So you’ve had your inspiration for a world-changing technology product. You and your team have sweated blood and worked countless hours to perfect it and now it’s time to launch it into the big wide world and sit back and place the order for your Tesla-S, right? In an ideal world that would be the case but we all know it’s never that easy (wouldn’t life be boring if it was?). Our specialist Software and Commercial LawBrief – Amna Ahmed, unpacks some of the most popular methods used today to go to market and what you should be thinking about legally should you choose to go down those routes…
You can sell your software through your own website and have it available to download and make payment online. It is important to advertise clearly and accurately the features of your software, and you could even include features such as video tutorials and promotional material. All marketing and advertising collateral (e.g. flyers, online ads, business cards etc) must be:
- An accurate description of the product or service. To elaborate further, to provide an ‘accurate’ description’ means that you are easily able to prove what you say. This also includes the price of the product, so if you’re charging VAT but fail to mention that in the pricing, that’s not accurate.
- Socially responsible (not encouraging illegal, unsafe or anti-social behaviour)
External digital stores
It is common for developers to make software available through common user ‘stores’ which are designed with developers in mind. Such examples include the Apple App store, the Google Play Store and the Amazon App Store. All you need to do is sign the agreement the host has given you… But before you do, make sure you know what you’re giving away and whether you can turn enough profit. They will most likely take a cut of the income coming through sales, so make sure you’re aware of how much it is… the industry standard is around a 30%!
Physical hard copies
You might need to hire a designer or contract a freelancer/design agency to design packaging if this is a product that will be offered on a store shelf. You will also need to hire a company to manufacture the CDs, if applicable. In both these instances, you will need to have a contract in place which denotes the terms of your arrangement from price to delivery and it should cover you in the event of something going wrong. In terms of getting your products on the shelves of the retailers, more often than not, you will be given a contract to sign as the manufacturer/distributor/wholesaler/retailer would have dealt with hundreds if not thousands of businesses before you. Likely, these will have terms that are more in favour of their business needs so although you might be keen to get going and excited they are interested in your product you should have these contracts checked for onerous terms which might affect you in the long run.
A distribution arrangement exists where one party, the distributor, buys goods on his own account, usually from the manufacturer and sells them to customers. In contrast to an agent, a distributor usually has no authority to create a contract between the manufacturer and customer. The manufacturer has no contract with the customer of the distributor.
A distributor takes more financial risk than an agent or reseller (see below) because the distributor buys, owns and holds stock which it has to sell (and this is often reflected in higher margins on resale of the products), but is free to set their own prices in relation to the end customer, whereas agents and resellers are more likely to be obliged to comply with the wishes of the manufacturer/supplier.
Agency exists where an agent has authority from another party, usually the manufacturer, to introduce orders from customers and the agent usually receives a commission from the manufacturer. An agent does not contract with customers in his own right, and that means he generally has no liability to them. Although, using an agent is the method that allows the manufacturer/supplier to maintain the most control of over their products, they should also be mindful of the Commercial Agents Directive when appointing an agent in an EU country. This Directive states that certain rules must be followed, whether there is a written contract in place with the agent or not. The most significant of these is a termination payment to be made by the manufacturer/supplier to the agent when their contractual relationship ends.
Resellers and reselling have exploded in popularity as a means of getting software and related products to market. There is a wide variety of reselling arrangements and they can have characteristics of both agency and distribution.
Resellers tend to find retailers and customers for your product without first buying your product or holding inventory, so in this sense they resemble agents. They act more as a middleman for your product. However reselling often shares the characteristics of a distributor such as a close relationship with the manufacturer, minimum purchase requirements, marketing responsibilities and being remunerated, though not by commission but rather by the difference between the purchase price and the resale price. When contemplating entering a EU territory, in order not to be caught by the Commercial Agents Directive, manufacturers / suppliers should be careful for the arrangements not to take on too many of the characteristics of “agency” (which could leave them liable to pay a termination payment when the relationship comes to an end). A key component in this is allowing the reseller to set their own end prices with no undue influence from the manufacturer/supplier.
Reselling can suit both large and small manufacturing companies but often is seen as better suited to more established companies and product lines.
Reselling, distributorship and agency share the advantages of being a good way to have a physical presence in territories where you, as a manufacturer, do not operate and of selling multiple products and getting into multiple territories quickly.
Reselling has proven to be very flexible and because it doesn’t usually involve the reseller holding stock or assuming significant obligations it has proven to be a flexible and popular structure for rapidly expanding software and related product sales. But remember, as with all relationships between yourself and anyone or company associated with your business, you must have solid contracts which you understand in place to make sure you’re covered for all eventualities.
Amna Ahmed, Software and Commercial LawBrief.
If you have any questions for Amna about taking your product to market or any other legal aspect of your technology business you can have a FREE consultation by submitting a request here or call us today on 020 7148 1066.