Software Development Outsourcing – How to Protect Your Business, Idea and Rights?

August 15, 2023

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In today’s globalized economy, businesses often turn to outsourcing software development  as a strategic solution to achieve cost savings, tap into specialized expertise, and enhance flexibility. The practice of outsourcing software development has become a prevalent approach, allowing companies to streamline their operations and focus on core competencies. However, amid these benefits lies a paramount concern that demands unwavering attention: the safeguarding of intellectual property (IP).

As companies entrust external partners, the need to protect intellectual property such as proprietary ideas, innovations, and creations becomes more pressing than ever. This article delves into the intricacies of intellectual property protection within the realm of software development outsourcing. We will explore the multifaceted dimensions of IP, its critical role in shaping business success, and the potential ramifications of inadequate IP protection.

In this article, we will explore:

  • How to protect your business in case of a software development outsourcing disaster?
  • What type of contract should you choose?
  • Contract that protects your rights and idea:
    • The basics
    • Intellectual Property Rights
    • NDA – Non-Disclosure Agreement
    • Employee Confidentiality Contract
  • Manage your cooperation the right way
  • You don’t have to worry if your choose the right partner


Understanding Intellectual Property in Software Development

Explanation of Various Forms of IP

When discussing intellectual property in the context of software development, it’s important to recognize the diverse forms that it can take. Copyrights, patents, and trademarks are the principal categories of IP that directly impact software products and their development. Copyrights provide legal protection for the expression of ideas, granting creators the exclusive right to reproduce, distribute, and modify their original works. Patents, on the other hand, safeguard novel inventions, including software algorithms and processes, by preventing others from using, making, or selling similar inventions without permission. Trademarks play a role in branding, protecting distinctive names, logos, and symbols associated with software products and services.

Importance of Recognizing and Valuing IP Assets

For businesses engaged in development, the intellectual property they generate and possess constitutes a fundamental asset. These intangible assets often hold more value than physical property, serving as the bedrock upon which competitive advantage is built. Recognizing the worth of intellectual property is a prerequisite to effective protection. Failing to understand the significance of these assets can lead to undervaluation, and subsequently, inadequate protection measures.

Potential Risks and Consequences of Inadequate IP Protection

The ramifications of insufficient IP protection are far-reaching and can profoundly affect a company’s bottom line and future prospects. When intellectual property is not adequately safeguarded, the risk of unauthorized use, infringement, and misappropriation looms large. Competitors might exploit unprotected innovations, diluting market differentiation. Moreover, inadequate IP protection weakens a company’s ability to enforce its rights, potentially leading to lengthy and costly legal battles.

Furthermore, in the context of outsourcing software development, the stakes are heightened. Entrusting third-party developers with access to your proprietary code, algorithms, and designs necessitates a meticulous approach to IP protection. Without rigorous measures, you risk compromising sensitive information and providing a backdoor for unauthorized access. 

    How to Protect Your Business in Case of a Software Development Outsourcing Disaster?

    History knows a few examples of software development outsourcing disasters when clients lost millions, and a vendor delivered a poor product or wasn’t able to even finish the project. However, all these disasters had their reasons. First of all, as a business owner, you need to be very careful about choosing the right software house for your project. There are a few mistakes you need to avoid, like choosing the cheapest offer or not performing detailed research of software development companies. 

    In addition, you need to make sure that your contract with a software house covers all the required details. However, there’s something more. If you want to be sure that the final product will meet your vision, you also need to pay attention to professional project management. That way, you will keep a finger on the pulse. 

    Find out how to guard your business with a detailed contract and take part in the project to be sure your vision is being fulfilled.

    What Type of Contract Should You Choose?

    Let’s start with the fact that there are two essential types of outsourcing contracts you can choose from. And they determine a lot.

    The first one, Fixed Price, means that you establish the overall cost and scope of your project in advance and any changes generate additional spendings. The second one is Time and Material. You pay for the number of working hours multiplied by a previously established hourly rate, which allows for more flexibility. In our opinion, that is the safest choice for web or mobile app development. 

    With app development, it’s hard to establish detailed specifications beforehand. Your vision may slightly change over time. More ideas will emerge; you can’t foresee everything. It’s not convenient for you to have a deal that forces to establish everything beforehand.

    Contract That Protects Your Rights and Idea

    When embarking on a software development outsourcing journey, one of the cornerstones of safeguarding your intellectual property (IP) is the meticulous crafting of a comprehensive contract. This contract acts as a legal framework that outlines the terms and conditions governing your relationship with the outsourcing partner and provides the necessary protections for your company’s rights and ideas.

    The Basics

    Firstly, your contract with a development company should describe services your partner will provide – specify the project scope and explain the procedure of making changes. You also need to put there the project’s time and cost, hourly rates, development phases and deadlines.

    Intellectual Property Rights

    Central to the contract is a well-defined section addressing intellectual property (IP) rights. This section should unambiguously stipulate ownership, usage rights, and any potential transfer of IP assets resulting from the outsourcing arrangement. Clear and concise language is paramount here, leaving no room for ambiguity or misunderstanding. Consider including:

    • Ownership Clarification: Define who retains ownership of the IP assets developed during the project. Specify whether the outsourcing partner is transferring ownership, licensing, or providing a work-for-hire arrangement.
    • Usage Rights: Outline how your company intends to use the IP assets. This can involve distribution, modification, sublicensing, or any other relevant usage rights.
    • Exclusivity: Address whether the IP developed for your project will be exclusively provided to your company, preventing the outsourcing partner from using it for other projects or clients.


    NDA – Non-Disclosure Agreement

    As you share sensitive information and proprietary ideas with your outsourcing partner, a robust Non-Disclosure Agreement (NDA) is indispensable. An NDA establishes a legal obligation for the outsourcing party to maintain confidentiality regarding the shared information. Key elements to include are:

    • Definition of Confidential Information: Clearly define what constitutes confidential information. This can encompass project details, trade secrets, proprietary code, business strategies, and any other information critical to your company’s competitive advantage.
    • Duration of Obligation: Specify how long the confidentiality obligation remains in effect. Generally, NDAs last for the duration of the project and may extend beyond its completion for a defined period.
    • Permitted Disclosures: Outline circumstances under which the outsourcing party is allowed to disclose confidential information (e.g., to employees with a need to know). This prevents unintended breaches of confidentiality.


    Employee Confidentiality Contract

    A comprehensive protection strategy extends beyond contractual obligations with your outsourcing partner. Consider addressing the matter of employee confidentiality within your own organization. Having employees involved in the project sign confidentiality agreements can further fortify your IP protection efforts. Key components of these agreements include:

    • Scope of Confidentiality: Define the scope of information that employees are obligated to keep confidential. This can include project details, source code, designs, and other proprietary information.
    • Consequences of Breach: Clearly outline the consequences of breaching the confidentiality agreement. This can range from disciplinary actions to legal remedies if necessary.
    • Educational Component: Educate employees on the significance of intellectual property protection and the role they play in maintaining confidentiality.


    By integrating these components into your outsourcing contracts and internal agreements, you create a robust shield that safeguards your rights, ideas, and proprietary information throughout the software development outsourcing process.

    Manage Your Cooperation the Right Way

    A well-crafted agreement gives you security, but can’t ensure that you will receive the result you wanted. For that, you need well-organized project management. 

    Let’s start with the fact that the best software development companies work using Agile Methodology and Scrum Framework. It means that they gather all the tasks and then divide their implementation into two-week sprints. After each sprint, they present you with the results and gather your feedback. You should aim for a software development outsourcing provider that organizes work that way. You will stay in the loop and keep your finger on the pulse. The final result will be as you wanted.

    The second thing is communication. You want to be able to reach your software developers as efficiently as possible. There are a few tools, like Slack, that allow for the most convenient communication between client and vendor. At Appstronauts, we use Slack for communication and Jira to allow you to track the app development progress.

    You may also want to pay attention if the company you would like to sign an agreement with organizes Design Sprints or workshops when you can build your User Persona together. These activities help a lot with keeping every member of your future development team on the same page and facilitate things for you. 

    You Don’t Have to Worry If You Choose the Right Partner

    How can I be sure that they didn’t lie about their knowledge and experience? That is the question that almost every business owner asks himself. And it’s understandable because many IT outsourcing disasters were caused by a vendor’s incompetence. That is why you need to conduct detailed research before signing a contract with a software house.

    Look at B2B reviewing websites like Clutch or Goodfirms. Check out the rankings of top software development companies. Analyze client’s feedback, reviews, and previous projects of a company you’re interested in. Look at their portfolio, blog and check out if the technologies they specialize in aren’t outdated. In development, trust is the key to success. And every professional, serious company cares about their clients opinion and comfort.

    After choosing the best software development company, that perfectly suits your project, has knowledgeable developers and eagerly shares experience, you can be sure that nothing bad is going to happen to your project. However, secure contract and excellent project organization are always relevant. If you chose professionals, they would make sure you get both these things. 

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