Legal Issues: Better Safe than Sorry
Roy has been involved in a number of legal actions, and he can tell you that they’re never fun. A basic understanding of how the law impacts you as an app developer can keep you out of trouble. We aren’t lawyers, and so we can’t legally give you any specific legal advice. That said, maybe we can recommend some legal resources that you might find useful to avoid unnecessary unpleasantries.
Retaining an Attorney – Controlling Costs
You may be hesitant to involve an attorney because of the cost. Although attorneys are rarely inexpensive, they often cost a lot less than the consequences leveled against you. If you have any doubt about the legality of your app, or if you have any uncertainty about legal matters, you should get in touch with a lawyer immediately. Big name firms are great at what they do, but they are also very expensive. If you are working with limited means, you should consider going to a smaller law firm or perhaps to a single attorney working on his or her own. Often their rates will be more reasonable than at the big firms. Although they may not have the depth of expertise that a big firm does, they generally will do just fine at providing basic legal services. Ideally, you can find an attorney who has previously worked at a big firm and now has struck out on their own. They will have the experience of working at a big firm, but will charge more reasonable rates.
Remember that it is possible to negotiate rates with attorneys. If you meet with more than one firm, you will have more leverage to negotiate. For run-of-the-mill work (such as incorporating your company or writing generic employment contracts), it is often possible to request a fixed fee. You can then shop around between firms to make an apples-to-apples comparison of pricing.
Young lawyers, known as “junior associates” are generally only a few years out of law school and usually require on-the-job training. Be careful that you aren’t paying to train an attorney. You can request the law firm not to use junior associates on your account. Typically, you will either want to have a partner at the firm do your work, or work with a senior associate. Only work with junior associates who have already done the type of work you are looking to have done. A typical arrangement is for the junior associate to do most of the work, which is then reviewed by a partner at the firm. Naturally, if a junior associate isn't doing things correctly, you're paying for the partner to fix his errors. You should be careful that you aren’t paying for lawyers to meet with each other. In general, the fewer lawyers you involve, the more efficient the process will be.
If you are developing your app with a mindset to raise money from investors, you can sometimes convince attorneys to provide consulting without upfront costs, in an arrangement known as “deferred compensation.” This typically results in some number of billable hours that are not charged until your company reaches a financing threshold agreed upon by you and the attorney. The attorney may also negotiate for some equity in your venture. Once you reach the financing threshold (often your first round of funding), you will be required to pay your outstanding balance. This sort of deal is generally offered only by firms who specialize in helping startups. This field is known in the industry as “Venture Capital Law.” Often venture capital law firms will waive compensation if your company is unsuccessful in meeting its funding goals and is forced to dissolve. The specific terms often depend on your ability to sell yourself and your idea to the attorney. Remember, this payment structure is contingent on the idea that you are looking to raise enough money to more than cover your legal expenses. A venture capital law firm may offer you $10,000 to as high as $25,000 or more, in deferred consulting services. Remember, deferred doesn’t mean free; you should be careful you aren’t being overcharged for services. Unscrupulous attorneys may charge you more for the equivalent service because they know you will not be as attentive to costs with this billing structure.
The process of raising money from outside investors is a topic beyond the scope of this book, but remember that if you pursue that option you will be diluting your ownership in the company and using a lot of your time to fund-raise instead of building out your idea. If you believe the market is big enough, it can be a good choice, but there are pros and cons to consider.
Remember that you want to be careful about what terms you accept when you engage a lawyer. If you go to Best Law Firms, a web site from US News and World Report ( http://bestlawfirms.usnews.com/ ) you will see a search engine that will help you find a law firm in your location for practice areas such as “Venture Capital Law” or “Corporate Law.”
Forming Your Company
If you release an Android application under your own name, the law considers the business to be a sole proprietorship. You can certainly call your business whatever you want, but as a sole proprietorship, you are personally liable for any debt, wrongdoing, and/or negligence. For example, if you order supplies and can’t pay them back because revenue is less than you projected, then you are personally liable for the debt. If your mapping app causes someone to drive off a cliff, they could, in principle, sue you personally for injuries. On the other hand, when the app is owned by a corporation (including LLCs, or limited liability corporations), liability generally attaches to the separate legal entity. To explain this in a bit more detail, the formation of the legal entity separates the assets and liabilities of the business from the assets and liabilities of the owner or owners. Therefore, it is often desirable to form a corporate entity to shield yourself against lawsuits and debts attributable to the app you have written. There are also some potential tax advantages to forming a corporation; you will be able to write off certain business expenses, which could save you money in the long term.
Remember that you have to be careful to honor the separation of assets and liabilities, or the courts may not shield you from personal liability. For example, if you use the company’s funds for personal matters, that would clearly violate the idea that your personal assets and corporate assets are separate. It’s also illegal and could result in charges of embezzlement from your creditors or shareholders.
There are different types of corporate entities you can pick from. C Corporations, S Corporations, and Limited Liability Companies (LLCs) all have their own unique advantages and tax implications. There are many books on this subject written by legal experts, and because we are not lawyers, we refer you to them for more details.
EULA and Privacy Policies
A EULA is an “End-User License Agreement.” Most often, a EULA presents your users with fancy legalese that they must agree to in order to access a web site or install a software package.
In essence, a EULA is a contract between you and your users. It establishes the terms and conditions under which an end user may use your app. A EULA provides a way to protect yourself from lawsuits in the event that the software causes damage to the user’s computer or data, or by users who use your app in ways you never intended. For example, if your app is used to prepare taxes, you could use a EULA to limit damages when users use your software incorrectly and are subsequently penalized by the IRS. And by the way, if that’s your app idea, we urge you to talk to a lawyer before going any further.
There are many complex legal issues governing the legal enforceability of EULAs, so if you feel your app needs one, again we urge you to contact an attorney with experience drafting contracts of this type. Many Android apps go without EULAs, and often it is the larger app companies (which can afford lawyers) that include them. However, each situation is unique, and you should think deeply about whether you are willing to go without the legal protections that a EULA affords you.
Examples of EULAs can often be found online. There are an infinite variety of EULAs, and it wouldn’t be possible for us to recommend one to suit your particular needs. As always, we urge you to speak with an attorney if you have questions regarding this topic.
If you elect to include a EULA, you will want a way to programmatically display it in your app. Sample code to do just that can be found here:
http://blog.donnfelker.com/2011/02/17/android-a-simple-eula-for-your-android-apps/
A number of jurisdictions worldwide consider the right to privacy to be a legally protected concept. In particular, Europe has highly developed laws in this area. Although the United States has no federally mandated privacy policy requirements, both California and Connecticut require privacy policies for web sites and online services. As a result, to ensure that your app is legal in all jurisdictions in which it may be used, you should include and follow a privacy policy. In general, you need to be up front with the users as to what data you collect, and properly secure any personal information such as credit card numbers, driver’s license numbers, and so forth.
The Mobile Marketing Association (a global nonprofit trade association) provides a free Mobile Application Privacy Policy that you can use. The policy is short at six pages, and all you need to do is fill in the blanks regarding your app’s specifics. You can get the policy from the following link:
http://www.mmaglobal.com/node/18771?filename=MMA_Mobile_Application_Privacy_Policy_15Dec2011PC_Update_FINAL.pdf
The Google Play Marketplace considers privacy of vital importance, so in addition to showing the user what your app will access (location, contacts, etc.) it also provides an optional link to your privacy policy. You can also host a web site that includes your privacy policy.
Although the privacy policy is currently optional, an agreement made by Google and five other major tech sector companies with the California Attorney General makes it likely that they will become mandatory sometime in the near future. It should go without saying that you must comply with the stated terms of your privacy policy. If you don’t, you could be prosecuted under a number of laws, including California’s Unfair Competition Law and/or False Advertising Law granting “the right of the public to protection from fraud and deceit.”
You’re planning to make money by distributing something that’s really just a bunch of programs and data sitting in memory. Fortunately, even though software isn’t a physical object, you can still protect it from theft just like real property. On the flip side, you can also be accused of stealing intellectual property. We think you’ll agree that a little background on the laws of intellectual property is something every developer should have. Let’s focus on four different flavors of intellectual property: copyrights, trademarks, trade secrets, and patents.
A copyright gives a creator of an original work (such as a book, photograph, or software) an exclusive right to it for a limited time. Specifically, a copyright holder is granted the right to dictate who can copy, distribute, publicly perform, modify, or create derivative works from their original work of authorship. This means that as the creator of an app, you alone have the right to copy, sell, or transmit the app for the duration of the copyright. Of course, you can assign that right to others if you choose. In most jurisdictions, a copyright lasts at least 50 years after the author’s death. It’s often longer than that.
For these reasons, you might be interested in obtaining a copyright. The good news is that it’s very easy to get. In legal terms, the moment that you put your pen to the paper or type characters into the computer, copyright protection is granted. Copyright can protect aspects such as source code, graphics, sound effects, and other original creative works you put in your application, but it does not protect any facts or ideas that are not used in a creative or artistic way. To protect an invention, you should get a patent, as discussed in the “Patents” section later in this chapter.
Obtaining a copyright can give you a base level of protection that would come in handy when suing an obvious imitator of your work The emphasis in that last sentence is obvious because copyright protection can extend for cases when your competitor is stealing graphics or the application itself, but not be applied when an imitator’s application is coincidentally the same basic idea as yours.
Registering your copyright isn’t required in order to benefit from copyright protection. However, copyright registration is prima facie evidence of a valid copyright. Registration enables the copyright holder to seek statutory damages and attorney’s fees if filed within 3 months of publication or before there is an infringement. Otherwise, the owner can sue only for actual damages and profits.
Registration, which can be done online, requires that you upload the first 25 and last 25 pages of your source code (preferably in PDF format). It is up to you to decide what the first and last pages of your application are. Every new version of your application must be re-registered. You can also register screen shots of your application. Detailed instructions can be found here:
http://www.copyright.gov/circs/circ61.pdf
Although not required to enjoy copyright protections, including a copyright notice (whether in words or with the copyright symbol) can help to overcome a presumption of “innocent infringement.” In other words, if the copyright violator saw that your work was copyrighted, the act of copying it couldn’t have been innocent.
The current filing fee is $65, but it is only $35 if filed online at http://www.copyright.gov/eco/ . You can find answers to a lot of your electronic filing questions at the tutorial available at http://www.copyright.gov/eco/eco-tutorial.pdf .
Now let’s talk about trademarks. Trademarks are intended to keep others from confusing your company’s products and services with someone else’s. A trademark does not protect the concept or idea, but it will protect you from others operating under your name and logo, or its likeness. In today’s market, protecting your brand is extremely important. Think about companies such as McDonald’s, Microsoft, and, for the sake of argument, Google’s very own Android. No doubt images of their logos come to mind: the golden arches, the Windows symbol, and that green robot guy, respectively. Trademark law keeps competitors from using those logos in a way that could confuse consumers.
Trademark rights are not granted automatically, unlike copyrights. However, you may be able to pursue legal action for an unlicensed trademark under a common law principle called “passing off.” The moment you use a name or symbol as an identifier for your Android application, you may have access to protection under that law. However, the law requires that you establish that there is “goodwill” owned by the trader, namely you. That will be difficult to do unless you have a bunch of customers that know you by your mark. Within the United States, you might want to secure better protection by filing a trademark registration with the U.S. Patent and Trademark Office, which is needed to pursue a trademark action in federal court. Once your trademark is granted, you get protection without having to prove that your mark is well known. Outside of the United States, you will find that most countries offer similar trademark protections as dictated by the World Trade Organization’s TRIPS (Trade Related Aspects of Intellectual Property Rights) agreement. It can be expensive to pursue trademark protection on a worldwide basis, so you should think about where you will most benefit from these protections and then limit your applications to those regions.
Among other issues, if someone else is already using the trademark you are planning to use, you may not receive any protection, and may even be infringing on their trademark. The U.S. Patent and Trademark Office maintains a database of registered trademarks. You can search this database using the Trademark Electronic Search System (TESS) for free, but you should employ a trademark attorney to help you interpret the results and register your trademark. You can access the trademark process and search details here:
http://www.uspto.gov/trademarks/
Protecting Your Trade Secrets
When developing your intellectual property, there are some things that you probably wouldn’t divulge to the average person. As a professional blogger, Mark doesn’t state his business contacts on his individual blog posts, and there are strategies that he doesn’t share with everyone. These sorts of things are protected by trade secret law.
In particular under U.S. law, “A trade secret, as defined under 18 U.S.C. § 1839(3) (A), (B) (1996), has three parts: (1) information; (2) reasonable measures taken to protect the information; and (3) which derives independent economic value from not being publicly known.” Trade secrets do not have a limited lifetime like a copyright, trademark, or patent. However, a third party that discovers your secret independently is not in violation of its provisions.
As you can see, if you expect to benefit from the protections of trade secret law, you have to take reasonable measures to protect the information in question. For example, you will want to password protect your critical data and shred any documents that contain sensitive information. If you have people working for you or with you on your Android application, then they need to know the importance of keeping all application-related information on private drives and servers, and it is important to require them to sign a confidentiality contract such as non-disclosure agreement (NDA).
There are numerous sample NDAs available online. You can use them to get started, but as with all legal matters, you should always consult an attorney to resolve any legal questions specific to your situation.
Here are some samples you can look over:
http://www.hbs.edu/entrepreneurship/pdf/Sample_NDA.pdf
http://www.bitlaw.com/forms/nda.html
If your trade secrets are stolen, and you can prove to a court that you made reasonable efforts to keep your trade secrets confidential, then you are potentially entitled to different legal remedies, including injunctions and an award of damages.
Now that we have discussed the laws of copyright, patents, and trademarks, let’s get into patents. A patent is a written public disclosure of an invention. In return for making a public disclosure (which, in theory, enriches the world with new knowledge) an inventor is granted the right to stop other people from making, using, selling, offering for sale, or importing the subject of the invention for a period of time. Most Android developers are not likely to benefit from filing for their own patents because obtaining one is an extremely costly venture. Suing another company for infringement is even more costly; a patent lawsuit can easily run into seven figures. The average patent can easily cost $10,000 or more over its lifetime. Furthermore, few Android apps will qualify for a patent.
If you decide to pursue a patent, be aware that not any idea can qualify for one. Any “new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof” may be patented, but the subject of the invention must also be novel and non-obvious. A patent examiner will determine whether your invention meets the requirement of being both novel (new) and non-obvious by comparing your invention with existing inventions, known as prior art. Obviously, if your idea has already been invented, you should not expect to receive a patent for it. Additionally, any similar inventions that taken alone or together would render your invention obvious also preclude patentability. A good patent attorney (or a bad patent examiner!) can make it easier for your patent to pass muster.
You will want to search to see whether your app idea already exists (is there prior art?) before proceeding with your app. If it exists, but is not patented, then you will not be able to get a patent. If it exists and is patented, then you will be infringing on the patent owner’s rights if you attempt to make the app yourself. As always, we recommend you contact an attorney; in this case, a patent attorney. However, a simple Google search is a great way to search for prior art on your own. Additionally, Google can search specifically for patents by using this link:
http://www.google.com/?tbm=pts
Let’s say you’re certain your app meets the requirements for novelty and non-obviousness. You’re also certain it will earn you much more than the $10,000+ plus it will cost to file for a patent. One way to hedge your bet is the provisional patent application. This is a legal process that allows you to send a basic description of your invention to the patent office, and use that description to establish a patent filing date for your invention. This process costs only $130 for a small entity, but changes annually. You have a nonextendable 1-year deadline to file a regular patent application at the normal fee. The advantage of the provisional patent is that it allows you to claim your invention for a low cost, and then you have a year to decide if it’s worth your trouble to spend “real money” in order to secure your patent rights. The provisional patent also gives you the right to use the “patent pending” term that you see attached to many product ads. In case you are wondering what it means, it simply states to competitors that there is a patent application in the works on your product and/or service. You can file for a provisional patent application online through this web site: https://efs.uspto.gov/efile/portal/efs-unregistered .
It is tempting to leverage open-source software when writing your app. There are a great many free software libraries that do all sorts of amazing things. Most of them, however, are licensed under a variety of open-source licenses. Failure to comply with the terms of these licenses could leave you open to legal action. As an example, the Creative Commons license expressly forbids any commercial use. The General Public License (GPL) raises a number of legal ambiguities regarding linking your non-GPL software with GPL libraries. Some people believe that although statically linking with a GPL library is a violation of the license, dynamically linking is OK. In contrast, the LPGL (Lesser General Public License) categorically allows linking with non-LGPL software. The following were just a few examples of licensing terms. In short, you should research the license for a piece of free software before using it.
Many patented inventions can also be licensed. In the world of software, examples of technologies that require licenses include MPEG, MP3, and Dolby Digital. In many cases, the phone (or tablet) manufacturer has already negotiated for these sorts of licenses, but if you find yourself using a standard that isn’t already included with the Android SDK, you may want to double-check to avoid any trouble. You can find a list of commonly licensed standards in this link:
http://www.musemagic.com/papers/licensinginfo.html
Also, if you discover someone else has patented the exact idea you’re looking to implement as an app, then it might be worth it to contact them before giving up. Often inventors are interested in licensing their ideas, and are hoping someone contacts them with that in mind.
Summary
Although you might not want to worry about legal issues and just get down to the nuts and bolts of writing, marketing, and selling software, it pays to invest a little time up front to avoid big problems in the future. You may have noticed that some of the topics we discussed make more sense if your app is backed by some outside funding. In particular, incorporating as a C Corp, finding a venture capital law firm, and considering pursuing patents are often better suited to well-funded ventures. However, even a modest venture should at least spend some time finding a local attorney who can help with company formation. Even if you think it makes sense to go forward as a sole proprietorship, you can often have a short discussion with an attorney for free just to make sure. Spending a bit of time thinking about whether you app needs a EULA or privacy policy is also a good idea for even a modest venture. Of course, if you think you might be infringing someone else’s intellectual property rights, you have a big problem right from the get-go. In short, do a little homework at the beginning, and you’ll be able to approach the rest of your business planning with confidence!
The following is a checklist of potential legal issues. Remember, we recommend you consult with an attorney before making any business decisions.
- Have you incorporated or otherwise mitigated risk of personal liability?
- Have you begun thinking about your EULA and/or privacy policy?
- Are you infringing anyone else’s copyrights, trademarks, or patents? If so, can you get a license?
- Are you following good privacy practices, including requiring your developers and partners to sign NDAs, and devising a plan to secure all personal information?