Commissioning And Developing Mobile Apps – The Legal Landscape - Telecoms, Mobile & Cable Communications

Some recent industry figures

The mobile app industry continues to grow at an exponential rate, and remains at the forefront of technological expansion. According to new data from research firm Canalys, app downloads (both on tablets and smartphone devices) increased by 11% in the first quarter of 2013. The combined downloads from the four largest app stores - App Store (Apple), Google Play, Windows Phone Store, and BlackBerry App World - have exceeded 13.4 billion. Apple currently has more than 300,000 apps available to download just for its iPad tablet device. BlackBerry 10 devices are fast joining the race, with more than 100,000 apps now available compared to 70,000 at its launch in January 2013. Canalys also believes that the mobile app industry is fast becoming a maturing market – we wait to see. With a combined revenue share of $2.2 billion, clearly it is an active, dynamic and valuable industry to be in.

Some initial thoughts

We are increasingly seeing a transition from the reliance on fixed line connections and traditional computers for accessing content and connected services to mobile device access. This will also affect the uptake and importance of apps on mobile devices. Some anticipate that mobile devices may become the predominant means of accessing the internet, social media, software applications and connected services within the next five years.

A client in the creative digital media industry recently remarked that when he entered the industry seven or eight years ago, apps did not even exist (unless perhaps they were a twinkle in Steve Jobs' eye). With an ever increasing number of businesses developing their own apps to stay ahead of the competition, it is vital for businesses and app developers to consider some of the key legal issues which may arise throughout the various stages of the app development and roll-out cycle - from conception of the underlying idea for the app (and perhaps the business plan associated with that app), through its development, testing acceptance (both by the commissioning party and the relevant app store), to commercial exploitation of the app on a mobile device.

Who does the app belong to?

Identifying the ownership of intellectual property rights ("IPR") in and to an app is crucial for its successful creation, development, exploitation and protection. It is not uncommon for an app to be commissioned while the business it relates to is in its formative stages, when finances are tight and the commissioning party cannot afford to pay the developer's full costs up front. Often therefore app developers are commissioned, and carry out development works, without being remunerated (whether in full, in part or at all) and are promised payment once the app is up and running and generating revenue on mobile devices. This can be a satisfactory arrangement, but can also lead to disputes if no formal agreement has been entered into between the parties.

The basic legal position is that ownership of IPR in a mobile app (generally the IPR will be copyright) will belong to the individual developer of the app as the person who has created the IPR by writing the app's code. A primary exception to this is where the app has been written or developed by an individual in the course of his or her employment by another entity – in those circumstances the employer will generally be the owner of the IPR. However, the commissioning party who is paying for the development of the app will usually expect to own IPR in the app. To achieve this, an assignment of the IPR in favour of the commissioning party will be required. The assigned IPR needs to be carefully defined as the individual developer (or his or her employer) may wish to retain the rights to pre-existing generic code (or framework) which it has developed prior to entering into any arrangements with the commissioning party – developers often use similar pre-developed building blocks of code for multiple developments, and they will often wish to ensure that they are able to do this again. It is also important to note that payment for the development of an app by a third party commissioner does not automatically lead to a transfer of ownership of that app's IPR, and the developer may still retain ownership of the IPR to an app in such circumstances.

It is important for both parties that issues of ownership (and other agreed terms) are formally documented, preferably at the outset of the development, in a legally binding contract (often referred to as an app development agreement) or letter of agreement. Sometimes the parties will have agreed a 'heads of terms' or 'letter of intent' to set out the key commercial terms. These are useful to avoid misunderstandings later on but often they are not legally binding in most respects, so a formal development agreement should still be entered into by both parties.

Which platform/operating system?

Apple's iOS, Google's Android, BlackBerry 10, and Microsoft's mobile platform are the most popular operating systems currently seen on mobile devices. When the commissioning party is engaging the developer to create the app, the parties should agree on which platform(s) the app is initially intended to be launched and on which platforms the developer is required to develop the app. The parties should also make it clear whether the developer will be responsible for updating/replacing the app where an operating system is replaced with a new upgrade, version or completely new operating system.

Ownership of third party content accessible on an app

Depending on the practical applications and intended uses of a particular app, it is possible that third party IPR content (such as videos, music, imagery, text or recordings) may be displayed or accessed from or via the app. It will be necessary to ensure that a licence to display and enable access to such third party content is obtained prior to uploading it to the app or making such content available via the app.

Acceptance Testing

While the exact requirements for a particular app development should be set out in an initial specification or scope document (often agreed between the parties), it is not unusual for the parameters and practical applications of the app to change as the development progresses, both from the developer's perspective and as the commissioning party's business requirements evolve.

It is important for both the developer and the commissioning party to agree a process (and timetable) for testing and completing development of the app to ensure that it conforms to its initial specification and the business requirements of the commissioning party. Once that process has been completed and the app has been accepted by the commissioning party, many of the obligations of the developer will fall away and often the commissioning party will be required to make a payment to the developer at this stage (commonly this will be a pre-agreed proportion of the full payment agreed at the outset). The commissioning party will also lose its right to reject the application once this process has been completed and the app has been accepted.

An acceptance testing process should clearly set out what constitutes a defect or error in a particular app, and identify in what circumstances the developer may be required to fix such an issue. Agreeing a timetable will also be important for the parties (the commissioning party will want a completed product as soon as possible, and the developer will want to be paid). Such timetable should set out the parameters for identifying errors or defects in the app, periods for rectification of such defects, and what should happen in the event of a dispute regarding the app's completion.

Who is responsible for ongoing support and maintenance for the app?

Apps themselves, much like other software platforms, are constantly being fixed, patched and upgraded, and evolving their content and practical applications (not to mention being upgraded to remain up to date with particular operating systems, which will regularly be upgraded, patched and fixed themselves).

It will be necessary to establish at the outset of the relationship between the commissioning party and the developer what the ongoing support and maintenance obligations will be for the developer (and in any event this should be agreed before the acceptance testing process is complete and the app is submitted to a particular mobile platform's app store). It is usually a requirement that the developer will have an ongoing responsibility to rectify any faults which are identified in the app and/or carry out any bug fixes for a particular length of time after the app has been completed.

Upgrades and maintenance will often be necessary to ensure that the app is fully functional and remains up to date with the latest operating system for any particular mobile device. Both parties should discuss at an early stage what the ongoing obligations on the developer should be – whether there are ongoing maintenance requirements or requirements to upgrade the app, and if so whether there will be an associated additional cost. Such cost may be agreed on an ad hoc basis or may be agreed as part of a more complex payment mechanism (often depending on the value and complexity of the app itself).

Open Source software

Given the spectacular pace at which the app development market has evolved in recent years, the use of open source software ("OSS") in the development of apps has become widespread. While issues associated with the use of OSS are not considered here in detail, it is important both for an app developer, but also any commissioning party, to be aware of the extensive number of licences which can apply to OSS and how they operate (for example, the extent to which the licence terms for such OSS enable a developer to modify or redistribute a particular piece of software or any derivation of that OSS), and be aware of possible implications of such terms and of using such software in the development of an app.

While the app will need to be compliant with relevant OSS licence terms, such OSS terms themselves can be incompatible with the terms of use of app stores of companies such as Apple, creating an issue with using certain types of OSS in the development of iOS mobile apps. Developers should constantly monitor and keep records of the OSS they use, to ensure that they do not produce an app which will not be compliant with the terms of a particular mobile operating platform. Further details of individual OSS licences can be found at the Open Source Initiative website (http://opensource.org/).

Liability for infringement of third party IPR

It will always be advisable for the commissioning party to ensure that the developer will be liable in the event that the app infringes, or it is alleged that the app infringes, any third party IPR – i.e. that the developer has used IPR belonging to a third party in the development of the app which it does not have the right to use. The most common way for the commissioning party to achieve this contractually is to obtain an IPR indemnity from the developer. Equally, the developer may seek similar contractual wording to protect itself in respect of any documentation, media, materials or data provided by the commissioning party.

Acceptance and approval by the mobile OS provider

Once the acceptance testing process for an app has been completed and the commissioning party is satisfied with the finished product, the app may have to be submitted to the app store for the relevant operating system on which the commissioning party wishes the app to be used. Apple must approve apps before they are permitted on its iOS and uploaded into the App Store, and apps on the BlackBerry App World will similarly have to be approved by BlackBerry. The acceptance criteria for apps to be added to a relevant app store are relatively opaque (Apple, Google, BlackBerry and Microsoft keep tight reigns on the control of their app stores, and the apps permitted on them), but the approval process involves testing for reliability (both stability of the app itself and the content which it contains or intends to allow access to). Once an app has been accepted for use on a mobile device it will be subject to certain terms and conditions which relate to the operation of the app and the obligations on its owner, as set out in the applicable licence terms from Apple, Google, BlackBerry and Microsoft.

Other IPR Issues

Trade Marks

Protection and development of an app owners brand will always be a key concern for any business and any app which is being developed. It will always be advisable at the initial development stages for a brand (and particularly the development of a business' trade mark) to carry out trade mark searches to ensure that a new brand does not infringe the marks of any third party.

If there are any trade marks associated with an app, it may be advisable to register that trade mark (in the UK, the European Community and any other jurisdiction where the app might be used) to protect the app and the brand as a whole. Trade mark infringement claims have previously been successfully used as a means of removing apps from relevant app stores (notably in relation to the Minecraft game app).

Compliance with Local Laws, Data Protection, Terms and Conditions, Privacy Policies and Cookies Policies

Apps, like so many products associated with the internet and e-commerce, are inherently international in their applications and access to markets. App developers will need to ensure that they comply with all local laws where they may be accessed and used – including local intellectual property laws, data protection laws and consumer protection laws.

Apps increasingly use and process consumer data and sometimes pass that data on to third parties. This means that both the party commissioning the app and the developer must be aware of and comply fully with any local data protection requirements. In the UK, the position of the Information Commissioners Office is that apps are to be treated in the same way and subject to the same regulatory framework as websites – i.e. app operators must ensure that consumers are made aware of the way in which their personal data is stored, processed and used.

In the UK, it will be necessary to ensure that each app has its own legal documentation, including the general terms and conditions setting out how the app should be used, a privacy policy setting out what consumer data the app uses and how that is processed and stored, and a cookies policy setting out how (if at all) an app uses cookies with consumers and why it does so.

Insolvency and Escrow

As with more standardised software development arrangements, the commissioning party may wish to ensure that the source code for a particular app should be placed in escrow – the deposit of the source code of software with a third party escrow agent (and an appropriate agreement being put in place to that effect) to protect the commissioning party in the event that the developer ceases business or becomes insolvent. This would ensure that the commissioning party will be able to operate and maintain the app going forward if the developer failed to do so.

Summary of issues to consider when negotiating an App Development Agreement

For many of the reasons above, it is essential both for a party commissioning the development of an app and for an app developer (whether an individual or a business) to enter into an app development agreement to clearly set out (a) what the final app should look like and how it should function, (b) who should own it, (c) how it is paid for, and (d) the ongoing rights and obligations on both parties as the app is developed, completed and exploited on a mobile device. Below is a shortlist of some key issues to consider when negotiating an app development agreement:

There should be a full specification for the app, and details of how it is intended to function. This is best developed by both the commissioning party and the developer together, so they can clearly map out how the app can function in practice and how the commissioning party would like it to work.
Who will be engaged on the project and to whom should each party report?
Who will own any copyright/IPR in relation to the app and where will it be stored?
What are the arrangements for payment of the developer? This is usually agreed in stages depending on development/completion arrangements for the app.
What is the timetable for the development process?
How will the app be tested and accepted? What is the timeframe for any such acceptance testing?
What steps need to be taken to ensure that the app is accepted on the operating system platform for which it is intended?
What are the ongoing maintenance and upgrade obligations for the app once it is in the marketplace?

Some final thoughts

Apps have grown exponentially in their scope and application, and are now very important tools for both consumers and businesses alike. Indeed apps now provide access to key products and services for many businesses in the technology, commerce, media and entertainment, telecommunications, finance, social media and games sectors (to name just a few). It is therefore becoming increasingly important that parties formally document their app development arrangements as soon as possible at the outset of the development. This will allow them to appropriately manage the development process, to set each party's expectations and should help to avoid any subsequent misunderstandings and disputes.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

UK: Commissioning And Developing Mobile Apps – The Legal Landscape