Contact: John Warchus; Clarkslegal LLP (Reading, England)
As is well known, there has been an explosion in recent years in the number of mobile apps being created and distributed worldwide: it is estimated that at the end of 2013 there were two million or so apps available. The explosion of mobile devices is also greatly affecting the way in which we use the internet and by 2016 it is reckoned that there will be more access to the internet by mobile devices than by laptop or desktop computers.
Pre-contract matters
When it comes to developing an app for your organisation, it is important to decide at the outset whether or not the app will be solely distributed through your own website or whether you will take advantage of one of the major app platforms, such as the App Store or Google. In addition, will the app be downloadable for an initial fee or will it be distributed for free with additional commercialisation taking place later?
As with all software and technology projects, a successful development will depend on “doing your homework”. For example, the procurement process should not be rushed and it is important to consider at least a couple of potential app developers and to carry out background checks in relation to their track record and clients and following up client references. It is surprising how often these simple checks are not followed by parties commissioning technology products to their later detriment.
Specifications and the acceptance procedure
Although the client organisation will have a fair idea as to the functionality it wants to provide through its app, it is likely that the initial design stage will lead to modifications to the client’s initial plans. What is important is that at the end of the design phase that there is a clear, written specification setting out the functionality to be provided by the app. The specification will effectively act as the contractual target which the developer must satisfy. The acceptance procedure will include testing designed to demonstrate that the app successfully provides all of the functionality set out in the specification. Accordingly, that the contract will need to set out the acceptance procedure in some detail and provide clear remedies as to what happens if functionality is found to be missing: typically, the developer will be required to re-perform any work until all contractual functionality is provided and, as an ultimate sanction, if the developer is unable to do so within a reasonable timeframe, the client should be entitled to terminate and obtain a refund of the payments made.
Who owns the app – intellectual property issues?
If the organisation has the technical means to design and develop the app in-house, many of the IP issues will disappear. The basic rule is that for all software (and other materials) created by employees in the course of their employment, the employer will own the IP rights (normally copyright). By contrast, if you need the help of outside development agencies, they will own the intellectual property in the app unless the contrary is clearly stated in the development agreement. Accordingly, in those cases, the development agreement will need to state that the IP rights in the app will be owned by the client.
There may be situations where the app relies upon/makes use of a pre-existing technology or platform owned by the developer or third party – in these situations, it will not normally be possible for the client to obtain IP ownership of the pre-existing technology but it should ensure it has a clear written licence to make use of that technology on an ongoing basis so that it can take the full benefit of the app.
Open source software
The increasing use of open source software in software development can be problematic in the field of mobile apps: most open source licences (including the most common, GPL), allow licensees to modify, distribute and charge for software that is licensed to them, but in turn they must also grant these rights to any software that they themselves have created. This licensing model is not compatible with, for example, the App Store’s terms and conditions which prohibit modifications and distribution. If a client organisation is going to use the App Store or another platform to distribute its app there should therefore be no open source software contained in it and related contractual warranties should be obtained from the developer.
Protection against liability
For those apps which are aimed at consumers or which encourage interaction by their users, it is important to be able to deal swiftly with any complaints received – these could relate to allegations that user generated content on the app infringes another party’s rights or that comments posted via the app are defamatory. Given the relevant legal regulations in place, it is not advisable for the app owners to set themselves up as editors who monitor and moderate any content received on the app before it is published but it is important that in the event of a serious complaint that they are able to act quickly and, in appropriate circumstances, remove content from the app. It is also important that the app’s owner creates a suitable end user licence agreement (EULA) which sets out the licence granted to users, states any restrictions on use/behaviour and sets out the owner’s privacy policy protecting individual personal data accessed and stored by the app.
Pricing and payment
In addition to agreeing the fixed price for the overall app development, it is important that the price is payable in instalments by reference to concrete, technical progress made in the development of the app. Accordingly, payment should be made against objective milestones so that if the milestones are not achieved, payment is delayed. Furthermore, there should be a suitable sum set aside at the end of the project (10-25%) which is only payable after a short period of “live” use of the app to ensure that there are no hidden problems or defects.
Privacy and Data Protection
Do bear in mind that there are no special exemptions in favour of the use of mobile apps so the general law in relation to data protection and privacy will apply in the same way as in any other context. Given that the thrust of these laws is to obtain informed consent from users to the way in which their personal data is obtained and used, the app needs to do the following:
- Set out the ways in which data is obtained, used and retained by the app
- Explain the different features of the app which obtain and use personal data
- Allow a user to accept or reject some of the app’s functionality rather than having a single “accept” button as this may not be seen as allowing informed consent to be given
Obtaining informed consent is not just a matter of complying with the law, it should be seen as a way of reassuring users that their personal data will be used in a responsible manner and so increase overall levels of confidence in the use of apps.
Compliance with platform providers’ terms
If you will be distributing your app via one of the main platform providers, you must ensure that the app’s functionality and content is compatible with that platform’s terms. In practice, the App Store’s terms are probably more prescriptive than most and they require that user’s consent is needed for some functionality and also prohibit the app being able to override some of the alerts provided by Apple.
In an ideal world, compliance with the relevant platform provider’s terms would be a condition of the development agreement and would be an obligation on the developer to ensure that the app complies with the platform provider’s terms. It may not be possible to get developers to sign up to this obligation on the basis that the platform providers do not generally make their terms well known and reserve the right to unilaterally amend them without prior notice.
Making money from your app
Although this area is primarily a commercial one, there are still some legal issues which can be touched on briefly. Historically, the most successful apps financially have been those which were initially free to download, with revenue generation coming after that.
- Pay per download – this is the most simple approach with a downloading fee being between 69p and £5; the downside is that there is no ongoing revenue stream and around 30% of the download fee will go to the platforms by way of commission. As with all apps, a suitable EULA needs to be put in place to govern liability/payment issues with users
- In-app purchases – this is generally a good model for games and apps which are suitable for subscriptions to related services or content. For any apps that are likely to be used by children, special care is needed as a result of the Consumer Protection Regulations 2008, as these make unlawful direct appeals to children to make purchases or to persuade their parents to do so
- Advertising – the normal approach adopted here is “pay per click” whereby revenue is generated based on users clicking through to an advertiser’s site; the advertising model is useful in that it raises revenue for the app owner and also subsidises the app, allowing it to be downloaded for free. A good example of an app making use of advertising is the Angry Birds lite version. If advertisements are going to be used, it is important to ensure that the content of advertisements is appropriate bearing in mind the app and the app’s target market
- Sponsorship – in return for featuring/advertising a sponsor, some/all of the app’s development costs will be covered with the potential for additional revenue streams to be earned through the app, usually dependent on the levels of interest raised for the sponsor’s organisation. In this type of arrangement, it is important that there is a clear agreement between the app owner and the sponsor in relation to matters such as IP ownership of the app and the parties’ respective obligations
- Subscription/pay-wall – this is a relatively rare approach so far and is likely to be limited to specialist services or publications such as the Economist or Financial Times which currently use it. Given the relative rarity of having to pay subscription fees for an app, there is clearly a heavy onus on the app to deliver high value content which is constantly being renewed in order to justify the subscription payment. Even where the app is marketed through a platform and subscriptions are payable direct to the app owner, it is likely that the 30% commission payment on any subscriptions will need to be made to the platform provider
Checklist of Legal Essentials
- Platforms - will you be using a major app platform? Which one?
- Procurement – consider more than one developer and follow up references/clients
- Specifications – ensure a clear spec is agreed with suitable acceptance tests
- Intellectual property – ensure that IP ownership is clear and that any third party licences are adequate to exploit the app properly
- Open source software – does the app contain any? Is open source software compatible with any app platform being used for distribution?
- Liability – needs to be limited/regulated by a suitable EULA and in relation to any development agreement, suitable remedies/damages must be retained
- Data protection – the way that personal data is obtained and used must be spelt out clearly for informed consent
- Making money – several approaches possible, but most successful apps usually available for free.
Clarkslegal, Grant Thornton and PocketApp recently held a seminar which explored the key legal, commercial and financial issues relating to developing mobile apps. If you would like to view the hand-out materials from this session, please contact marketing@clarkslegal.com.
