Driven by the rise of smartphones and other mobile devices, together with decreasing data costs, the multi-billion dollar global market for apps continues to grow. If your business is considering developing an app, what are some of the issues you should consider?

Before you start

Before investing time and money in the development of an app, it is key to understand the market for which the business is developing the app (including by carrying out market validation), know what has already been done, and be aware of apps with similar names or functionality.

Prior to sharing an app idea with potential app developers, partners, investors, or other third parties, businesses should consider executing a confidentiality agreement to protect any sensitive information.

Platform considerations

A key initial consideration to have prior to the development of an app concerns the underlying platform, which is the operating system used by the device on which the app will run, for example, Android (Google), iOS (Apple) and Windows 10 Phone (Microsoft). 

When choosing a platform, consider the following issues:

  • What is the current mobile operating system market share (Android and iOS are the two dominant platforms);
  • Through which channels is the app intended to be distributed? iOS apps can only be distributed via the Apple App Store; Android apps have multiple distribution channels;
  • Will the app be best accessed on smartphones or tablets? Although Android is the dominant mobile operating system, Apple iPad is leading tablet application usage;
  • Are there any restrictions imposed by the platform regarding content, appearance etc?

Developing the app

IP ownership

Developing an app and bringing it to market typically involves a number of contributors, each likely to hold certain rights in the work they complete and the content they create. If a business is developing an app for its own business purposes it will most likely want to own the copyright and any other intellectual property (IP) in the app given its financial investment.

Copyright protection extends to the particular form in which an idea is expressed. In the context of apps, copyright law protects the original source code (i.e. computer code that a human can develop and understand, which is then compiled into object code that a computer is able to execute) and other original elements, such as artwork, sound and video recordings. Copyright protection in New Zealand is automatic. The general rule is that the person who is the author of a work is the first owner of any copyright in the work.  In the case of an app, copyright in the app will be owned by the developer of the code from the moment he or she writes it.  In New Zealand there are two notable exceptions to the general rule:

  • Employment: when the code is written by an employee in the course of his or her employment the employer will be the first owner of the copyright; and
  • Commissioning:  when the code is commissioned from a developer for payment the commissioning party will be the first owner of the copyright in the code.

Ownership of the app will likely be an issue when some or all of the development of the app is outsourced to an independent contractor developer. In such cases, it is crucial for the business to address ownership of the app with the developer at the time of engagement, rather than remain silent on ownership and have to rely on the commissioning rule as discussed above. The best way to do this is to ensure that the app development agreement includes a well-drafted IP clause which clearly states that the business owns all of the IP in the app (other than third party IP).

Apps often require the use of material in which IP is owned by or licensed to others. It is important to conduct appropriate checks on any content, icons, images, fonts, music, sounds, recordings or other elements that are to be used for or in the app to evaluate whether a licence is required for the particular use.

Registered developer agreements

If a business is developing its own app, or engages a third party to develop the app on its behalf, the business (or that third party) will need to comply with registered developer agreements which: (a) govern the relationship between the business developing the app and the platform operator; and (b) specify the terms of use for Software Development Kits, which are used to develop the app (SDKs). For example, in the case of iOS, a business developing an app must agree to the terms of the iPhone Developer Program Licence Agreement.

Some terms to look out for in registered developer agreements include those limiting or prohibiting:

  • public statements made by the developer of the app;
  • app distribution;
  • bug fixes and security releases;
  • the platform operator’s liability for damages;
  • app look and feel; and
  • access to the SDK or any features within it.

App development agreements

If a business engages a developer to create an app for it, the parties should enter into an app development agreement, which governs the relationship between the business and the developer it engages to write software for the app. As discussed above it is key that the agreement contains a well drafted IP clause. Other clauses should address:

  • the commitment of the developer to develop the app to the business’ specifications and requirements, within an agreed timeframe;
  • acceptance testing, where the business tests the app to verify that it meets, functions and performs in accordance with the agreed specifications and requirements;
  • warranties such as the app: (a) functions and performs in accordance with the agreed specifications and requirements; (b) is free from material errors and defects; (c) is free from viruses; (d) does not infringe the IP rights of any third party; and (e) complies with all applicable terms and conditions of the relevant platform operator(s).

If a developer seeks to limit its liability (e.g. by capping its liability or excluding liability for indirect or consequential loss) then a business should consider whether such limits are appropriate.

Branding the app

Copyright protection does not cover the name of an app, which can be important to the app’s success. A business should consider registering trade mark(s) not only to protect the brand of its app but to develop that brand. An example of a highly successful branded app is Angry Birds. Rovio Entertainment, who owns the viral app, recognised the growing Angry Birds obsession and capitalised on it by expanding the brand into new games, merchandise and apparel. Nintendo has for decades registered the Pokemon trade mark worldwide and will no doubt be capitalising on, and/or enforcing, its rights during the current Pokemon Go craze.

Licensing the app 

Once a business has developed an app it will want to make the app available to its end users. Generally, apps are licensed, not sold, to end users. Prior to distributing an app, businesses should ensure they have an appropriate End User Licence Agreement (EULA) in place and that end users agree to the EULA before the app can be downloaded or installed on their devices. Apps made available through the Apple App Store are subject to Apple’s standard EULA, unless the end user enters into a separate EULA with the business.

EULAs should address:

  • the scope of the licence and any restrictions;
  • the consent of the end user for the business to use any data collected or generated by the app (including technical data about the user’s device that is gathered by the app);
  • information about mobile data usage and costs;
  • the business’ privacy policy;
  • how user generated content is dealt with;
  • payment terms (e.g. if there are in-app purchases);
  • limitation of liability for the business, and exclusion of any warranties that the business is not prepared to give;
  • exclusion of liability for third party IP or product claims; and
  • if relevant, warnings relating to the usage of mobile devices when driving (an act prohibited by law in New Zealand).

In drafting an EULA, businesses should be aware of the unfair contract terms provisions in the Fair Trading Act 1986 (UCT provisions) which came into force on 17 March 2015.  The UCT provisions apply to all standard form consumer contracts entered into on or after 17 March 2015, and also to standard form consumer contracts that are renewed or varied after that date. Given that EULAs are not negotiated with customers (i.e. offered on a “take it or leave it” basis) they are very likely to be subject to the UCT provisions, and must not contain any “unfair” terms.

Compliance with the law

Following the launch of an app, it is important to ensure that the operation, promotion, and expansion of the app complies with all applicable laws and regulations. Two main issues are consumer rights and privacy, both of which are becoming increasingly scrutinised internationally:

  • Privacy: to ensure compliance and minimise the risk of liability resulting from privacy breaches, businesses should develop a privacy policy that accurately and fully discloses the app’s information practices, including its collection, use, disclosure, and storage of personal information. The New Zealand Privacy Commissioner has released the guide “NEED TO KNOW OR NICE TO HAVE: Making app privacy your competitive advantage”, which gives guidance for businesses developing apps on how to make app privacy a competitive advantage.
  • Consumer law: given that apps have cross-border reach, businesses should take a global approach to consumer law issues so as to minimise the risk of non-compliance in any jurisdiction. As a general rule, apps should: (a) not be advertised as "free" unless there is no cost to the user; (b) not mislead users as to the true costs involved in using the app; (c) avoid direct provocation to children to make in-app purchases; (d) adequately inform users about the payment arrangements for purchases and/or upgrades and should not be debited through default settings without users’ explicit consent; and (e) be upfront about any third-party advertising that may appear in the app.

Conclusion

There are a number of commercial, technical and legal issues that should be considered by a business that wishes to develop an app for its business purposes. The development and uptake of an app is more likely to be successful if all of these issues are carefully considered and addressed.