sue for infringement.  Unlike the U.S. which has a "work for hire" rule, where an organization owns the copyright in the work that they paid for, Canadian law is different.

Licenses

If the retailer does not own the developed software, it may simply have a license.  However, unless the scope of the licensed rights and restrictions is clearly spelled out in the contract, the retailer may not have all the rights that it needs to properly use the software.  A common mistake in software licenses is the granting of the right to "use" the software.  Under Canadian copyright law, the right to "use" is not one of the exclusive rights that copyright owners have under the Federal Copyright Act.  A right to "use," in addition to other rights, is provided in the Federal Patent Act.  However, if no patents have been registered for the software, what rights is a retailer really getting in a software license which just provides a right to "use"?  Does that include the right to copy or modify the software?  Under the Copyright Act, the rights that are capable of being licensed are very specific, such as the right to "copy," "publish," "translate," "rent," "communicate to the public by telecommunication," etc.  If a retailer does not have a contract that grants to it the specific rights that exist under applicable law, the retailer may be infringing the software owner's intellectual property rights by using the software.

Also, the scope of the licensed rights needs to be clear.  There are significant differences between sole, exclusive and non-exclusive licenses, some of which can prevent competition.  Licenses can also be restricted to a certain time period, by object vs. source code, territory, assignability, sublicensability and by other factors.  It is also important to consider what happens to any data that may be processed, accessed or stored by the software when the contract comes to an end. 

As a software owner or licensee, a retailer would want to be able to take full advantage of the software that it paid for and to ensure the software meets all of its business needs. On the other hand, a software developer or licensor would want to be careful not to give away too many rights which could hinder its future business development and revenue streams. 

Contracts often contain "grant-back" clauses to deal with this issue.  A grant-back clause can be either a license or a transfer of ownership, of certain or all intellectual property rights in the software and/or any improvements, back to the developer. A grant-back clause may allow the developer to continue to sell the software and/or improvements to others, to use the software for the purposes of maintaining it, to develop upgrades or to create new or derivative works.  Sometimes, the fees payable by a retailer for a software license are tied to certain metrics, such as number of users, gross or net sales.  If the retailer has an exclusive license which prohibits the developer from further using, selling or licensing the software, the developer would want to get the software rights back if the retailer fails to fully commercialize and achieve the revenues for the software as the parties had originally contemplated.

Risks of Software Development

Software development is a complicated process.  Code may be written by one or many programmers, with components obtained from third party sources such as the open source community.  As a customer, a retailer would want to ensure that there are no cost overruns, that the software it paid for will work properly, that there will be no intellectual property infringement, and that the software will be tested properly and will be secure.  A software developer would want to make sure it gets paid for the development work and that the customer gives it the assistance needed to complete the work on time and on budget.

Problems arise in software development contracts when the parties do not have a contract that clearly deals with these key issues:

  • the ownership or licensing of the deliverables and any pre-existing intellectual property;
  • confidentiality;
  • scope of the work to be completed and any contributions by the customer;
  • exclusions to the development;
  • the functional and technical specifications required;
  • regulatory compliance (such as CASL and privacy laws);
  • security;
  • future modifications;
  • the cost and timing of the project;
  • the testing criteria and processes;
  • the ability to assign or subcontract some of the work to others;
  • the remedies for failures;
  • how disputes will be handled;
  • how the contract can be terminated;
  • insurance provisions;
  • unforeseen circumstances (e.g., force majeure); and,
  • the disclaimers and limitations on each party's liability. 

In addition, software development contracts need to contain certain legal representations, warranties and indemnities (e.g., for third party claims) to protect each of the parties from issues unique to software development.  Several of these warranties and indemnities need to survive the termination or expiry of the contract and be carved-out from the other disclaimer and limitation of liability clauses, in particular, those dealing with quality, security, confidentiality and infringement.

An experienced technology law practitioner, who is familiar with Canadian intellectual property law, will be able to guide you through these issues to ensure that your organization has all the appropriate legal rights and remedies.  Bottom line is that you don't want your organization to incur additional costs renegotiating rights that it thought it already had, to not be able to use the software, to not have access to its data or to get sued for intellectual property infringement or breach.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Lisa Abe-Oldenburg
Similar Articles
Relevancy Powered by MondaqAI
Borden Ladner Gervais LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Borden Ladner Gervais LLP
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions