Legal Issues for Mobile Applications

pexels-photo-261706.jpegMobile application (App) development is progressively becoming one of the largest and quickest revenue generators for small and start-up technology companies. A new report from MarksandMarkets pegs the mobile App revenue growth at $25 billion by 2015 (up from approx. $6.8 billion in 2010). It is estimated that about 50 million Apps will be downloaded by 2012.

However, given the recent spate of lawsuits and consumer complaints, legal protection and compliance are becoming ever more important issues for mobile application development companies. Though the laws governing Apps vary widely depending upon the consumer base, nature of content, and the business model utilized for developing the App, it is important to consider at least the following aspects of App development and marketing:

Intellectual Property Right (IPR) in the App Software

The IPR in the App software is a copyright that its author enjoys the moment he or she writes the code. The ownership of such copyright might be complicated if the App development has been outsourced to a vendor, achieved through a joint effort, or derived from an open source software (OSS). Where all or part of the development of the App has been outsourced, the vendor agreement should ensure that the party financing the App development has acquired all IPRs to the software through a properly drafted “work for hire” clause. In addition, it is important to bind the vendor with a non-disclosure agreement to ensure strict confidentiality while your App is being developed.

When an App is developed through a partnership, each company owns the IPR only over the piece developed by it, in the absence of an agreement to the contrary. If each party involved in the development wants the ability to further exploit the App for commercial and non-commercial purposes, then the parties should execute an agreement of joint ownership of the App wherein which each party will be required to account to the other of the financial benefit derived from its use of the App.

A number of Apps today use open source software (according to a recent survey by Open Source, OSS is used in 88% of the Android phones and 41%of the IOS phones). IPR and end user licensing require special consideration in these Apps because the OSS licenses (GPL, LGPL, or Apache) have specific requirements for attribution, distribution, and non-discrimination with respect to the platform. Further, a single app might be developed using a combination of OSSs, each governed by a different license. A legally compliant launch of such an App requires (i) identifying the different components on the App software, the OSS license they are based on, and the compliance requirements for each license, (ii) drafting a terms of use statement that complies with all the required OSS license requirements, and (iii) identifying those components of the App software over which the developer can exert an exclusive IPR.

Intellectual Property Right in the Content

The App might use (i.e. display, reproduce, publish, modify, or make a derivative work of, etc.) copyrighted content such as images, videos, and sound recordings of others. Developers need to procure “rights clearance” from copyright owners in order to be protected against infringement claims. Clearance may exist for certain uses, such as in-store, but it is important to receive permission for use where such rights have not already been licensed.

Trademark issues might also arise if the App or its features are similar to a prior registered or otherwise recognized trademark. Trademark is a branding tool, and so the true test of infringement is whether the use of another’s trademark confuses the end user regarding the origin of the App. Thus, an App could infringe another trademark in a number of ways, including (i) if the name of the App is similar to an existing trademark, (ii) if the look, feel, and layout of you App is similar to that of a recognized mark, or (iii) if an existing trademark is used in the marketing or description of the App such that the end user is likely to be confused as to the source of the App. In order to avoid trademark infringement issues, the developer should identify the use of any prior trademarks in the App and inform the end user that the App is not sourced or endorsed by that trademark owner.

If the App allows for user contribution, then it is important to protect against vicarious liability from users who post infringing content. The Digital Millennium Copyright Act might help avoid such liability if the developer follows the requirements of its safe harbor clause, including (i) immediately removing the infringing material when a complaint is received or the App owner becomes aware of it, (ii) disabling repeat infringers from using the App, (iii) not receiving any direct financial benefit from the infringing activity, and (iv) adopting reasonable technical measures to avoid infringement.

Privacy and Data Collection Issues

As is evident from recent lawsuits against Apple for breach of privacy, data storage and privacy are becoming real concerns for end users. In Apple’s case specifically, the problem was that it was storing location based data of end users in an unencrypted form and using it for commercial purposes .While a monetary damage still needs to be established, failure to address end user’s privacy concerns could negatively impact the App’s consumer support and sale.

These concerns regarding privacy and data protection can be addressed by drafting effective terms of use and privacy policy statements that are reflective of the developer’s consumer base and privacy practices. The terms of use and privacy statements should at a minimum include, (i) what information is collected, (ii) how is it stored (iii) how is it used by the developer (iv) whether the information is shared with third parties, (v) how can the user opt out providing such information, and (vi) contact information for end user complaints of the user data. If the App does collect and share personal information, then the developer should get consent from the end user for doing so.

Additional considerations will arise if the App collects financial, personal, or health data, is targeted towards children, or further distributes this data to third parties, since specific laws govern the use of such information. For example, if the App is a game targeted towards children 13 and younger, then the App will have to comply with Children’s Online Privacy Protection Act. In addition, a number of states have their own regulations around privacy and data collection activities.

Jurisdiction

While the advice above has been provided only in reference to U.S. law, the App developer will need to consult and comply with laws in other countries where the App is being distributed. Consumer protection, privacy, and data protection laws in the U.S. differ widely from those in Europe, China, India, and other nations that might have heightened restrictions on such activity. If the App is being distributed in country apart from U.S., it is highly advisable to consult with an attorney or other expert in mobile and consumer laws of those countries.

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