What happens in a software development dispute?


In representing software developers and companies using their services, we have seen many disputes. Often times, there are significant questions that arise when a relationship goes bad. Every company wants to resolve these problems quickly, and hopefully without litigation. However, before that resolution can happen, you must first figure out what are your rights in a software development agreement.

How do you know if the agreement is breached?

The biggest issue in these cases is what exactly is the deliverable. The easy answer is the end software, but what about the source code? Who owns that? Does it need to be turned over? What about cases where the project is interrupted and one party or the other cancels before delivery? Does part of the code need to be turned over? What does the vendor get paid for its partial work. Is the software developer permitted to use that code for other cases? As you can see, the questions can be numerous and difficult to answer.

How does the law interpret software development agreements?

In cases we have litigated we have seen the issue of what efforts were required to make the proposed package work and what kind of work had actually been completed by the time the relationship broke down. Those cases, like most software development suits, came down to what was in the contract. What had the parties agreed to, and what was spelled out.

When construing contracts that were freely entered into, our goal ‘is to ascertain the true intentions of the parties as expressed by the contractual language.’ Stated another way, the best indication of the parties’ intent is the language of the contract itself, for that is the language the parties ‘saw fit to use,’ We construe the contract language according to its plain or ordinary meaning.

– Wisconsin Supreme Court – Town Bank v. City Real Estate Dev., LLC, 330 Wis. 2d 340

What is the law for software development agreements?

The claims and counterclaims in recent cases included Breach of Contract with regards to providing the finished product and our clients right of first refusal for the business opportunity at issue, Breach of the Duty of Good Faith and Fair Dealing with regards to delivering the promised software in a timely manner and putting forth appropriate efforts in performing its obligations under the contract, anticipatory breach regarding the purchasing party indicating it won’t accept delivery of the software contracted for, and fraud in the inducement regarding what source code was available and deliverable. In Wisconsin the Courts generally apply a duty of good faith and fair dealing to all contracts

‘[t]he rule that parties to a contract act in good faith is universal.’ We have held that ‘[e]very contract implies good faith and fair dealing between the parties to it,’ and that mere ‘compliance in form, not in substance’ is a breach of ‘the covenant of good faith that accompanies every contract.’

Wisconsin Supreme Court – Beidel v. Sideline Software, Inc., 348 Wis. 2d 360

This interpretation helps to fill in the gaps for any issues that arise for which there is not an express agreement. While there are specific issues and often unique issues to resolve in a software development lawsuit, the tenants of commercial practice, contract law, and good faith and fair dealing will generally control in Wisconsin.

What can you do?

While every case is unique, and is going to really depend on what the parties agreed to, there are numerous potential remedies or strategies to help resolve a dispute without waiting until a fully finished product has been delivered that may fail to meet its expectations, or fit exactly what was ordered but no longer is wanted by the purchasing company (leading to a refusal to pay). If the issue cannot be resolved with direct negotiations, bringing counsel in to try and sort out the dispute can be necessary. We always hope to resolve any of these disputes without filing suit, but strive to be prepared if a lawsuit is necessary.