An interesting decision came down last week from the Supreme Court of Indiana regarding the question of who owns the copyright in a custom-built website: the web developer or the company for whom the website was built? The end result: well, that isn’t actually important to the moral to this story, but read on to see what happened and why a little upfront legal work would have made a huge difference for everyone involved (everyone but the lawyers that is).
In a nutshell, the Web Developer built a website for the Company, and the Company paid its bills. No problem there. The Company also entered into a hosting agreement with the Web Developer for $75/month, and the Company paid those bills too. Still no problem.
Then the Company asked the Web Developer to make some changes to the site, some of which required heavy programming work. The Web Developer did the work and sent a bill. But the bill turned out to be quite a bit more than the Company was expecting, so it didn’t pay. Not only that, but the Company stopped paying the hosting bill as well. Not surprisingly, the Web Developer pulled down the website after a few months of nonpayment, completely shutting down Company’s web presence. Big problem. The Web Developer also predictably filed suit to recover unpaid fees related to both the development work and the unpaid hosting fees.
Turns out the only copy of the website was under the Web Developer’s control. So rather than pay the bill and settle the lawsuit, Company countersued for conversion (theft) of the website, alleging that the Web Developer, by shutting down the website, deprived the Company of property that it rightfully owned.
The trial court found for the Web Developer, and the Court of Appeals affirmed the judgment. Still not content, the Company appealed to the Indiana Supreme Court and was granted review. Briefs were written, oral arguments made, and ultimately the court reached a unanimous conclusion in a 12 page opinion.
The author of that opinion spends three solid pages talking about the distinction between contracts for goods and contracts for services in Indiana, and whether a custom-built website is one or the other (it settled on services). Then it spent another three pages discussing U.S. Copyright Law and whether the website was a “work made for hire” (it wasn’t) or whether the Company had acquired an exclusive right to the site (it hadn’t).
End result: The Company owed the full amount of the unpaid bills in damages, and its counterclaim for conversion was denied. Total amount in dispute: a bit over $5,500. The kicker? There was no written contract in the case, just an estimate containing what the court ultimately decided was marketing language. This left all three courts to noodle over the finer points of oral contracts, implied agreements, copyright transfers and the like, all because there was nothing on paper that showed what the heck the parties intended the arrangement to be up-front.
Now you might think that the Company was crazy to pay a lawyer to appeal this case all the way to the Supreme Court (and lose) for a $5,500 dispute. You’d be right, especially considering that the company paid at least three lawyers to handle the case at the Supreme Court level alone.
A little less obvious is that the Web Developer was crazy to pay a lawyer to pursue this case all the way to the Indiana Supreme Court for a $5,500 victory. Granted, the Web Developer seems to have only hired one lawyer, but $5,500 doesn’t buy you a lot of legal work these days from even a single lawyer. I don’t know whether the lawyer took the case on a contingency or on an hourly basis, but somebody lost a lot of money either way.
A better plan would have been to pay a lawyer for a few hours worth of work to draft a contract that the parties could agree to up front. Or better yet, the Web Developer could have paid a lawyer to draft a contract template for it to use with all of its clients. Instead, each party racked up what I have to assume were tens of thousands of dollars in legal fees so that a bunch of lawyers and judges could deliberate on legal arcana.
If you want to avoid a similar mistake, call me today to set up a free 20 minute phone consultation. In that time, I’ll learn about your business, you’ll learn about me, and we’ll discuss how buying a little bit of my time to draft a model contract for you to use can help save you thousands of dollars in litigation expenses if you ever get into a dispute with your clients (or your vendors). Not only that, I’ll give you a firm estimate for the work, so you’ll know what the maximum amount of your legal bill will be, and if I work faster than my estimate, you get the financial benefit. And I’ll walk you through the agreement clause by clause, so you’ll know not only what each party is supposed to do under the contract, you’ll understand why.
Please call me today. 206-903-8182.