Product development: Legal documents and agreements

Note: Before undertaking any legal considerations regarding your product, engage the services of a lawyer. Only a lawyer should create your legal agreements. The following article outlines the potential legal considerations your product might require and the decisions you should make when creating any of these documents.

Customer-facing legal agreements

As the creator of a product, you will require a customer-facing legal agreement to protect your business. This agreement outlines the contract between your organization and the purchaser of the product. Note that this type of agreement can have many names, which will depend on the type of product you are creating and how you distribute it. Consider the following industry examples:

  • In the life-sciences sector, you might have terms of service that outline what your product will or will not do for a user, and its limitations.
  • In the technology sector (software and hardware), you might have a product license agreement that outlines the legal responsibilities of each party and how you will share your technology with your customer.
  • In the cleantech sector, you might have terms of service that outline the promises of your technology and how you will share it with your customer.

When creating a customer-facing legal agreement, reflect on the following business questions and present the answers to your lawyer:

Who is the audience of this legal agreement?

This might seem like a basic question, but be clear about to whom you are selling the product. Is it an organization? Is it an end-user? You might need to create two different agreements depending how your product is sold. For example, you may sell your software to an organization—in which case, you’d implement a company legal agreement and have end-users agree to a separate set of terms when they access the system.

What is your product?

Define what your product is, and potentially what it is not (for example, your product is a website that allows customers to check their Internet connectivity; it is NOT access to the Internet itself). Also outline any third-party technologies that you licensed as part of your product (for example, an image manipulation plug-in that you used inside your product).

What do you promise to the customer?

This outlines your promises to the customers (for example, what the product will do, your product warranty, how you will release new versions, what you will do if there are defects).

What does the customer promise to do?

This refers to what the customer undertakes not to do (for example, they will not redistribute the product, they will not reverse engineer it, they will not tamper with it).

How much liability will you be responsible for?

A general standard is that the company will not be liable for any damages caused by using the product. Depending on the product, you might have different standards by which to abide. For example, a health-care product will have different liability concerns than a website.

What are the business terms?

Outline how the customer will pay for the product, and any additional fees (for example, yearly maintenance).

Note: This is not an exhaustive list. Your lawyer will have additional questions depending on your specific product offering.

Open source software as a product

In the software industry, an open source agreement is a free software license. Ownership of a copy of the software does not remain with the publisher. This type of agreement permits the customer to modify and reverse-engineer the product. Discuss with your lawyer the rationale behind “open sourcing” a product.

Service level agreements

If your product is either software (online or installed) or hardware, often you will need to create a service level agreement (SLA).

An SLA outlines the service you offer to your customers and what type of product performance they should expect, as well as any remuneration if those expectations are not met.

Many companies operate without SLAs, especially business websites that are oriented to consumers.
Consumers usually do not have these types of service expectations, nor will they expect remuneration if the service does not meet their expectations. However, SLAs are typically mandatory when selling to corporations.
When creating an SLA, make sure you understand the type of service your customer expects. Consider the following standard performance metrics:

  • Uptime: This is the amount of time in a month that a website will be operational. It is commonly measured as a percentage. Example: Your website has 99.99% availability.
  • System response time: This is how long it will take for the system to respond to a request. Example: Users can log in within 0.5 seconds.
  • Bug resolution time: This is how long it will take your organization to respond to a customer-reported issue. Example: Your organization will respond to high-priority issues within four hours and to low-priority issues within one week.

These metrics should also describe what your organization undertakes to do if it does not meet these metrics. Usually customers are offered financial remuneration for sustained outages. Example: Should the system’s uptime be 98% or less, the customer would receive a refund of 50% of their monthly maintenance fees.