Most software founders focus on features, velocity, and go-to-market. But beneath the hood, your product must be legally ownable, compliantly built, and risk-contained—or you’ll face deal-breaking issues later. It is this second part of the job that many developers overlook. In this first article, I’ll walk through the essential steps every agency or product builder should take to ensure their software is compliant, ownable, and transferable. In Part Two, we’ll walk you through how to package your documentation, compliance, and legal infrastructure to pass enterprise audits and due diligence with confidence. I have encountered all of these issues through the dozens of applications I have developed over the years, allowing me to share experiences from my mistakes and challenges.
In the past few weeks, I have seen over 100 new SEO tools or plugins being developed. I would bet that the race to deliver something, especially if it’s for AI and created by AI, will face significant legal and operational hurdles down the road.
When you’re creating software, it’s essential to stay compliant by following a few key steps for documentation. Many people are developing various software products, particularly with AI. If your software becomes successful and you want to sell it, there are several key factors to consider.
First, if anyone else is contributing to your software, whether an employee, contractor, freelancer, or agency partner, you need an explicit, written agreement in place. This ensures that any work they create is legally considered a “work for hire” and that all rights are assigned to your company. Standard employment and contractor agreements should explicitly define what is considered company IP, clarify expectations, and formally transfer ownership of all code, models, and assets developed during the engagement.
For example, under most laws, work created by an employee within the scope of their role is automatically owned by the employer—but this assumption doesn’t always apply to contractors or third parties unless it’s stated in writing.
If you’re building software for a client, the reverse is also true: they may assume they own anything you create—even if you’re using it in your own product later. That’s why it’s critical to disclose ownership intent upfront and define whether features are custom, exclusive, or part of your general platform.
1. Employees and In-House Developers
For full-time employees, most jurisdictions follow a “work for hire” principle, meaning anything they build as part of their job is automatically owned by the company. But that doesn’t mean you should rely on default law. A well-written employment agreement should include:
- A “Work Made for Hire” clause
- An IP assignment clause for anything not covered by work-for-hire (e.g., side projects, pre-employment contributions)
- Clear termination rights (e.g., company retains rights after the employee leaves)
- Confidentiality and non-compete (where enforceable)
Tip: Include a clause that assigns rights to anything created during employment that relates to your business, even if made outside work hours, if it uses company resources or is based on company knowledge.
2. Freelancers, Agencies, and Offshore Developers
With contractors, you do not own the work unless the contract explicitly assigns it to you. This is a massive source of confusion and risk.
If you’re hiring an individual or firm to build part of your product, the contract should include:
- IP assignment of all deliverables and derivatives
- Rights to modify, commercialize, and sublicense the work
- Warranties that the work is original and doesn’t infringe on others’ IP
- A clause that the contractor waives any future claims to the IP
- Mandatory disclosure of any third-party software, services, or code added to the project—including:
- Licensed software, paid APIs, SDKs
- Open-source dependencies not in the original scope
- External databases or cloud services
- Any code reused from prior client work
Without this clause, you may unknowingly be responsible for additional software licenses, usage fees, or license violations that your contractor introduced.
I have experienced this firsthand, where offshore developers used non-commercial-use licenses and frameworks, and as we went to market, we were contacted by these companies demanding that we pay for a commercial license. It is always critical to know what has been added to your code.
3. Integrated Software Licenses (and OSS Risks)
Many developers unknowingly use open-source libraries with restrictive licenses (e.g., GPL, AGPL) that require you to open-source your product if misused.
We once had to rebuild parts of our product due to MySQL and Lucidchart licensing issues—an Oracle rep called us out based on a support doc that mentioned their tools.
Action: Maintain a Software Bill of Materials (SBOM) using tools like FOSSA or Snyk. Don’t rely on devs to “just know.”
4. Chain of Custody for Code and Data
If you don’t know who wrote what, under what terms, and what data they used, you can’t claim clean ownership.
In selling hreflang builder, having a full Git trail, admin credentials, and contributor agreements helped close the deal smoothly.
Action: Version control. Access logs. Contributor agreements. Store everything.
5. Client-Funded Features Within Your Product
In service-based or hybrid agencies, it’s common to build custom features for a client that eventually get rolled into your core product. But unless you’ve clearly documented the scope, ownership, and reuse rights, you may face legal and ethical conflicts down the road.
Just because a client paid for a feature doesn’t mean you can freely repurpose it for other customers. In fact, they may believe they have exclusive rights to the functionality—or to the concept altogether.
We’ve worked with clients who requested highly specific platform features and assumed that their investment gave them ownership or veto power. If you don’t clarify that the feature benefits the platform as a whole, they may try to prevent you from offering it to others—or claim IP rights that complicate your product sale or acquisition.
Your SOW or Master Service Agreement should clearly define:
- Whether the client is funding a custom deliverable or a general platform feature
- Whether the feature is exclusive, licensed, or available to others
- Who owns the resulting code, and whether it can be reused or resold
- Any limitations on timing, visibility (e.g., NDA or white labeling), or branding
Example language:
“While Client is funding the development of Feature X, it is understood that this feature will become part of the core product and may be made available to other customers at Company’s discretion. Client receives a perpetual, non-exclusive license to use the feature as delivered, but ownership and future development rights remain with Company.”
Custom development of features, especially for large companies, can create numerous challenges. For example, with Hreflang Builder, we collaborated with a multinational company that required us to modify their market rights management system to enable edits via an API that connected to their internal systems for managing URL lists and mapping files. Adapting the API connection was relatively easy, and we intended to use it for other clients. However, their lawyers required exclusivity and requested more than a dozen changes to the workflow, also seeking to be a named co-inventor on any future patents. We had to decline the project, especially since they did not want to pay for any development or compensation as a co-inventor.
6. Pre-existing IP and Reused Components
If you’re bringing your own frameworks, models, or templates into a client engagement—or vice versa—those boundaries must also be defined.
Include:
- A list of pre-existing IP that is not transferred
- Clauses stating that general know-how and reusable components remain the property of the developer
- Carve-outs for internal tooling or libraries reused across clients
This protects your ability to maintain your own product roadmap without fear of retroactive ownership claims.
More than half of my consulting assignments with large companies require a prior invention and IP form that must be completed. Even as a consultant, I have learned to add any of my frameworks and processes as prior inventions.
Another example is when I was working with a company and used an early version of DataPrizm to generate keyword insights. Their business intelligence team attempted to claim that models we built were theirs, as they sought to patent them. We had to explain that those models were ours and had been used before. Always document contributions and ownership clearly, especially any you bring into an engagement.
7. AI-Generated Code and IP Ambiguity
Many developers now use generative AI to accelerate development. But here’s the issue: some AI-generated content may not be legally ownable, depending on the tool’s terms of service or the source data it was trained on. AI tools blur authorship. Copilot and ChatGPT outputs may not be unique to you and may contain derivatives of training data.
Best Practice: If you use tools like OpenAI, GitHub Copilot, or similar, archive prompts, outputs, and tool versions used, and map where these are used in your product.
- Isolate AI code in tagged modules.
- Avoid AI for core logic unless rights are clear.
8. Liability Disclaimers and Risk Management
Every line of code you share, even in good faith, can carry legal consequences. Whether it’s a plugin, widget, GPT, or mini-app, if that code causes data loss, site failure, or a security breach, you could be held liable if there’s no clear disclaimer or limitation of liability.
We’re now seeing dozens of AI-generated plugins and small utility apps floating around without terms of use, security disclosures, or “use at your own risk” disclaimers. This is especially dangerous given that plugins are one of the most common attack vectors for website hacks.
Imagine a small plugin that gets adopted by a few dozen businesses—then causes a security breach, either due to poor sanitization, exposed APIs, or unpatched dependencies. Without a license or disclaimer, you may be considered legally responsible.
Plugins are one of the most common ways to breach a site. Don’t assume people know the risks—they’ll assume you’re responsible.
Action: Add a “Responsible Use” paragraph—especially if AI or user-generated inputs are involved. Clarify that the developer is not responsible for how the tool is used or misused.
9. Cybersecurity Readiness
We completed external code audits and security scans for two of our applications, as major clients had requested them. More importantly, we had the documentation ready to support our claim. I overcompensated for data backups online and off, both of the code base and the data we stored in case of a hack or a ransomware issue. I was always amazed by the number of attempts to get access to our simple software.
One large entertainment client even required a custom “invalid password” list to exclude franchise terms from password creation. We had to adapt our authentication process to meet their policy.
Action: Maintain detailed audit summaries and remediation logs. Ensure your system supports enterprise-grade controls, such as custom password policies, two-factor authentication, and SSO/SAML integration. Organize all security documentation in a client-ready folder for easy access during procurement or due diligence.
10. Patent Infringement and IP Risk Scanning
Even if your product is original, it may unintentionally overlap with patented logic, especially in AI or SaaS. If you can’t prove you developed it independently, you may be blocked from patenting—or even sued.
Run basic patent clearance searches for your core features or algorithms early in the development process. Begin by searching public databases, such as the USPTO, Google Patents, or Espacenet, using keywords related to your functionality. Focus on competitors or known patent-heavy sectors. If your feature resembles an existing claim, consult a patent attorney to evaluate the risk. For higher-value features, consider hiring a patent research firm for a formal freedom-to-operate (FTO) analysis. Document your findings and development timelines to establish evidence of independent creation.
Action: Run basic patent clearance searches for core features or algorithms. Ensure you maintain version histories, design notes, and documentation of first use.
Legal Disclaimer
The information in this article is based on personal experience and industry best practices, but it does not constitute legal advice. I am not a lawyer, and the content provided here is for informational purposes only. For any decisions involving intellectual property, licensing, software contracts, or compliance, you should consult a qualified software or technology attorney familiar with your jurisdiction and business model.
Part Two – Passing Due Diligence
Building software correctly is half the battle. The other half? Proving it—when someone wants to buy it, invest in it, or integrate it. In Part Two of this series, we’ll walk through how to package your documentation, compliance, and legal infrastructure to pass enterprise audits and due diligence with confidence.
