New Technologies

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

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.

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