Product development raises particular intellectual property, relationship, and contract issues. A well-drafted product development agreement can provide a blueprint for your entire project. Intellectual property and confidentiality are generally fundamental to a successful project and agreement.
Product Development Agreements
Development agreements should generally define and include all terms and provisions important to a mutually successful collaboration. Think about the following:
As you think about the factors important to the project, be sure to consider them within the context of time. Certain issues will be important to the parties before, during, and after the relationship. These arise at various points in time. If you can, do your best to realistically picture the project, the issues, and the consequences of those as they will unfold and apply over time.
What services do you expect? This may seem obvious, but spelling this out is essential. It gets everyone on the same page. Do not presume that anyone’s thoughts are built on your assumptions. Communicate a full, clear picture of your wants and needs. Describe the vision that exists in your mind regarding the project and relationship. This is an essential part of any product development discussion. How does the project work? What materials will each party provide? What are the deliverables? Discuss these things out loud.
As stated above, confidentiality is often foundational to product development. Confidentiality issues likely sit at the heart of any product development agreement. What information must be kept confidential? It is important to be specific. If necessary, distinguish down to the finest hairs. Are there exclusions or carve outs? If so, what are they, and why are you making these determinations? Articulating why you are making certain demands or distinctions can help all parties to gain better understandings of project parameters and each others’ expectations.
Do the issues raised by a current project involve other discussions or agreements between the same parties? If so, it may be important to reference and describe such discussions or agreements in writing, and to attach them to your agreement.
Who will be permitted to receive confidential information? Will either party have rights to monitor, or be responsible for monitoring, the use of confidential information? Will any recipients of the information be required to sign separate confidentiality agreements? Is there a required standard for determining with whom information can be shared, such as a need-to-know basis, only named parties, anyone who may be helpful to the project, etc.? Who will ultimately be responsible for any confidentiality breaches?
Sometimes confidential information must be disclosed under law. How will you deal with such a situation? Should the developer feel free to disclose confidential information upon a reasonable belief that it is appropriate to do so? Should the developer refuse to cooperate with authorities, agreeing to stand libel for contempt before making a disclosure? Should the developer disclose only after receiving a subpoena or other service of process? Should the developer obtain a legal opinion regarding any such demands? Before making any disclosure, should the developer provide notice of any demand to the innovator to allow the innovator an opportunity to obtain a protective order, or to otherwise attempt to limit disclosure?
Consider the nature and shelf-life of confidential information, and address the term of confidentiality. For how long should the parties keep confidential information under wraps? Be aware that restrictive agreements such as those requiring non-disclosure should generally clearly define what information, activities, and products are covered. Such agreements must generally be specifically reasonable under law in scope and duration. Restrictive covenants are generally treated as distinct contracts, meaning that their validity rests on exchanges of offer, acceptance, and consideration. The accepting party or parties must generally receive distinct offers and applicable consideration, and be allowed to separately accept such agreements, whether they are included within, or are separate from, other contracts.
If monetary damages would not suffice to cure any confidentiality breaches, will you consider specific performance or injunctions? Such relief may be important to compel delivery of what is due under the contract, or to allow a party to legally step in and stop another from using intellectual property in the marketplace.
Be aware that certain shared business information may reduce competition and therefore raise anti-trust concerns. Consider anti-trust issues if applicable.
Other Important Issues
What warranties will the developer give regarding the project’s timeframe, quality standards, end results, etc. Will there be concrete milestones, schedules, inspections, or progress reports? Will project termination be tied to these? Will compensation be tied to these?
Will the innovator test the product at various stages, or upon completion? What are the standards for acceptance; functionality, for example? Who has the right to accept, approve, or deny the final product? Spelling this out may be important. What are the consequences of any denial or non-approval? For example, if the product is not satisfactory, will the developer continue to work or will the relationship terminate? What happens if the project is taking longer than expected? If the relationship terminates, who owns and has the right to hold and use any work-in-progress?
Discuss fees, obviously. Also discuss earnings or royalties tied to a successful product. Who has a right to these, and in what proportion? Keep in mind that joint ownership of intellectual property can present certain pitfalls. Joint owners may each be able to exploit their interests without notice to other owners. In a case of joint ownership, who will grant licenses, who has the right to transfer rights, who has the right or responsibility to enforce rights and to control any law suits? Note that trade secrets may lose their intrinsic value under multiple party ownership.
What does each party bring to the table? What are the parties’ background rights? Does everyone walk away at the end of the project with the property they brought in? Will there be any transfers? Will there be any licensing? Does either party require licensing from the other to be able to execute their work or to use the final product upon completion? Make sure that the parties are legally free to move forward during and after the project.
There is no standard product development arrangement or agreement. To support success, it is best to maintain full awareness of the applicable issues, to thoughtfully consider the parties’ distinct interests and expectations, and to articulate these as clearly as possible.