What’s App? Clarifying contractual models for apps

Adrian C. Laing

What are the contractual routes which take an idea to the availability of an app on the open market? Apps come about from an enormous range of sources. But no matter what the starting point, at some stage careful thought needs to be given to the type of contract - or model - that needs to be put into place to take the app to the open market. One of the first challenges facing, for example, a publisher, agent or author is the fundamental type of contract or series of contracts that will need to be considered.

In the first instance, there may be three distinct approaches:

1. The Development Model

Here, the rights owner negotiates an agreement in much the same way as for a commissioned website. The over-riding principle is this: ‘who pays, owns’. A development fee is negotiated, a timescale agreed, technical specifications set out and the developer is paid a fee and a product developed. The aim is to ensure that the end product has the functionality to be adapted for one or more of the major players, principally Apple, Google and Amazon.

2. The Profit Share Model

This type of agreement is fundamentally different to the development model not least because the money is likely to flow not from the rights owner to the developer but in the other direction: to the rights owner from the company. The dynamics of this deal are similar to a traditional publishing deal: money is paid to the owner and a split agreed of the revenues received from the exploitation of the app. Of course the details are always negotiable and a close eye needs to be kept on the crucial terms particularly the definition ‘net revenues’ or ‘sums received’ but conceptually the deal is a traditional profit share or royalty-based arrangement.

3. The Hybrid Model

Increasingly parties are negotiating a type of ‘partnership’ which may be described as a hybrid between the purchase of a product and a traditional profit share or royalty-based agreement. In these circumstances there is an element of sharing both the profits and the intellectual property of the resultant app. A development fee is paid (which is sometimes expressed as a ‘licence fee’) by the rights owner to the company, but also, under the same agreement, the net revenues are split between the parties.

No matter which route one starts from the reality is that Apple, Google and Amazon are the main gateways for the delivery of the app from business-to-consumer. Each has their own terms, detailed technical specifications and pricing models. In very broad terms you might expect a commission of 30% to be deducted from your suggested selling price of the app and it is worth going through the painful process, for each model, of what figure is coming to you from the price paid for the app by the purchaser.

What is interesting and exciting is the enormous range of deals which are evolving. Although the deals being negotiated and agreed vary widely the underlying business challenge remains the same: to find the right balance between risk and opportunity.

9781780431963 9781780434797 9781780438238

Adrian C. Laing is co-author with Deborah Fosbrook of The A-Z of Contract Clauses, Sixth Edition, The Media and Business Contracts Handbook, Fifth Edition, and Contract and Copyright Drafting Skills.

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