The Old Joel on Software Forum: Part 3 (of 5)

Software Licensing

I'm a software developer, and I set up an LLC for myself. I would like to enter into a business arrangement with a friend who is just acting on his own behalf. I build an application, he provides the data & does majority of the selling (he has the contacts). We have agreed to split the profits 50/50.

My question is this: What happens to the application I create? I would like my company to retain the copyright for the program, but my associate does not want me to ditch him once my product gets out into the market. I would guess we need some type of non-compete agreement, but I have no idea where to start.

I'm considering some type of licensing scenario where I retain ownership of the application, and I license it to him for 50% of the selling price, or something like that. Is this reasonable? I don't want to be in a situation where he is able to cut me out of the equation after the app is created, and vice versa.

Thanks.

nathan
Sunday, November 16, 2003

Sounds like you and your friend need to sign a contract 8-}

Mike Swieton
Sunday, November 16, 2003

You and your business associate need to get a lawyer and have him/her draw up a agreement that clearly defines the rights/responsibilities of both parties.

Matt Latourette
Sunday, November 16, 2003

I think you need write a Software License and include it in the distribution, that your* company owns that product.
You may need an agreement with company of your friend that you allow him to re-distribute the software.
You should not give him any ownership rights, in a whole or part, to sell the software. Be careful, you may give too much... Consult layer and ask other friends for re-distribution.

Evgeny Gesin /Javadesk/
Sunday, November 16, 2003

As for sharing profits it's up to you, however 50/50 seems not to be reasonable.

Software re-sellers make money not from discounts, but by offering services, such as support, outsourcing/development, training, etc.

FYI, maximum percentage of book re-seller companies is 40%. Amazon and Bookpool can be allowed for more discounts, but because of large volume of books they sell.

Evgeny Gesin /Javadesk/
Sunday, November 16, 2003

A 50% *commision* on each sale he makes would be very very generous indeed. A 10% commission would be generous as well, and more inkeeping with standard rates.

Giving him half ownership of your product and/or your LLC is just plain nuts.

Let him work for his money.

Just my opinion.

Dennis Atkins
Sunday, November 16, 2003

If, without help from said friend, you have no chance to sell antyhing, then 50% is reasonable. If you have actual experience in selling and marketing niche product (especialyl if it's in a similar market), then, of course, you're a better judge than any of us.

Sign a contract, with limited time and an extension option (e.g., 1-3 years + 1-3 years extension). Don't be greedy and fight for every percent at first - establishing market presence is much more importance, and if your friend already has that presence, you want him to work with you and be committed.

Remember, Apple does not make money on iTunes yet. But iTunes is already making them money on the iPod, and I'm sure that _when_ they renegotiate (not if; when), they'll start making loads of money.

Ori Berger
Sunday, November 16, 2003

Ori - you hit it on the head. The reason we're doing 50% is because I have no contacts, and no access the to data. But once we've had a few purchases (maybe 1 or 2 each year) then I will have enough contacts where I could go it alone.

I would also like to retain control to the point where he cannot resell the application if/when we choose to go our separate ways. But I know he would like for me to not be able to kick him to the curb once I establish market presence.

Any places online I can go for sample contracts that cover software licensing, distribution, & non-competes?

Thanks.

nathan
Sunday, November 16, 2003

It sounds like you initially need some application that will be merely adequate so that people will buy it but with serious reservations.

Retain the rights to develop new things using this code base.

Once you establish some market presense and figure out how to move forward by yourself - give you buddy the option to sell the old version, but release a new one which will be better.

I do not think any arrangement in this situation can be "fair", since it is really unclear how the profits should be split. Thus whatever you manage to build into the contract is yours.

Mr Curiousity
Sunday, November 16, 2003

Nathan, these things can be like having an elephant sit on you. ( Everything looks OK until it happens.)

I think the important things are to retain control of your work and its value and, at the same time, to ensure you are fair to your colleague.

I think you need to treat your friend as a reseller, giving him exclusive rights to a certain territory for a certain time. The territory might be a geographic area or a business sector. When the time expires, you can renegotiate with him, and he can continue the licencing if everything still benefits both parties.

You need to make sure that his licence to sell and profit from your application is conditional on him selling a certain minimum number in his area. Otherwise he could stuff you up by not selling anything.

Give him about 25 percent of the sales price and have him charge separately for consulting services he provides. This separates out the returns from both your work in a fair way and provides paths for future development.

Must be a Manager
Sunday, November 16, 2003

50% is not unreasonable for a sales commision. The company I work for re-sells some products where we get 75% and the author gets 25%. In this case the developer would have no way to get to our market so it's a good deal for him.

Royalty/Commision rates are totally negotaible. It makes sense for a developer to hand over a large percentage if it's for software that he wouldn't sell otherwise.

pdq
Tuesday, November 18, 2003