The recent explosion of mobile application development has left businesses scrambling to enter the space but ill-prepared to do so. Commonly, mobile app developers have the upper hand in contract negotiations because many businesses have never outsourced software development.
Commissioning a mobile application requires a highly specialized contract that most businesses lack the expertise and experience to create. As a result, businesses too often find themselves grappling with a Pandora’s box of issues after signing an app development contract, when their options are few. While businesses can avoid most of these complications by drafting a contract properly, they still have some recourse if problems arise after signing.
Intellectual Property Rights in Your Software
Most businesses don’t realize that, by default, the intellectual property rights — or ownership rights — in the developed app software will remain with the developer unless the contract states otherwise. Businesses often mistakenly assume that developers write their commissioned app’s code from scratch. Understandably, they reason that if the developer wrote entirely new code on their dime, they are entitled to complete ownership rights.
The actual process of app development is much different, though. Most developers use generic code to create an app, and they reuse this code for other projects. Businesses sign a contract thinking they have total ownership, only to find out later that the license they have doesn’t permit all of their intended uses of the code.
One possible solution is negotiating a compromise between total ownership of the code, which is unrealistic, and partial ownership. For example, you might negotiate the right to have third parties maintain your software or restrict the developer from using the code in your competitors’ apps.
Acceptance Testing
Improperly addressing acceptance testing, or beta testing, concerns in an app development contract can create headaches for both businesses and developers. Acceptance testing refers to the process by which a business ensures that an app meets all of its specifications. Without a clearly outlined process for acceptance testing, clients aren’t protected from non-conforming elements of the app. Similarly, developers risk non-payment by the client due to outright rejection of the software.
A business’ only recourse when this happens is to withhold payment until the developer fixes the software. That solution is less than ideal, as the developer may sue for breach of contract and the timing of software release faces significant delay. For this reason, it’s imperative to include a clear outline of development milestones and payment dates in the contract while also ensuring that your requirements are consistently met. The contract should describe the acceptance testing process in detail and enumerate the conditions of acceptance, such as approval by Apple for iOS applications.
Third-Party Infringement Issues
App development contracts should afford your business protection from liability in the event of third-party copyright infringement. Third-party infringement might occur when an employee of your developer plagiarizes code, for example. If that happens, and you have no contractual indemnity, the copyright owner could sue your business for infringement.
You can avoid this by including a clause in your contract that grants your company an indemnity. That means you are insulated from liability if you later discover that the developer doesn’t own the requisite rights in the app software to give you the license specified in your agreement. In other words, if you find out that the developer gave away more rights than it actually had, you are protected from infringement lawsuits by third parties.
Tips for Avoiding Problems With App Development Contracts
No business wants to deal with the financial and legal fallout of a poorly drafted app development contract. The good news is that you can prevent all the problems described here by simply including the right language in your contract. Here are some topics to cover with the developer before you even start contract negotiations:
• Work with the developer to create a clearly defined concept of your app and its intended uses.
• Write the app’s specifications out in detail. Think about what you want your app to do. Make sure you don’t commit to a development contract until you agree on these specifications.
• Create a timeline for development. Will you expect a partially working prototype within a few weeks? Will the developer give you regular feature drops or status updates?
• Develop a payment plan. You might structure your payments in phases to incentivize the developer to meet deadlines.
• Have a professional draft or at least review your contract. Consulting with a professional from the start can forestall expensive, potentially irreversible problems down the road.
Much is at stake in developing an app, including your company’s ownership rights and infringement liability. With so much at stake, consulting with an attorney before you enter into an app development contract is wise. A professional who is well-versed in the legal issues of app development can help you draft an agreement that protects both your interests and the developer’s.
