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Doug Nebeker ("Doug")
I'm curious if those of you who are selling your software over the internet hired a lawyer to draft your licensing agreement and for other aspects of your business? And if so, how much should a start up expect to pay to cover their bases?
I've been selling my software for a few years directly to companies where part of the work is to customize it for each client. I do have an agreement that I cobbled together from books I bought and internet samples. But I never hired a lawyer to advise me for fear of the cost.
My agreement lists some terms about my retaining the copyright, the window of time they have for reporting bugs (though I fix them regardless), that it's only guaranteed to run on the standard machine they give me access to (so they can't change their system and demand I reprogram), pricing, etc. It's geared toward custom programming clients.
Well now I'm preparing my software to sell on a large scale over the internet and I'm wondering -- what should I be worrying about legally? Do most of you hire a lawyer? I'm afraid it will be very expensive and not sure that it will benefit me.
I created my EULA by using standard EULA retreived from the Internet. However, i also modified and did some English proof by professional at the time i market my Software in 2007.
Due to some patent drama with US Company, I did checked my EULA to an Australian Lawyer to ensure that it will protect me from any unwanted liability other than refund.
The EULA cameback to me with a little modification to ensure it is suit to Australian consumer law. However, the Lawyer said that the EULA has not been contested or challenged yet in Australia. I spent around 1000 AUD + gst only for this checking and little modification.
Theoritically i still do not know if this is worth or not for my business, but this gave me a peace of mind and create a relationship with legal people.
I also spend around 3000 AUD+gst for legal consultation wih IP attorney in order to help me to make any decision for my software business. This is especially when few people that are using my software, got a cease and desist letter from their competitor that hold a (troll) patents either in The US and other countries.
The legal consultation cost (in AUD) :
Principle Attorney around 600-1000/hr.
The Lawyer around 300-500/hr.
Assistant Attorney/ Legal Staff around 200-300/hr.
When you are looking an IP Lawyer, ensure he/she knows about software business and at least has a related background to software ( i.e. electrical eng, Computer Science, etc).
It is useless to get a lawyer/ attorney that has a background in chemical engineering, but you sell software in image manipulation area.
To sum up, if you based in The US and/or sell your software to The US customers, you better off start thinking about legal side of the software business.
I hope this help.
Thank you, yes this does help! The pricing is about what I expected. It seems like a lot of money to me but I think it might be be worth it. Especially after reading the thread on the crazy customer harassing that one guy. You never know when you might sell to the wrong person who is sue-happy.
I have sold a few copies of a small version of my software over the internet before and one day a guy bought it and called for support.
I was at the hospital with a family member. It sounds cliche' but I swear it's true. So 2 hours later I get home and get his message and call him back and help him, and he says "I'll take down my complaint about you."
I thought he was joking but I learned later that he literally had lodged a complaint against my company with PayPal for ripping him off when I didn't get back to him for a whopping TWO HOURS. Good grief.
I guess he thought he'd fallen into a scam when he didn't reach me immediately. He did take the complaint down but it does show that you just never know who you might end up dealing with when you deal with the public. I suppose one irate client could cause a whole lot of hurt to your business if they really wanted to.
Lawyers in the IP and corporate law space are not a commodity. Price and quality/competence varies a lot and are not perfectly correlated. But what varies most of all is honesty. It's like hiring developers in fact. A lot of lawyers are incompetent and maybe 99% of the ones you might try to interview are, but how would you be able to tell unless you are an attorney? You can't. So you go on referrals. But who can reliably give referrals? Only other lawyers.
So, here's how this works. You have to have a family law attorney who handles your personal matters. If you are middle class or above you should have this already same as you have a family physician. This person is reliable and deals with small matters, such as estate planning, some tax issues, helping you manage your charitable contributions and so forth. You should have known this person for 10 years, less only if they also worked for your parents. You know they are not going to screw you over and they are a friend you invited to your wedding. This person you ask for a referral. The person they refer you to will be competent. That person may charge more than you expect. If you are talking IP litigation that costs $400-$2000/hr at a good firm depending on which lawyer is working on your case. For general small company contract stuff though even your family lawyer might be able to help, or know a small business attorney and that is more likely to be $120-$200/hr. This person probably doesn't understand software though, and you are probably more qualified personally to write your own EULAs that are appropriate.
The typical thing that happens is you hire a guy who then starts trying to see how much stuff he can bill you for, which is based on "how much you got?" He'll tell you that dire disaster awaits if you don't let him spend a month crafting a 40 page long user agreement that every user must click on in order to use the software they have already purchased. He'll contact you for a review each year, tell you case law has changed things and your EULAs all need a rewrite. Then you'll need to install some contract management software he recommends in order to ensure compliance of all your evildoing customers. Thank goodness he is protecting you from your bad bad customers.
Industry is overrun with these sorts of guys. They are going to charge you a bundle for a contract they swear is airtight, but in the reality of the world, a couple of straightforward sentences in an Amendment to the Constitution can easily generate over the years 100 million pages of legal debate trying to figure out "what it all means". Good luck estimating how many billions of pages of legal writing it would take to parse Apple or Facebook's various 40 page long contracts they make you sign to use their product. Or your software for that matter. What I'm saying is that it's not really true that these contracts protect you or your customers or - and this is the important part - are doing anything at all good for your business. Customers don't read the contracts, how could they? You think you can understand a 40 page contract? Anyone that thinks they can we can test this. Give you a few minutes to look at a 40 page contract then we'll start testing you with questions about its implications. With the stakes being your livelihood and all your possessions as punishment for contract violation damages on the downside, and the mere right to use software you already paid for on the upside.
"He did take the complaint down but it does show that you just never know who you might end up dealing with when you deal with the public."
You might want to ask yourself how any contract terms would stop unreasonable customer complaints from happening, and what side effects a contract term strong enough to do this might have should people notice and start blogging about the terms. This scenario has happened in the past so you'll probably be able to look up some news accounts if you can find the stories.
Thanks Scott, you make good points. In the case of my guy who complained about me - yeah a contract really would not have helped there at all. It just made me realize many people will think nothing to the damage they might be doing to your business/life over the smallest thing. The scenarios I think I'm most afraid of are:
1. Someone comes back months/years after I do some customization for them and demands new bugs be fixed.
2. Someone says "Your software broke my computer and wiped out my data" and sues me. Not that my software COULD do that, but reality may be irrelevant. (Maybe I really just need a good E&O Insurance policy.)
3. My software creates documents lawyers use (ironically). Someone says "The document didn't meet the court specs so it got kicked, we missed a deadline, our case got kicked and we lost millions of dollars because of you!"
4. One of my competitors thinks I copied their software and wants to sue me.
5. One of my clients or competitors does copy my software (though how would I know/prove it).
My God, now I'm really getting paranoid. Maybe what I really need is an insurance policy for any perceived liability and to not worry so much.
I've been in business for myself for many years but the extent of my business knowledge has been "People ask me to do something, I do it, they pay me, I cash the check and pay my taxes and everything seems fine. They tell their friends and the cycle repeats." But as I look at promoting my product on a larger scale I started to worry that I might be missing the big picture business-wise. I wonder if most people employ an attorney before putting their software out there, or if they just go for it.
My legal protection consists of:
-Having an EULA (cobbled together from boiler plate).
-Having a Ltd company.
-Having public liability insurance.
-Try to do a great job for my customers.
I have never paid a lawyer.
I did talk to an IP lawyer once, when Sony Pictures ripped off my software UI in a TV program (I wanted some free publicity). But I didn't fancy paying £1000+ just for some research and a letter. I just wrote them a letter myself asking for a retraction. They never replied and are probably still laughing about it now.
If you worry about all the things that *might* happen, you can just end up completely paralysed.
Note that I am in the UK. I might take a different view if I was in the sue-crazy, patent trolling USA.
Friday, October 25, 2013
@Andy: If you don't mind sharing, who do you use for your insurance, and (again if you double-don't-mind sharing) what ballpark do you pay?
Friday, October 25, 2013
It is part of the business insurance policy I have with Direct Line. It also covers equipment and the out building my office is in. It is a few hundred pounds per year.
Friday, October 25, 2013
"as I look at promoting my product on a larger scale I started to worry that I might be missing the big picture business-wise"
If you take Scott's advice to get in touch with your family lawyer, and get her to contract out a trademark search, that would be a good start. There is no point in promoting a brand name if you have to change it six months later. My lawyer told me his firm was only getting a couple of these jobs a month, so they found another firm with lots of interns and paralegals working in a trademark search sweatshop, for a quarter of what they were charging clients like me. My lawyer then marks it up 100% and saves me 50%.
The two advantages of E&O insurance are a) a sales tool for B2B software and b) it filters out nuisance lawsuits. You can still have insanely toxic customers, but they can only suck time and energy out of you, not empty your bank account. Treat it like house insurance, avoid getting your insurance company involved unless you are in danger of going out of business because of one particular contract, and go for the highest deductible you can scrape together.
"My software creates documents lawyers use"
Assuming you have more than one customer, don't ask your customers for legal advice. Lawyers are like economists, put 6 of them in a room and you will get 7 different opinions. And don't try to impress them with a fancy EULA, they will always think they could have done better, and will be tempted to prove it.
"One of my competitors thinks I copied their software and wants to sue me"
It's been recommended here before, to get the best IP legal firms in your country on retainer. To save some money, you could wait until you receive your first patent troll letter. The only way to get good firms on retainer is by referral, so you aren't finished with your family lawyer yet, and don't be afraid to tell your lawyer to find another referral for you if the first ones seem lame. Eventually your lawyer will have to do some real research instead of going to the usual suspects.
"an insurance policy for any perceived liability"
Just like with your house, don't buy "all-perils" business insurance. You will pay too much for not much more coverage.
"I wonder if most people employ an attorney before putting their software out there, or if they just go for it. "
I don't mean to agree with Scott so much, but if you don't hire a lawyer from time to time, it becomes much harder to find a good one, when you really need one. This is also a bit of a chicken and egg problem. If your business isn't very successful, you won't need a lawyer very often. Determining when you are about to join the big(ger) leagues is tough. When people you have never heard of start contacting you on a regular basis, you are probably on the cusp.
"Lawyers in the IP and corporate law space are not a commodity. Price and quality/competence varies a lot and are not perfectly correlated. But what varies most of all is honesty. "
It was hard to find the one that best for me. During phone conversation and quoting process, most of them ( Lawyer/IP Attorney) tended to use their own language and i were not comfortable. Then finally i found someone that can explain in "human language" and give me lots reasonable advises and not scare me.
+1 for a recommendation to get the 1st cease and desist letter from a patent (troll) owner before finding any lawyer.
FYI, the first couple $$$$ grants in hiring a lawyer/ IP Attorney, is allocated only for teaching and learning about your software. So you pay them to understand your software.
I believe the best defend strategy is to make a better and better software for your users and perhaps spend some money for liability insurance. Ensure you make all the prospect understand that you sell your license "AS IS".
When your software getting more and more popular, you may expect some winding roads from the competitors and your customer's competitors.
Like Andy stated, i also think I am pretty lucky that my software business was not based in The US...:)
Have a great weekend all.
Thanks so much to everyone for all the great advice. I've yet to get a letter from a patent troll attorney but I have a friend who did and had to change his company name and it was very costly.
The software "AS IS" is good - I'll make sure my EULA covers that.
I just filed to trademark my company and software names. I was using a different software name and if you googled it, my company came up, but when I went to trademark it, another company had filed for a trademark and I was just a few days past the window to contest their use of the name so we came up with a new (better) name. I didn't use a trademark search company, rather I got the domain name for it and did the online patent search. It seems to be clear. God I hope!
I did form an LLC so that should help with liability. And I think I'll get the E&O insurance. I had to get a property insurance policy to work for some government agencies (I'm not sure what they think I'm going to damage...) But I think I can add E&O for about $500 a year. Or was it $1,000...
> I've yet to get a letter from a patent troll attorney
> but I have a friend who did and had to change his
> company name and it was very costly.
What does the friend's company's name have to do with a patent? Sounds more like he got a letter from another company's attorney regarding use of their already trademarked name. Or am I missing something?
> did the online patent search. It seems to be clear.
"seems" is the key word. The problem is there are so many patents that it is impossible you could have done anything remotely like an exhaustive search; you did a first pass, and the rest is keep your fingers crossed. Worse, sometimes people sue for obviously non-applicable patents. But it very well may not happen, either. A new bill being floated in Congress, while not enough, if passed may help cool the fires of this Gehenna oh so slightly.
> And I think I'll get the E&O insurance.
This is the correct answer, this is what limits your liability
> I did form an LLC so that should help with liability.
This is the incorrect answer, despite what some unscrupulous and/or incompetent attorneys say.
In most states an LLC will increase the cost of doing business through annual fees, and in some states, annual taxes on your profit and even on your assets.
An LLC absolutely does not limit YOUR personal liability as a person involved in product development.
The liability it limits is that of other owners of the business who are not involved in product development.
All of your negligence committed in terms of causing bugs and not doing extensive testing using best practices is your personal fault, and you can be sued for it, and the other person can win, and your arguments that you have an LLC will be laughed out of the court.
An LLC does not protect you AT ALL from legal liability for things that you personally were involved in and were negligent.
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