Technology Law Alerts

November 18th, 2011

Six Legal Issues for Mobile Apps Producers

Online services like Pandora Radio and Amazon.com offer free Apps as a gateway into their online services.  Established print media—from Time to Vanity Fair to Esquire—have shiny new tablet editions that they offer to subscribers.  Business applications, like Quickoffice Pro, offer mobile productivity solutions for office workers and students.  Non-profits—like the grassroots advocacy organization ONE—provide Apps that are pioneering mobile social advocacy.  And let’s not forget the inescapable catapulting joys of games like Angry Birds.  Make no mistake: mobile Apps are here to stay.  And with the introduction of new and increasingly powerful handheld devices, the case for bringing more brands, games, products, services and companies into the mobile App space grows ever more compelling.

    While the reasons for joining the mobile Apps revolution, as well as certain key business decisions, are often easy to see, some of the legal hurdles associated with creating and distributing mobile Apps may be less obvious.  App producers should consider the following key issues:

    1. Determine The Underlying Business Arrangement.  For large brands and existing businesses, it is often readily apparent which entity will hold the rights and assets related to the App, and how revenues, if any, from App sales will be apportioned.  But for new entrepreneurs, or a small team of programmers with a great idea, it is particularly important, at an early stage, to consider the costs and benefits of forming a new entity.  Seasoned App producers often establish companies—such as a corporation or a limited liability company—to limit their personal liability exposure in connection with their App.  These types of entities are also the standard vehicles for raising capital from investors—whether they are friends and family, or professional investors.  Regardless of whether a new entity is formed, or serious fundraising is anticipated, written agreements should be executed by the principal business partners setting forth their respective ownership, responsibilities, compensation, and revenue share in connection with the development and exploitation of the App.  Finalizing these issues well before an App is first developed or distributed helps minimize future conflicts.

    2. Secure App-related Intellectual Property Rights.  Before spending significant time or resources on development, App-related intellectual property and related rights should be secured.  An App Producer intent on repurposing an existing game, utility or publication, should first obtain all appropriate clearances and licenses, and should take appropriate steps to ensure that the proposed App’s name and other branding features will not conflict with the trademark or other proprietary rights of any other person or entity.  Please be wary.  Merely conducting name searches on Google’s search engine or on publicly available trademark databases, while sometimes a useful starting point for checking the availability of a particular App name, is probably an insufficient level of diligence.   App producers should monitor a new phenomenon that has emerged where individual App developers, even small ones, have become targets for patent infringement suits.  For example, earlier this year Lodsys, LLC, a patent-holding entity that does not produce products, began sending letters to App developers for both iOS and Android alleging infringement and offering to sell a license to the developers as an alternative to litigation.  Google and Apple have taken some steps to protect developers, but it is unlikely that they, or other platform providers, will be able to sufficiently protect App developers against every lawsuit.  App developers should take steps to be aware of the patents at issue before creating features or functionalities that might expose them to claims of patent infringement.

    3. Choose A Platform.  Selecting a platform for your App – such as Android (Google), iOS (Apple), Windows Phone (Microsoft), Blackberry OS (RIM), or others – is one of the most significant decisions an App producer must make.  Each platform has its own pros and cons, and App Producers should familiarize themselves with the technical, contractual, and business implications of selecting each Platform.  A few notable distinctions include:

    a. Android Apps can be distributed in a variety of ways, while there’s just one distribution channel for iOS Apps, Apple’s App Store. 

    b. Apple has chosen to be a gatekeeper for all iOS Apps, and it requires all developers to follow a variety of rules about content, development tools, and family-friendliness if they want Apps to become available; Google does not ban Android Apps based on content in the way that Apple does (although Google may retroactively remove Apps from the Android Marketplace for content violations).

    c. Apple also has instituted rules about subscriptions to magazines, music and other media that allow Apple to take a thirty percent (30%) cut of subscription fees collected via in-app purchases.

    4. App Development Agreements.  Many App producers decide to engage experienced software development professionals to design and develop their App.  For producers that engage an App developer, it is critical to enter into an App Development Agreement that contains, among other things, (a) appropriate language vesting ownership rights to the App’s underlying software in the Producer or his or her company, (b) defined acceptance procedures that allow the Producer an opportunity to reject an App that fails to meet agreed upon specifications, (c) standard representations and warranties from the developer, (d) provisions addressing issues related to third party materials that may be included in the App (e.g., open source software or other licensed content), and (e) other important provisions (e.g., confidentiality restrictions, indemnities, etc.).  If a developer will be responsible for submitting the App to the distributor (such as the Apple App Store or Android Marketplace) on the Producer’s behalf, the Producer may wish to address that process in the Agreement as well.

    5. Consumer-Facing Agreements. Mobile Apps are licensed, not sold, to end users.  Before distributing an App online, it is important for an App producer to have an appropriately tailored End User License Agreement (EULA) for the App, and to require each end user to agree to the terms of the EULA prior to download or installation. The terms and conditions of EULAs will vary, depending on the functionality of the App, but most EULAs will address issues like the Producer’s support and warranty obligations, if any, the basic license terms permitting use of the App, any particular App-related restrictions (e.g., prohibitions on reverse engineering), and other terms.  If a mobile App interacts with an online service, or collects and transmits personally identifiable information regarding end users, additional terms and other legal documentation—such as a privacy policy—will almost certainly be advisable or legally required.  App platforms may institute particular EULA-related requirements as well.  For example, Apple currently requires all iOS App producers to include certain terms and conditions beneficial to Apple in every EULA.

    6. Compliance with Agreements, Laws and Regulations.  Even after an App has been made available for distribution, state and federal laws and regulations, industry best practices, and the platform provider’s contractual requirements must continuously be adhered to.  As of this writing, Apps that collect personal information are being subjected to increased scrutiny by regulatory and law enforcement authorities (including criminal investigations).  Likewise, certain governmental agencies (e.g., the U.S. Food and Drug Administration and the Federal Trade Commission) have recently issued regulatory guidance and proposed rules that apply to mobile Apps.  Given the increasing attention lawmakers are devoting to Apps, it is advisable for App Producers, and their legal and technology advisors, to closely monitor developments to ensure that the Producer and the App remain in compliance with applicable laws, regulations and other requirements.