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Building a Health App? Part 5: Contracting for Health App Construction

As you take your health app from innovative idea to reality, you will be engaging in a development project that will likely entail the procurement of technology, services and perhaps even content from third parties. For example, you may hire an app developer. Or perhaps you will take advantage of a cloud-based hosting platform that enables you to build a secure health app leveraging a third party’s infrastructure, such as Amazon or Google. Perhaps your app will integrate patient education content from a medical publisher or rely on analytics from an industry data aggregator. Careful contracting with third parties who provide these services and components will be critical to your health app’s success.  This fifth installment of our series will outline contracting principles for the construction of a health app.

App Development Contracts – Get Promises in Writing and Monitor Performance

Choose your app developer wisely – carefully evaluate their qualifications and verify references.  Once you select a vendor, memorialize all of the commitments – the promised app features and functions, project timeline and completion date, testing, acceptance and support - in a written contract.  Structure the payment terms so that payment for the development services occurs after the successful delivery, implementation, testing and commercial launch of the app.  Include in your contract interim testing milestones so that you can monitor progress and detect problems early on. If the app incorporates software or content owned by the developer or another source, secure broad enough license rights to such components to cover use of the app by you and your customers in all respects. Most importantly, make sure that the app development contract specifically assigns to you the overall ownership of the intellectual property (IP) in the app.

Cloud-Based Infrastructure Offerings – Buyer Beware

Developing an app using a cloud-based hosting platform from a blue-chip vendor such as Amazon or Google is a practical way to quickly and relatively inexpensively obtain an app infrastructure that will comport with the latest technical and security advances in the industry.  However, the downside to these offerings is that the prominent cloud services providers will only make minimal commitments in their contracts.  For example, a cloud services provider’s contract may promise 24/7 service uptime but provide only a minor refund of fees if the provider fails to meet that commitment.  Such arrangements limit the offerings you can make to your customers because you cannot make performance promises to your customers that are broader than what your platform provider makes to you.  Since such contracts are mostly non-negotiable, be mindful of the limitations of the contractual commitments actually made by the service provider.

Protect your IP and Data

Engaging with third party developers and cloud service providers will inevitably entail some sharing of IP and data. If you use a third party to host any portion of your app or your data, require the third party vendor at all times to maintain your code and data in a location that you have the right (and reasonable ability) to access and inspect. Arrange for regular back-ups to a location that you control.  Maintain the ability to retrieve your data from the vendor promptly, in a user-friendly format, with no exorbitant fee for such return. Consider whether the services provider should have the right to use your data for other business purposes and if not, restrict the vendor from using your data for any purpose other than to provide the services to you (and your customers) under the contract.

Have a Back-up Plan

Reliance on a third party for any portion of your app entails risk.  Build your app in a manner that gives you an alternative source for each third party component.  In this way, you will have negotiation leverage in the event of a dispute. To mitigate your risk in all third party contracts, include in the contracts the right to a transition period in the event of termination that gives you ample time to transition away from the vendor’s solution (no matter what the reason is for termination) and require the vendor to assist you with your transition at a reasonable hourly rate.

Using third party service and contract providers is an excellent way to bring an original app more quickly and efficiently to market.  Follow the tips outlined above to maximize benefit and minimize risk.

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Julie E. Korostoff

Member / Chair, Technology Transactions & Licensing Practice

Julie E. Korostoff serves as Co-chair of Mintz’s Licensing & Technology Transactions and Outsourcing Groups. She leads a wide array of technology transactions, including licensing and distribution agreements, and is recognized for her work in the financial services and digital health industries.