Check whether the agreement adequately protects you in the assignment of rights over the software.
Calculate the quote
Terminating a software development project can be a critical juncture for any company—especially in the absence of adequate contractual safeguards. What’s at stake is not merely the end of a contractual relationship, but the ability to continue using the software already developed and to retain proprietary rights in the work. This article outlines who holds the rights to the software, what contractual provisions should be reviewed before terminating the contractual relationship, the legal consequences of termination, and which practical strategies can help preserve what has already been achieved. A practical guide for entrepreneurs, startups, and SMEs seeking to protect their investments and avoid costly strategic mistakes.
In the software development industry, ownership of economic exploitation rights is never a secondary issue. Identifying the legal holder of proprietary rights is essential—especially when a project is abruptly discontinued (see also: Software ownership: how rights are allocated between clients and developers). Under Italian law, the rules are clear: if the developer is an employee, the employer automatically acquires the economic rights over software created in the course of employment (Art. 12-bis, Italian Copyright Act). If the developer is instead an independent contractor, but the commissioned activity is creative in nature (as software development typically is) and specifically compensated, the client is also entitled to the economic rights (Art. 4, Italian Jobs Act: “[…] economic exploitation rights in respect of original contributions and inventions created in the performance of the agreement shall belong to the independent contractor, pursuant to Law No. 633 of April 22, 1941, and Legislative Decree No. 30 of February 10, 2005”).
The underlying rationale is economic and functional: the party funding the development and setting its objectives—the client—has the right to use and commercially exploit the resulting work, even if not the actual author.
However, moral rights—including attribution and integrity—remain with the developer. These rights are inalienable by law and must be respected in all circumstances (see also: Copyright in Italy: scope and mechanisms of protection).
Understanding the distinction between proprietary rights and moral rights is the first step in building an effective legal strategy. But what are the risks when a software development contractual relationship is brought to an end?
Before terminating a software development contractual relationship, it is essential to assess both the legal and operational implications. The issue is not merely the suspension of a project: it involves previously acquired rights, access to work product, and in some cases, the ability to use what has already been paid for. Key provisions to review include:
Intellectual property clause. Even though statutory law (Art. 12-bis of the Copyright Act and Art. 4 of the Jobs Act) often vests economic rights in the client, contracts may contain provisions to the contrary. It is crucial to verify that the agreement does not limit ownership to a mere license instead of a full assignment. This is particularly common in contracts with software houses, where ownership of the code frequently remains with the developer.
Access to the developed code. Does the agreement provide the client with access to the source code developed up to the point of early termination? In the absence of a clear clause, the developer may deny access to completed components—rendering prior investment useless.
Source code delivery and escrow mechanisms. Check whether the agreement includes protective mechanisms such as staged delivery of the source code or escrow arrangements (see also: How to avoid supplier lock-in with software escrow).
These tools ensure continuous and secured access to the software, even in the event of a dispute or early termination. They reinforce the client’s contractual position and significantly reduce legal uncertainty.
Reviewing these clauses in advance helps prevent disputes and ensures continued control over the developed work—even when the contractual relationship is brought to an end. But what legal consequences arise at the time of termination?
Terminating a software development contractual relationship is never a neutral decision. It carries operational, legal, and economic consequences—often underestimated. At stake is not only the ability to use the software, but in many cases, the continuity of business operations.
Everything depends on how and why the contractual relationship is terminated. If termination is unilateral and executed pursuant to the law or the contract, the client typically retains acquired rights and may continue development with another provider—provided that the agreement clearly regulates source code delivery, transferred rights, and payment obligations.
Different consequences apply when the termination results from breach. In such cases, the decisive element is the materiality of the breach. Only a material breach justifies termination for cause, and under such circumstances, the law may even require restitution of what has been received—potentially jeopardizing the client’s ability to use already-developed software.
The legal framework also varies depending on the legal qualification of the developer:
This distinction affects the legal grounds for terminating the contractual relationship, liability, and restitution obligations. However, the real difference lies in the actual contract between the parties: a properly drafted agreement can prevent disputes and protect the client’s investment—even at critical moments.
So, what contractual strategies can ensure the client’s legal protection in the event of termination?
Real protection for the client is not achieved at the time of termination—it must be built from the start, with a well-structured contract. To avoid operational disruptions, litigation, or the loss of rights in developed software, the agreement should incorporate forward-looking, enforceable mechanisms.
Progressive assignment of proprietary rights. A sound approach involves assigning economic rights in stages, through the so-called “Statement of work” (SoW). For each phase completed and paid for, the client obtains ownership of the corresponding portion of code.
This strategy:
Avoid clauses that defer rights transfer until final delivery. Clauses that condition the assignment of rights upon full project completion expose the client to losing months of work and investment—especially in the event of default or an early end to the contractual relationship for reasons beyond the client’s control.
Include irrevocable, perpetual license provisions. As a backup or alternative, the contract should provide the client with an irrevocable, perpetual license to use all components of the software developed up to the point of termination. This can serve as a legal safety net in the absence of a full assignment.
Finally, it is advisable to include in the agreement mechanisms for the progressive delivery of the source code or its deposit in escrow. These legal and technical tools provide effective protection by allowing the client to access the code in the event of default or dispute, thereby ensuring the continuity of the development process.
Protecting proprietary rights in software is not a theoretical concern—it is a core part of business and contract strategy. Entrusting the development of software should be approached with the same diligence as protecting patents, trademarks, or other critical intellectual property assets. Only by structuring the contractual relationship correctly from the outset can a company avoid losing the value of its investment—even under the most complex circumstances.
