Legal Aspects of IT Outsourcing to Ukraine

Tetyana Berezenska, Head of Legal and Business Development at Bitcom Systems on 2018-01-14

The technology boom is intensifying; numerous startups are popping up and paving their path to customers. At the same time, certain stumbling blocks, like limited funding, tight deadlines and long recruitment process are on the way. A reasonable solution to these issues lies in outsourcing software development to a reliable Ukrainian vendor. However, you might have some fears, because compared to your home jurisdiction Ukraine may seem as an unstable spot. Well, the country is indeed undergoing various reforms and the practice of doing business in Ukraine is changing. In fact, many confirm that it’s getting easier.

However, let’s look specifically at the IT sphere and some legal issues related to it. An essential and good thing here is that the tech sector is not heavily regulated by the law, which gives freedom and room for growth. In addition, loyal taxation of IT services in Ukraine gives our engineers a competitive edge on the global market. Namely, the export of IT services is exempt from the VAT, while the Single Tax on Profit (currently 5%) applies.

Naturally, businesses are concerned about some legal issues when closing a deal with an outsourcing company/a contractor. Well, we’ve already got that covered.

Intellectual property rights

The intellectual property (IP) rights are usually attributed to the customer and/or employer of the engineer under a separate agreement or a relative clause in a general service agreement. This is common practice, followed in most models of cooperation with IT service providers.

The IP license agreement has to be concluded prior to the development phase of cooperation. Under Ukrainian legislation the agreement should include the following clauses:

  • an exhaustive list of IP rights, being transferred from the engineer to the customer/employer (Ukrainian law determines that only IP rights, which are stated in the agreement, are transferred);
  • authorship payment (It is sufficient to mention that the authorship payment is included in the general service fee).

If you wish to secure yourself, even more, you could choose your local law or the law of other preferred jurisdiction as governing, to be applied to the whole agreement or to the IP clause only.

In addition, it’s worth mentioning, that Ukraine is a party to following international organizations/agreements regulating IP relations:

  • Paris Convention for the Protection of Industrial Property,
  • Berne Convention for the Protection of Literary and Artistic Works,
  • WIPO Copyright Treaty,
  • Patent Cooperation Treaty,
  • Madrid System for the International Registration of Marks,
  • Hague Agreement Concerning the International Registration of Industrial Designs,
  • TRIPS Agreement.

Briefly, it is necessary to regulate transferring of IP rights in the agreement. As the law provides, sufficient and clear regulation of this area and relevant provisions in the agreement will be enforceable in Ukraine, as well as in other jurisdictions. In practice, signing such an agreement per se already constitutes a high level of security, since Ukrainian engineers wouldn’t want to risk their good reputation. In fact, the IP license agreement often stipulates rules, which our dev team members anyway understand, accept and respect.

Data protection

Data protection is always important; either you’re dealing with a startup, developing some new ideas, or with an enterprise expanding their market. Therefore, Non-Disclosure Agreement (NDA) is necessary when engaging with IT outsourcing companies.

Similarly to other jurisdictions, under Ukrainian legislation it is important to include these clauses in the NDA:

  • non-disclosure of confidential information,
  • essence of confidential information,
  • liabilities,
  • duration of the agreement,
  • governing law etc.

Ukrainian IT companies are usually interested to have a right for some disclosure, in order to be able to demonstrate their portfolio and expertise. Namely, the information, like the name of the customer, their logo, and some specifics of the assigned project is of interest. NDA can regulate these aspects.

In addition to an NDA, the working process should be organized in a way to secure data protection. For example, the customer should demand that the engineers have licensed OS, store data on the servers, determined by the customer, use equipment protected with passwords, etc. These requirements can also be included in the general service agreement.

Dispute resolution

Another important issue, which should be regulated prior to entering into cooperation, is dispute resolution. There are judicial and non-judicial means available. Customers are often willing to define their local law as the one governing the agreement, as well as their local courts having jurisdiction over the disputes. Non-judicial means include negotiations, mediation and alternative dispute resolution (eg. arbitration).

Of course, it is more efficient to prevent disputes rather than resolve them. Nevertheless, when drafting an agreement, following potential disputes should be elaborated:

  • Insufficient performance,
  • Non-timely delivery,
  • IP rights violation,
  • Breach of non-disclosure provisions.

IP and non-disClosure issues were discussed above. As for performance and delivery, acceptable by the customer, it is recommended to ensure skilled project management. Introduction of necessary management processes, including applying agile/scrum methodology, usually secures high level of performance.

Nonetheless, to be on the safe side it is useful to include the following clauses in the service agreement:

  • Acceptable quality of code,
  • Use of open source,
  • Applying certain communication, task management, and reporting tools etc.

Summing up, the legal aspects of IT outsourcing to Ukraine are rather typical to contracting engineering jobs at your own location. Similar issues would arise, and they would require similar resolution.

Therefore, in order to get started with Ukrainian IT companies, you need to sign a pack of usual agreements: IP License Agreement, NDA, and Service Agreement.

Should you have any other questions regarding legal aspects of IT outsourcing to Ukraine, don’t hesitate to contact Tetyana Berezenska, Head of Legal and Business Development at Bitcom Systems.