Web Developer Didn’t “Convert” Website–Conwell v. Gray Loon

By Eric Goldman

Conwell v. Gray Loon Outdoor Marketing Group, Inc., 82S04-0806-CV-00309 (Ind. Sup. Ct. May 19, 2009)

This is a classic cautionary tale about interactions between a web developer/host and a customer. The customer retained the web developer to develop a website. The paperwork between the parties was not a model of clarity. Later, the customer orally asked the developer to modify the site; this time, there is only garbled conversations and no paperwork. The developer modified the site but the customer changed its mind and asked the developer to roll back to the earlier version. But the developer could not do so because it didn’t keep a copy of the earlier version (what???), The customer stiffed the developer and the developer took the website offline. The developer sued for non-payment; the customer cross-sued for conversion on the theory that it had paid for the site and had been deprived of its property.

The Indiana Supreme Court wrestles with several questions, concluding that:

1) The relationship was governed by common law principles applicable to services, not the UCC Article 2 applicable to goods. This is a tricky area of the law, but I think this may be the more logical result for a combination web developer/host, especially one who never actually delivers any code to the customer.

2) Was there an enforceable agreement to amend? The trial court said yes, and the Supreme Court saw no reason to override that factual finding.

3) Did the developer convert the code/website by erasing the old version? The application of ancient doctrines of “conversion” to intangible bits always makes me queasy, and it’s led to some confused jurisprudence. In this case, the court sidesteps all of that doctrinal messiness for the simple reason that the customer never obtained ownership of the code. This is really basic copyright law. Customers who want ownership of the work done by vendors need to spell that out in a written agreement. No written agreement specifying customer ownership, no customer ownership–it’s that simple. The court says the customer didn’t properly obtain ownership in the written customer-vendor agreement, so the vendor had retained copyright title to its developed code all along, and the customer never had title to be converted.

As usual, so many problems are completely avoidable through proper communication through written agreements and amendments between customers and vendors. Some other obvious observations here:

* it’s hard to imagine many web development disputes that are worth taking to a state supreme court, especially one where the outstanding bill was about $5k.

* if you are a web developer’s customer and you want to own the developed code, you have to say so in a written agreement

* and, if you want a copy of your website’s code, make sure you say so in the contract AND actually get a copy!

* if you are a web developer, you might keep customers happier if you keep every version of their website’s code instead of tossing old versions.

* this dispute would have be governed by UCC 2B or UCITA if either were the law of Indiana. I wonder to what extent the new ALI Principles on the Law of Software Contracts (acknowledged in the opinion) will help resolve future disputes like this.

This case reminded me a little of the New Mexico v. Kirby case from a couple years ago, where a customer’s failure to pay its website developer while keeping the developed code led to an unexpected jail sentence. I offer more lessons about web developer-customer relationships in that blog post.

While the customer lost the battle here, the issue of when electronic records are subject to conversion doctrines is hardly going away. This court reaches the sensible result that a putative owner gets no protection from conversion unless he/she actually has title to the asset. Read literally, though, I wonder if this ruling could undercut claims over conversion of virtual world assets? After all, a virtual world asset holder may rarely have clear title to the asset; certainly the holder won’t be the copyright owner of the asset. Perhaps the analysis will be different in situations where a third party (the virtual world operator) allocates “title” within its own titling system to users–it might still be possible to deprive an asset holder of “title” within that asset system even if the asset holder would have no conversion claim against the virtual world operator if the operator takes the exact same steps to deprive the asset holder.

Other comments about this case:

* Juliet Moringiello

* Eugene Volokh