Legal Aspects of the App Industry – Is There an App for That?

by Kevin Mills

Does your client have an idea for an app?  A really cool one that is even better than the one your friend told you about just yesterday?

You are not alone.  As everyone knows, apps are big.  And now we have an idea of just how big.  A little-reported study from TechNet,  a technology trade group,  finds that the demand for applications for games and other things has created 466,000 jobs in the U.S. since 2007.  Currently, nearly one-half of mobile phones are smart phones. New uses for apps will tie the phone to home appliances, other home uses and to new uses in the workplace.

Today,  there are more than 500,000 apps available for the iPhone and Apple’s iPad tablet alone. Add to that a proliferation of other mobile devices designed to run on operating systems made by Google, Research in Motion, and Microsoft.  It is amazing to think that this economy didn’t exist until 2007 when the iPhone first made its debut and Facebook turned its website into a platform for other programs designed for its rapidly growing audience.

The natural focus of discussions about apps is on technology and functionality but there are significant legal issues  that should not be ignored.  Every mobile software application has three distinct parts,  all of which have legal implications:  (1) the software that runs the application; (2) the “toolkit” that allows the application to operate on the mobile platform (such as Google’s Android and Apple’s iOS);  and (3) the application’s launch icon.

(1) Usually the developer owns the rights to the software that runs the app.  Care needs to be taken in forming the entity that owns that software. Depending on factors such as the source of development financing,  the people involved in the project,  the source of intellectual property used in the creation of the app,  the allocation of revenues generated, a different entity may need to be formed for each app developed.   In any event, whether a company structure is used or not,  there needs to be a written agreement between the parties developing the app as to how revenue and profit from each app will be split.

(2) In order to become a “registered developer” for a mobile device platform owner such as Apple or Google,  a software toolkit that will enable the app to run on that platform will need to be licensed.  That license agreement must be read carefully as sometimes ownership rights to the app software are granted in return for the toolkit license.  In addition,  other provisions in the license agreement need to be considered such as exclusivity, termination rights, reverse engineering of the app and prohibitions against developing apps whose “look and feel” are too similar to other apps already in use on the platform and the right to license the app to a competing platform.

(3) Regarding the icon used,  trademarking or copyrighting will be required.

Beyond that,  there needs to be a software developer agreement with each person working on the development of the apps. The terms of such agreements can vary widely and need to be negotiated carefully.

There are also customer and consumer issues that need to be considered. Examples include privacy issues and involve stated privacy policies and, very importantly, subsequent changes made to them. Certain issues are too significant to be left to the terms of the privacy policy alone.  Instead, they should be brought directly to the user’s attention.  Privacy issues also spring from the use of information collected from people using the app.  In certain circumstances,  privacy obligations attach even to information in analytics reports that are seen by no one other than the owner of the app.

Of course, it needs to be specifically mentioned that any app designed for use by children requires special attention and needs to satisfy additional criteria.

If you are forming a new start-up company to jump into the app fray, there are the usual corporate and company matters to be tackled, the elements of which are beyond the scope of this article.

Kevin Mills is an owner of the law firm of Kaye & Mills where his practice focuses on advising clients with transactions across a full range of issues in entertainment, media, technology, Internet and general business. His practice encompasses copyright; trademark; trade dress; trade secret; brand protection; content creation, protection and distribution; and general corporate, organizational and business matters.

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