[menloparkbum]

It's unintuitive, but most software contracts do not explicitly give the buyer the IP. It doesn't sound like either of the parties involved know what they are doing, so it's unlikely the contract gives the buyer any power over the IP.

[brl]

A contract is only valid if something is exchanged in both directions. This is a legal principle called consideration, and in the absence of consideration a contract has no legal legitimacy.

Without some transfer of IP rights either by copyright assignment or by bare license I don't see what consideration would be for a contract to produce custom software.

If the contract is determined to be invalid the buyer can then make claims to the IP under the doctrine of promissory or reliance-based estoppel since they have built a business on the expectation that the software would be delivered with appropriate rights to distribute and modify it.

[com]

What precisely is transferred depends on the contract and the legal jurisdiction.

I have some clients that were gypped for a lot more than USD2.5k - they thought they were getting the IP and instead they were getting a non-transferable license to use (and the software was buggy and had - appallingly - developer backdoors and remote off-switches).

Explicit terms in contracts is a very smart move; don't assume anything about what the local version of contract and tort law will deliver to you.

Of course, off-shored development makes it all a bit more complicated - which party actually holds source code and can be sued? It's a bit of a mine-field.