A developer builds bespoke software for a client and delivers it — then says the source code is still theirs. Who actually owns it? In India, the answer usually turns on the contract.
The dispute
Exegesis Infotech built ERP software (“INTERACT”) with registered copyrights in its underlying algorithms “CRATOR” and “SEEQUER.” From 2008 it customised software for Medimanage Insurance Broking over five years, building eleven modules (three bespoke).
Exegesis then claimed authorship and copyright in the customised software, worried about reverse engineering of its core technologies.
- Developer (plaintiff): the source code was not created under a contract of service; although the client owned the software, the source code belonged to the developer.
- Client (defendant): it was a contract of service under Section 17(c); and an MoU explicitly vested all IP in the client; no confidential information was even identified.
The law: Section 17 and “contract of service”
Section 17 decides the first owner of copyright. Under Section 17(c), work made under a contract of service (employment) belongs to the employer. The hard part is telling a contract of service (employee) from a contract for services (independent contractor). Courts use several tests, holistically:
- Control test — does the hirer control what and how the work is done?
- Organisation/integration test — is the author part of the hirer’s organisation?
- Other factors — who appoints, pays, supervises, and can dismiss; duration; nature of the work; type of establishment.
What decided it: the MoU
The evidence — extensive emails and, decisively, a signed MoU — stated that “Medimanage will hold the complete ownership of the software & Exegesis will own the rights for background technologies.”
The developer argued it signed believing the MoU had no legal effect — but the court read the parties’ intention from the signed MoU. With a clear written agreement on IP ownership, the court denied the injunction, while acknowledging the developer’s proprietary rights in “CRATOR” and “SEEQUER” — leaving the finer points for trial.
The takeaways
- Put IP ownership in writing. A clear assignment/ownership clause is the single most decisive factor — it beat an after-the-fact “the code is mine” argument.
- “Contract for services” ≠ automatic client ownership. Absent a written assignment, an independent contractor may retain copyright in the code — Section 17(c) covers employees, not every contractor.
- Separate the bespoke deliverable from your core tech. As here, you can assign the product to the client while retaining rights in the underlying/background technology — but spell it out.
Frequently asked questions
Who owns custom software developed for a client in India? It depends on the contract. Under a contract of service (employment), the employer owns it (Section 17(c)); for an independent contractor, ownership stays with the developer unless assigned — so a written assignment is key.
Does paying for software mean I own the source code? Not automatically. Ownership of the source code turns on the agreement; a clear IP-ownership/assignment clause is decisive.
What is a “contract of service” vs “for services”? A contract of service is employment (employer owns the work); a contract for services is an independent contractor engagement (developer may retain rights absent assignment).
Can a developer keep rights in their core technology? Yes — you can assign the bespoke product to the client while retaining rights in the underlying/background technology, if the contract says so.
Legislation referred to
- The Copyright Act, 1957