How to conclude a software publishing contract: terms and peculiarities

There are many ways to monetise software. But now more and more often developers prefer to concentrate on creating the product, and entrust its promotion and monetisation to professional players – publishers. 

On what points in the design of relations with publishers should pay more attention, told in the article.

What is the legal nature of a software publishing contract?

A software publishing contract is a contract that regulates the issues of interaction between the software right holder and the publisher within the framework of publishing, distribution, advertising, marketing and other use of the software by the publisher.

What are the main elements of a software publishing contract?

Parties to the contract

The parties to the contract are the right holder and the publisher.

• The copyright holder is the one who developed and owns (or holds) the rights to the software. Typically, the individual or legal entity that developed the software or a publisher engaging a third-party publisher.
• The second party is the publisher – the one who publishes and distributes the software, deals with its marketing and advertising. In practice, it is a legal entity with sufficient competences in software publishing.

Object of the publication

The object of the publication is software – an intellectual property object, the rights to which belong to the right holder (developer).

They can be categorised into:

• Essential

Called as such by law and required to be agreed upon in order for the contract to be deemed to have been concluded.

In accordance with the Civil Code, these include the terms and conditions of the subject matter of the contract, the terms and conditions specified in the legislation as essential for this type of contract, and all those terms and conditions on which an agreement must be reached at the request of one of the parties.

• Mandatory

Those that are not called essential in the legislation, but must be agreed upon to avoid negative consequences – for example, in case of non-compliance with the requirements for foreign trade agreements* an authorised bank employee will refuse to register the transaction, and failure to register the transaction entails administrative liability.

• Main conditions of publication

That is, your business arrangements.

What terms of publication are important to agree on?

In order to prevent future conflict situations, it is necessary to spell out the details of the terms of co-operation in the contract in advance. It is possible to dwell on this in the first place.

Concession VS Licence

The main difference between an assignment and a licence is which party to the publishing contract owns the rights to the software. Since in the case of an assignment the developer may no longer use the software without the publisher’s permission, it is worth discussing with the publisher whether this is really necessary.

In practice, an exclusive licence is most often granted when the developer loses the right to use* the software to the extent granted to the publisher, but retains the right to use the software to the extent not granted to the publisher. 

In order to understand what the publisher can do with the software and what the developer can do with the software, it is important to define the scope of the rights granted in the software publishing contract.

For example, with respect to software, a publisher may be entitled to:

• playback,
• dissemination,
• amendment,
• adaptation,
• granting end users the right to use the software for its intended purpose.

Next, it is necessary to determine the duration of the licence and the territory to which it applies.

The term may be definite (for example, the following wording may be found in the contract: “…”) or indefinite. This Contract shall enter into force upon its signing and shall remain in force for five years”) or indefinite.

Often, contracts with a defined term provide for auto-renewal – the extension of the term in the presence or absence of certain triggers:

• lack of notice from one of the parties;
• achievement of certain profitability targets, etc.

The territory may be limited, for example, to a specific region or cover the whole world.

Income sharing provisions

Revenue Sharing or Profit Sharing* is usually provided for in the contract.

When establishing Profit Sharing, it is important to pay particular attention to cost provisions:

• open or closed lists of reimbursable costs;
• cost content (what is included and whether difficult to control costs are included, e.g. internal publisher’s costs for consulting a developer);
• whether the publisher spends them at one time or each reporting period.

Terms and conditions on marketing guarantees

In order to fully understand the publisher’s intentions for working with the software, the contract may specify the minimum and/or maximum amount to be spent on marketing. If the amounts are fixed, it may be possible to increase the marketing budget.

The formulation about the lower threshold of marketing guarantees can be as follows:

“The Publisher agrees to spend an amount not less than an amount equal to the number ($XXX) that the Publisher, in its sole discretion, will allocate to marketing and sales activities for the Programme in the activities that the Publisher, in its sole discretion, chooses as ways and methods of marketing and distributing the Programme“.

Developer’s representations and warranties

Here, it is advisable to treat the provisions carefully and check that the identity “assurance = validity” is established.

For example, if the developer guarantees in the contract that no open source licences were used in the development of the software, the developer must be sure that this is true. Otherwise, if the publisher discovers the use of open source, which the developer did not warn him about, the developer may be held liable. This may also lead to other negative consequences (publisher’s withdrawal from the contract).

The representations and warranties in the contract usually relate to status:

• The developer himself: a guarantee that he is legally capable, his representative has the right to enter into a contract;
• Software: guarantee that IP rights do not infringe third party intellectual property rights or violate the law, guarantee that there are no encumbrances or litigation where the subject matter is software;
• Other issues: anti-corruption clauses (where the parties guarantee that their representatives will not engage in corrupt activities), non-discrimination within the company.

Withdrawal clauses

As a rule, in a software publishing contract, the developer, unlike the publisher, has no right of free withdrawal from the contract. However, there is often an opportunity for both parties:

• withdraw from the contract due to a material breach of the contract (for example, for the publisher – non-payment of the developer’s share);
• terminate the contract for objective reasons (e.g. liquidation of the other party).

In order to improve the developer’s position, it is possible to discuss with the publisher at the negotiation stage the availability of the right to withdraw from the contract without being tied to any reasons (as one of the compromise solutions – with a longer notice).

It is worth trying to limit the publisher’s free withdrawal from the contract with additional terms (e.g. longer notice periods).

For the sake of clarity, a specific list of material breaches of contract and other objective reasons for which the developer and publisher may withdraw from the contract can be prescribed.

 
Thus, in order to significantly reduce the risk of any disagreements in the process of the publication itself, it is important to scrutinise and agree on all business arrangements and legal aspects at the contracting stage.

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