The App Explosion - How Businesses can benefit

What businesses need to know about creating their own mobile apps

Tags: Apple IncorporatedApple appsDLA Piper Middle EastIPadIPhone
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The App Explosion - How Businesses can benefit The explosion of Apps for smartphones creates a new channel to customers for many businesses. (Getty Images)
By  Chris Edwards Published  February 24, 2010

The launch of Apple's iPhone not only marked a milestone in mobile handset functionality but also spawned the creation of an entirely new market for mobile software. Small-scale software applications providing an array of tools, entertainment and information, now commonly referred to as ‘Apps', have experienced astounding growth over the past 18 months. With the release of Apple's latest gadget, the iPad, Apps look set to continue in popularity amongst software producers and tech-savvy customers.

Businesses in the region are now starting to move up the ‘App' adoption curve - seeking to tap into a customer audience eager for innovative ways to engage and experience companies' products and services. Examples include: Etihad Airways, who recently introduced an App allowing its guest members to redeem reward miles; view account information and check partner promotions, and ARN's Dubai 92 radio station App that provides a listener with the ability to tune into the station on their iPhone or iTouch.

Yet, for all the success, the fledgling App industry is already littered with stories of alleged intellectual property rights (IPR) infringement, costly litigation and Apps being pulled from sale due to containing obscene content. Therefore, businesses wishing to tap into this market need to carefully consider a whole range of legal and commercial issues. Failing to assess risks at the outset has shown to lead to wasted expenditure, reputational damage and financial liability.

This article outlines: some of the current trends in the App industry, the process around App development, and certain key legal and commercial issues which businesses should be considering when launching their own Apps, specifically through Apple's App store.

The App Industry

Apple has led the way in the App space since opening its App store in July 2008. Since then over 3 billion Apps have been downloaded by end-users. At the time of writing, it is estimated that the store contains over 130,000 Apps available for download.

In response to Apple's dominance, the world's largest telecoms operators and manufacturers recently announced the creation of the Wholesale Applications Community at the Mobile World Congress in Barcelona. We suspect the community will seek to create open standards and platforms enabling consumers to use Apps on a variety of devices and networks.

Along with increasing competition, it is clear the App market is growing exponentially. Gartner has predicted that global spending on Apps in 2010 will reach $6.2bn on 4.5 billion downloads rising to almost $30bn on 21 billion downloads by 2013.

Launching an App

A business looking to launch its own App will normally either instruct a third party to develop the same or task an existing employee. In either case, the following administrative and commercial issues should be kept in mind.

Development

To develop Apps for Apple's products, developers (who as mentioned may be a business's employee, a third party supplier or perhaps a freelance developer) must first register with Apple as official developers at an annual cost of $99. The developer can then download Apple's software development kit (SDK).

The SDK provides developers with a set of software development tools, modules and technical notes to be used for the sole purpose of developing and/or testing developed Apps. Once an App is completed - the developer can then submit it to Apple who reserve the right to approve or reject any App at its sole discretion. If approved, the App is then released on to the App store for end-users to download.

App Pricing and Revenue

The issue of charging for Apps is a critical one. A business that seeks to sell its App at a cost via Apple's Apps store can expect, we believe, to receive 70% of the price of the App on a monthly basis.

Businesses may decide to provide Apps for free where they are merely extending the reach of their products and services available elsewhere on the internet (eg. newspapers, airline bookings, radio streaming). Yet, real value-added and/or bespoke content rich Apps may necessitate a fee in order to reclaim costs relating to development and content production (eg. specialist games).

App(le) legal and commercial ‘iRisks'

The development and commercialisation of Apps provides a multitude of legal and commercial issues for businesses. This section attempts to outline some of the key issues which businesses are likely to encounter in pursuing the creation of their own App.

Ownership

As an App is software, in most jurisdictions it is a form of copyright - an IPR which seeks to protect the form of expression of ideas. Generally speaking, it is intended to reward authors for the creation of original works.

The terms on which developers can use the SDK indicate that developers using content must either own it or have permission from the owner to use it in the App. Therefore, businesses looking to use third party content (e.g. pictures, music, graphics, text) in their Apps must ensure they enter into (or have already entered into) licence agreements with the owner(s) of the same allowing use of the relevant content in an App. Further, "master recordings or musical compositions" must either be owned by the developer or licensed to it on a fully-paid up basis - ie. no further monies or royalties being due to the owner of the musical piece.

Businesses should be aware that Apple themselves have terminated SDK agreements and pulled Apps from its store for alleged intellectual property rights infringement, as seen in the case of the developer Perfect Acumen.

A business should have policies/agreements in place to ensure that where its employees or suppliers create IPRs for the business (including in relation to Apps), that such IPRs, as a general rule, vest on creation in the business. In this regard, a business should ensure that any arrangement with a third party supplier for developing Apps is covered by a bespoke software development agreement. This agreement will need to carefully delineate the parties' ownership of, and rights in, the final developed App (as well as all prior versions).

In addition, businesses in certain jurisdictions may wish to register the copyright in the App. This may provide them with additional protection in the event of a third party infringing that copyright. Local legal advice should be obtained in respect of this and any other IPR issues.

Content

Businesses should be aware that the inclusion of any content within its App which could be construed by Apple as, "obscene, pornographic, offensive or defamatory" is likely to result in a failure to receive approval.

Where Apps do pass the approval stage they may still be subject to being pulled from the App store at a later date, as happened with Baby Shaker, an App which utilised the iPhone's functionality to mimic shaking a crying baby.

Prior to providing its App for approval, a business should scrutinise the App for any material or content that could possibly fall into the above categories. However, it is appreciated that the concepts are broad and, in certain circumstances, it may be difficult for a business to determine whether its App may fall foul of Apple's restrictions.

Functionality

A business should make itself aware of any restrictions around the functionality that can be contained in its App. For example, an App that unduly burdens a cellular network's capacity or bandwidth may be refused approval. Clarification may need to be sought where an App utilises large amounts of bandwidth.

Also, to date, any App which appeared to be competitive or duplicate offerings provided by Apple (e.g. iTunes, Safari internet browser) have not been approved for the App store. However, this initial restrictive approach could be relaxing somewhat with some commentators suggesting Apple may allow internet rival browsers such as Opera and Firefox to launch Apps. Businesses should consider if its App could in anyway be deemed to be competitive with Apple's existing services/products.

Use of Free / Open source software

The use of free and open source software (FOSS) code in Apps is prevalent. Essentially, FOSS-licensed code can be used by any developer as long as the derivative works arising from use of the FOSS code are made available in source code form for redistribution (FOSS is a vast topic in itself to be dealt with in a future legal download article). The key issue here is that businesses should be alive to the possibility of FOSS code in an App ‘infecting' proprietary code used in the same. In this scenario, an App containing both FOSS and proprietary code may need to be made available for redistribution. The loss of IPR protection for a business's proprietary code could be extremely damaging, in both financial and reputation terms.

It is possible for FOSS and proprietary code to be used in the same App without the entire product being ‘infected'. However, this will depend on the terms of the particular FOSS- licence covering the use of the FOSS code in the App.

Businesses should note that Apple insist that App owners comply with any relevant FOSS licence terms. We recommend that this issue is considered carefully and businesses obtain expert technical and legal assistance to assess the likelihood of infection occurring.

Data protection/privacy

Businesses should comply with all relevant data protection legislation in relation to its App. In particular, any App which seeks to use the end-user's location as part of its functionality should, we suggest, first seek consent from the end-user. For example, an end-user utilising an iPhone App such as Google Earth will commonly encounter an approval screen prior to their location data being used to locate a nearby restaurant. In addition, it is advised that express end-user consent is sought where an Apps records an end-user's voice in any manner.

A business should seek specific legal advice in relation to its App if it seeks to obtain personal customer data or information in any manner.

End-user terms

Once an App has received approval from Apple, it is placed on the App store for end-users to download. The terms upon which an end-user obtains and utilises the App is covered by an Apple standard end-user licence agreement (EULA). However, Apple do allow App owners to provide their own end-user terms if necessary. Therefore, a business must understand the EULA terms in case it requires additional bespoke terms for its App.

The standard EULA contains a number of important provisions that protects the App owner in the case of problems incurred by an end-user. For the purposes of this article, we touch on just some of the important aspects and protections that the standard EULA provides:

  • No distribution/copy - An end-user is specifically restricted from making an App available over a network where the App could be: (a) used by numerous users or (b) copied / modified in any manner.
  • Consent to use technical data - By using an App the end-user agrees that certain technical data relating to the end-user's device, system, application software may be gathered and utilised by the App owner.
  • Services disclaimer - The App owner is not liable for any offensive, indecent or objectionable content that is obtained / accessed by an end-user through an App.
  • No warranty - the App and related services are provided on an "as-is" basis and all warranties in relation to quality and condition are expressly excluded. However, businesses should be aware that in certain jurisdictions the exclusion of warranties when contracting with a consumer may not be valid. Specific legal guidance should be sought in this regard.
  • Liability - The EULA provides a broad exclusion of an App owner's liability to end-users and caps liability in any event to $50.00.

General

Despite the specific focus on Apps for Apple products, many of the topics and issues outlined in this article will be relevant to businesses looking to broaden their engagement with customers via mobile Apps on many platforms.

In addition, a multitude of issues, not referred to in this article, will need to be considered by any business seeking to launch its own App, such as: the treatment of revenue for tax purposes; compliance with specific local laws, customs and social norms of the business' home jurisdiction, and, where applicable, differences in legal terms governing development of Apps for non-Apple devices.

Conclusion

The increasing competition from the telecoms industry to Apple's initial dominance and the incredible growth predictions for the market will ensure Apps continue to be a hot topic in the technology world for some time to come.

Businesses wishing to partake in the App market need to be alive to the relevant legal and commercial landscape. Local specialist legal advice should be sought to minimise risk and create the platform for App success.

Chris Edwards is Senior Legal Consultant with DLA Piper

2766 days ago
Jason OKeefe

Great article and highly informative, thank you. Two things are think are missing are considering the costs associated with the internal developer(s). Not only must they purchase Apple's SDK, but they must also purchase Macs as the SDK does not run on Windows. Most enterprises do not use Macs, so right there is an additional cost of a few thousand dollars. Second, we've learned, Genuitec, that most enterprises are opting to move to the mobile Web for creating smartphone apps. This is so for a few reasons, the costs are much lower and any smartphone can access the Web - so their app is not limited to the iPhone. Thanks again for the informative piece. Jason

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