Digital-Deal Alignment: Considerations for Tech Agreements

When negotiating a digital health collaboration agreement between a technology service provider and a life sciences organization, whether for the development of artificial intelligence or other software, the provision of data hosting and analysis services, or a more complex alliance, the participating parties should consider the following factors in structuring the contract.

Business culture differences

How does each party negotiate deals? What is each party looking to get out of this relationship? Are there differences in the parties’ FDA regulatory approaches and risk tolerance? Do the parties’ styles and goals align enough to get the deal done efficiently and work together? Differences in the parties’ cultures and specific business drivers to engage in the deal can impact negotiations and the parties’ working relationship moving forward.

While technology companies tend to move fast and have higher risk tolerances, they should understand that life sciences companies often require more advance planning and detailed diligence and will also be more attentive to regulatory considerations. Life sciences companies may also have priorities and goals that will necessitate more regulatory obligations (e.g., to develop a digital health solution for use with an FDA-regulated medical product or that will be eligible for reimbursement).

IP ownership and license rights

One of the most important considerations is intellectual property (IP): Who owns the IP, and how can it be used? Is the IP an off-the-shelf product, or is it being customized specifically for one party? Where a tech company provides its technology for a life sciences partner, it would typically insist that it will retain the rights in the IP. But the biopharma partner may want certain exclusivity rights due to its involvement in the alliance and sharing of know-how or other unique market positions, or to ensure its ability to procure necessary regulatory clearances/approvals.

Further, if new integrations and additional IP will be developed over the course of the deal, the parties need to define what will be developed and who will have rights to it. Is ownership necessary or will broad license rights provide the parties with the rights they need?

If you are working on a cross-border deal, make sure to check with local counsel to address any local laws or provisions on IP ownership and licenses that may automatically apply unless specifically addressed in the contract.

Regulatory responsibilities

One of the first questions the parties should consider is whether they are working on a product that is or may become regulated and, if so, what regime applies. FDA regulates software and other digital health technologies that meet the definition of a “device” under the Federal Food, Drug, and Cosmetic Act. This includes both software as a medical device as well as software in a medical device. Digital health technologies intended for use with specific medical products—such as pharmaceuticals, biologics, or medical devices—also may be subject to FDA oversight.

If the parties determine that the digital health technology is regulated, the agreement will need to clearly describe each party’s respective responsibilities for FDA-regulated activities, both pre-market and post-market. Additionally, as noted earlier, the party responsible for any required FDA clearance/approval submissions likely will need access to key IP.

To the extent the regulatory status of the digital health technology is ambiguous (e.g., because the FDA’s guidance document on clinical decision support software is not yet finalized) or is expected to change over time (e.g., by adding new uses or features for future releases), the parties will need to agree on an appropriate regulatory strategy to account for these issues.

Exclusivity

In some alliances or product development agreements, a party may not be providing the technology but may be providing valuable insight or know-how. Exclusivity can be used to meet the business needs of such a party. To that end, the parties can negotiate a specific term of exclusivity, or restrict use of the product or information shared by restricting future use in certain markets, fields, use cases, and territories, or with certain competitors. However, parties must be mindful of antitrust restrictions that may apply.

Data use

The parties should align on which partner is providing the data, if any; how the data will be protected; how each party can use the data and the results of the data combined with the services; and how a party can retrieve its data once the relationship is over. In digital health projects, regulatory requirements on data protection and privacy often drive the architecture of the end product due to numerous restrictions on the processing of sensitive health data.

Customer/user support and maintenance

If applicable, the parties should have a clear agreement on who is providing customer support, what the service level agreement is, and what the remedy is for failure to meet the service levels. This can vary greatly depending on whether the product (and the associated support) is mission-critical.

Governance

Ensuring continued alignment as well as compliance with current and evolving rules and regulations for each partner’s industry typically requires the involvement of specific committees to deal with IP matters, compliance and regulatory issues, policies and controls, and/or some oversight of the alliance by the parties. Governance can help the parties achieve the right balance between control and efficiency, so consider including separate rules, including how decisions can be made (e.g., by the project’s steering committee), in your contract agreement.

Termination

The partners should agree on how and when the alliance can be terminated by either party, and what happens upon termination by either party. The contract agreement should address, among other things, what happens to the IP rights, exclusivity, data use, and support discussed earlier upon any termination or expiration of the agreement.

Emily Lowe, Michele Buenafe, Kelli Boyle; all with Morgan, Lewis & Bockius LLP