There’s an App for That! Legal Background on the App Business

→ Wolfgang G. Tichy

Even if the price tag of most apps is surprisingly low (usually a few cents), the most successful apps generate turnover of millions of euros. In the last 24 months, the app business has left its mark in the “nerd-niche”, has gained worldwide attention and has attracted considerable investment. As more money flows into this business and competition increases, the legal pitfalls of producing and distributing apps become more apparent.

For a small piece of software

In the end, apps are noth­ing more than an ordi­nary piece of com­put­er soft­ware. But because of the tech­ni­cal par­tic­u­lar­i­ties of the plat­forms and sys­tems they are run­ning on (less mem­o­ry space, less func­tion­al­i­ty, less incom­pat­i­bil­i­ties, own mar­ket places, stream­lined hard­ware), there are impor­tant dif­fer­ences com­pared to ordi­nary com­put­er soft­ware that must be weighed when pro­duc­ing and dis­trib­ut­ing apps for smart­phones or tablets.

In a market dominated by two big players

One must be aware that the two main play­ers in this busi­ness (Google with Android and Apple with iOS) have struc­tured their plat­forms in a com­plete­ly dif­fer­ent way. Google pro­duces the core Android sys­tem and oth­er hard­ware pro­duc­ers, such as HTC and Sam­sung, mod­i­fy the Android oper­at­ing sys­tem. Apple is the only com­pa­ny pro­duc­ing the oper­at­ing sys­tem run­ning on Apple devices (iOS); no oth­er com­pa­ny may mod­i­fy this sys­tem. And Apple is the only com­pa­ny to pro­duce the hard­ware (iPhones and iPads).

Fur­ther, when pro­duc­ing apps for the Android plat­form, the provider (sell­er) of the app is free to choose how to dis­trib­ute it. Apps can be dis­trib­uted via the Google Play Store or any oth­er appro­pri­ate means (web­sites, etc.). When pro­duc­ing for the iOS-plat­form, how­ev­er, one must use Apple’s iTunes Store to get the apps to the end-users. So Apple has a strict monop­oly on the dis­tri­b­u­tion of apps on the iOS-plat­form.

With considerable restrictions

Both plat­forms have sev­er­al restric­tions, which apply not only to tech­ni­cal aspects of apps but also to con­tent and func­tion­al­i­ty. There­fore, app devel­op­ers are not com­plete­ly free to dis­trib­ute apps with what­ev­er con­tent they pre­fer in the avail­able mar­ket places. Espe­cial­ly Apple has strict rules about which apps may be approved for the iTunes store. With­out Apple’s approval, no app may be dis­trib­uted via its app store.

When pro­duc­ing apps or hav­ing apps pro­duced by devel­op­ers, the par­tic­u­lar­i­ties and restric­tions of the rel­e­vant plat­forms must be con­sid­ered and reflect­ed in soft­ware agree­ments.

And (almost) unavoidable liability risks

When dis­trib­ut­ing apps to end users anoth­er prob­lem aris­es. Usu­al­ly the dis­tri­b­u­tion and use of soft­ware is gov­erned by legal terms (licence terms, referred to as “EULA” — end users licence agree­ment). But, as with all con­tracts, such licence terms must be agreed between the sell­er and buy­er (licen­sor and licensee). When dis­trib­ut­ing apps through app stores, there is, how­ev­er, hard­ly any (tech­ni­cal) pos­si­bil­i­ty to have the agree­ment on licence terms cor­rect­ly imple­ment­ed in the pur­chas­ing process. The way the app stores are set up and the pur­chas­ing process struc­tured, there is sim­ply no place for the (legal­ly bind­ing) agree­ment of licence terms pro­vid­ed by the sell­er of the app (licen­sor). For licen­sors, there is almost no way to have their licenc­ing terms agreed by the licensee. So the licen­sor los­es con­trol of the exact con­tent of the licence rights grant­ed to the users of apps.

This is par­tic­u­lar­ly detri­men­tal when it comes to lim­i­ta­tions of lia­bil­i­ty. Under the laws of many juris­dic­tions, lia­bil­i­ty for minor neg­li­gence, for exam­ple, can be exclud­ed, also vis-à-vis con­sumers. How­ev­er, with­out the pos­si­bil­i­ty to agree on licence terms draft­ed in favour of the licen­sor, statu­to­ry law will apply – which may not (and most like­ly will not) con­tain exclu­sions of lia­bil­i­ty for minor neg­li­gence. Games, which do not usu­al­ly involve high risks of dam­ages to the play­er, are among the best-sell­ing apps. But many best-sell­ing apps per­form more sen­si­tive tasks, such as online bank­ing or cor­po­rate apps. Sell­ers may not be aware of pos­si­ble lia­bil­i­ty for dam­ages caused by such apps, even for minor neg­li­gence.

When producing apps or having apps produced by developers, the particularities and restrictions of the relevant platforms must be considered and reflected in software agreements.