This article is written by Arushi Agarwal, pursuing Diploma in Advanced Contract Drafting, Negotiation, and Dispute Resolution from LawSikho.
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The internet has witnessed a boom with exponential growth in the number of both businesses as well as customers since the beginning of the 20th century. Today we see a huge number of people associated with diverse fields using all kinds of websites on a daily basis. This ever-increasing dependence has pushed people to learn to create and maintain websites, therefore, “What is website development? And what is its significance?” are commonly asked questions.
The development of a website commonly referred to as ‘web development’ is the process of building and maintaining websites. All the work that happens behind the scenes in order to provide a great user experience in terms of content, speed and accessibility of the website collectively refer to the process of website development. It includes aspects such as web designing, web programming, web publishing and database management. The professionals engaged in this kind of work are known as web developers. A web developer or a web programmer is a person who takes web design and turns it into a website.
The process of web development includes various types of web content creation such as building a website in a program, updating blogs through blogging websites, hand-coding web pages in a text editor etc. Content management systems such as WordPress, Drupal, and Joomla have become popular means of web development in recent times.
What is a website development agreement?
A website development agreement is an agreement between a web developer and a business under which a developer agrees to create one or more websites or web applications for a business. It covers the ambit of the services that the developer intends to or shall provide to the business. It elucidates the project timetable, duties and liabilities of the parties, terms of payment, the deliverables, assignment of intellectual property rights, termination conditions etc. The main objective of having a website development agreement is to ensure that the business gets the website created that it requires by assigning the responsibility to the web developer to create the website as per the requirements and specifications of the business. Such an agreement is governed by the Indian Contract Act, 1872 along with Copyright Act, 1957; Information and Technology Act, 2000; etc.
About Sula Vineyards
Nashik located in northern Maharashtra is popularly known as “Napa Valley of India” as it shares a climate similar to that in Napa Valley which is the wine capital of the world. Nashik is considered the perfect location for setting up vineyards and wineries. Nashik in recent years has also become the hub of wine tourism in India due to several big brands such as Sula, York and Soma opening their doors for people from all over India and the world to the intricate process of making some of the best Indian wines. India is one of the largest alcoholic beverage markets in the world.
Sula Vineyards is the brainchild of Rajeev Samant, a former employee of Oracle. In 1993, Samant set out an entrepreneurial venture by using his father’s 20-acre land in Nashik to grow mangoes but this venture was met with failure. Then he tries his luck on the cultivation of teak wood which also met a similar fate. After failure success knocked at his door in the form of wine production when he found an uncanny resemblance between Dindori hills’ landscapes of Nashik in India and those at Napa Valley in California. His research made him realize that these hills could be used to cultivate wine-producing grapes while everyone is following traditional table grape production.
The aim of Sula has always been to target the growing number of wine consumers in India and to promote its own premium wine. Over the years, Sula has grown to become India’s leading wine producer. With its presence known in 32 states across India, the company is presently the biggest wine producer in India occupying over 65 per cent of the market share. Sula wines also export to 20 countries across the globe including Japan, the USA and UK.
Why do Sula Vineyards require to make a web development agreement?
In this vast ocean of the World Wide Web (www), these websites enhance the presence and working of businesses and become the door to this huge online world. To keep pace with such a world of dot coms and dot ins, it has become very essential to have an agreement that helps a web developer and its client by protecting them from any legal fiasco. A well-negotiated, well-drafted, and legally valid agreement is a must for a hassle-free, business ride while a company takes off its success ladder.
It is an efficient way to develop websites because professionals are hired to do the job. This helps in saving time and provides clarity in understanding the scope of service and deliverables. This Agreement will ensure that the confidential information of the Sula Vineyards is protected as the developers are restricted to share such information with third parties. It will also ensure the efficient and proper functioning of the website as per the changing needs and demands of the business platform.
The website will ensure the brand credibility of the Sula Vineyards and will help in showcasing the products and services in the best way possible.
Important clauses of the website development of Sula Vineyards
1. Description of the project
Mention the details of the system that the operator and the company have mutually agreed upon. In this clause, the company should mention what all it desires to be delivered and implemented by the operator for use by the company on the company website.
2. Engagement of operator
Under this clause, it should be mentioned that the company has engaged the operator to provide services and related materials, which is subject to the terms and conditions of the agreement. This clause can also mention that the operator has agreed to provide services, as reasonably requested, during the term of this agreement and for as long as it continues to derive revenues from changes reasonably requested by the company.
3. Development of the company website
This clause should mention the obligation on the operator to provide services in connection with the development of the website which is approved by the company and this includes other services and programming activities which may be required by the company from time to time. The creative and design work including any new work shall be subject to the prior written approval of the company. Such services, materials and equipment shall include, without limitation:
- Designing, creating and testing the company website, which should contain the content of the site, menus, cross-reference, hypertext, other organizational features and computer source code and related to the development and implementation of these elements.
- Providing technical and creative assistance, materials, and services to upgrade or modify the company website.
- Developing and implementing plans to promote and publicize the company website in appropriate forums, such as indexing services.
- Providing general technical and support services for the operation of the company website on the webserver operated by the operator for the company website.
- If any defects or errors are discovered, the operator will immediately correct the same at its own cost and expense.
4. License grant
This clause mentions the term of the agreement for which the operator grants to the company a non-exclusive right and license throughout the world to copy, distribute, transmit, display, perform, and otherwise use and exploit the operator technology, in whole or in part, its affiliates, and its clients with respect to the ordering, sale and distribution of the company’s and its client’s products and services.
5. Term of the agreement
- Initial Term: Under this, mention the initial term of years for which the agreement shall remain in full force from the date of the commencement of the agreement. The date of commencement of the agreement is the date on which the agreement is executed by both parties.
- Automatic Renewal: The additional “Extended Terms” of years should be mentioned after the expiry unless either party notifies the other in writing of its intention not to renew the agreement. The time period for giving such notice prior to the expiration of then-in-effect. Terms should be added because this will ensure certainty and reduce transaction costs of entering into negotiations for renewal in future, which may subject the entire contract to renegotiation and erode the value for any one or both parties.
6. Project management
The company and the operator have to appoint one individual as ‘Project Manager” and such project managers will be deemed to have authority to perform the management duties, which should be described in the agreement. All communications relating to the agreement have to be conducted through the respective project managers. This is a unique clause in this agreement because e-commerce website development is a huge and highly technical exercise.
7. Personnel resources
All services rendered by the operator in connection with the project like a recommendation, selection, system implementation etc. should be performed by the qualified personnel selected by the operator. The operator is bound to have the requisite expertise to perform the tasks assigned under the agreement and the company shall have the power to replace such person appointed if it is not satisfied with that person.
8. Operator software and the technology
The operator shall provide certain object codes which will be used in conjunction with the project and all the related intellectual property rights. From an operator’s perspective, all rights in the operator software and the operator technology could be owned by the operator especially in a revenue-sharing model, including all the changes and additions made during the term of the agreement by any party.
The developer/operator should also furnish to the company the copies of the web pages, and any supporting documentation in the user’s possession or control, relating to the operator software at the company’s request, including any updates or revisions to such materials.
9. Final acceptance
The company should accept the agreement only when the system is in line with specifications provided by the company. If any defects and/or deviations are found in the operator software or if it doesn’t comply with the specifications, the company should promptly notify the operator of such defect. The operator should cure the defect and should again demonstrate and test the operator software until it is free of defects. The company should send a notice when it accepts the operator software subject to any latent defects and terms and conditions of the agreement.
In exchange for all services, materials and equipment and all rights granted by the operator to the company under the agreement, the company agrees to compensate the operator as follows:
- A percentage of the royalty/net profits/ net revenues of online revenues of the company during the period of time beginning on the date of the first commercial online transaction consummated through the company website.
- The royalty and net profits should be calculated on a quarterly calendar basis and should be payable within a particular time period after the termination of the preceding full semi-annual period.
- This clause should also mention that during each calendar year the company should pay the operator a guaranteed minimum payment which may be credited against the company’s financial obligations to the operator. The guaranteed minimum payment should be calculated at the end of each calendar year.
- The amount and the terms for the compensation to be provided by the company to the operator shall be defined clearly.
11. Record inspection and audit
- This clause mentions the right of the operator to inspect the company’ books at any time. The operator should have the right to inspect the company’s books and records and all other documents and materials in the company’s possession or control with respect to the subject matter of the agreement, upon reasonable notice, to verify the calculation of sales and royalties. It may insist on a surprise inspection also.
- If such inspection reveals an underpayment by the company of the actual monies owned by the operator, the company should pay the difference, plus interest calculated at the agreed percentage.
- All books and records related to the company’s obligations should be maintained and made accessible to the operator for inspection for at least a few years after the termination of the agreement.
12. Ownership and assignment of rights
The rights related to the operator software and operator technology and every other right should be owned by the operator. This clause records the following:
- Each party shall have intellectual property rights with respect to its brands and trademarks. The developer will not have any rights to the trademarks of the company. It may, however, request that it can use the company’s logo in its marketing materials if the project is successfully executed.
- The parties will not challenge each other’s intellectual property rights and are free to independently prosecute any third party for violation of their own intellectual property rights.
- From the website’s perspective, the clause must clarify that there will be a transfer of IP in the ‘work’ developed by the developer, to the company.
- The clause must provide clarity on whether the developer can work with companies in a similar sector as the e-commerce company or not.
13. Representations and warranties
This clause mentions the representations and warranties made by the operator with respect to the software so provided and towards the third party.
Key representations that website developers must make to the company are:
- That the software is free from defects.
- That it is compatible with the hardware configuration of the company and other systems it will run on.
- That both the parties have authority to execute the agreement.
- That the software does not have any limitations that will erase it or limit its use.
- That no third-party rights are infringed upon the performance of the contract by the developer.
This clause mentions the obligations on a party to indemnify the other party in case of negligence by it and obligations of both the parties to pay against the third party’s claim.
Termination rights are available with both parties including immediate termination and termination on notice. Upon expiration or termination of the agreement, the company may take possession of all copies of the web pages and at least one copy of the operator technology, all of which the operator agrees to deliver to the company promptly upon the company’s request, notwithstanding any dispute between the company and the operator.
This clause mentions the name of the State under which all disputes under this agreement should be resolved by the litigation should be mentioned.
17. Agreement binding on successors
The provision of this agreement shall be binding on the successors, heirs or assigns.
Neither party shall assign this agreement to any other party without the prior permission of the other party.
Effect of the waiver by either party of any default of any provision of the agreement.
If any provision of the agreement is held invalid, what will be the effect of it on the other provision of the agreement should be mentioned under this clause.
This agreement should be considered final and should supersede all the prior agreements.
In order to make the website development project a success, it is crucial that the parties negotiate an agreement that clearly outlines their rights, responsibilities and guide the path to deal with issues as they arise. The parties must use a competitive bid process as this process will allow the business to fix the terms of negotiation by including a draft agreement in its request for bids. It will help the business to identify the vendors that are willing to agree to its terms. It is also very crucial to be aware of whether the business requires a custom website or a standard template would suffice? Whether the business requires a contract for web hosting, maintenance, and support or it has the capability to maintain its web presence? The answer to the above questions would dictate a business’s approach to negotiate for its website development agreement, the agreement should clearly define the scope of services provided, including deliverables, customer requirements and milestones because all such definitions would become the measuring stick for the parties’ performance.
Another important point to be remembered while negotiating the website development agreement is that even when the developer may constantly insist on retaining ownership to a few software codes used to create the website a business shall ensure that it acquires the broad license to use all the software that may be necessary for the operation of its website. The company shall have ownership of the unique viewable aspects of the website and any custom software codes developed uniquely for that website. A confidentiality provision shall be added to the agreement to protect the divulsion of any sensitive information during the course of the project.
It is very essential for a website owner to appoint or retain a trustworthy project manager that keeps the project on track and resolve issues on a timely basis. The website owner should institute a clear change order process in the agreement in order to maintain control over the performance of the agreement.
It is also necessary that the representations and warranties provided by the developer shall be carefully reviewed by the website owner. It is necessary to ensure that the developer promises and delivers a website as per the specifications stated in the agreement and warrants that he/she will rectify the defects found in the website once it is ready. A developer shall also warrant that the website does not infringe the IP rights of a third party. In case of infringement, the developer shall indemnify the website owner to the extent of the IP clause made by the third party.
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