All of the below issues should be considered and worked out early on. Sometimes, in the frenzy and thrill of developing a new business, it’s easy to overlook the “housekeeping” issues. However, dealing with these issues farther down the road might become a major headache.
1. Business Structure
You should operate out of an incorporated entity, either an LLC or a corporation. The right structure will depend upon future investment plans and tax considerations. However, a primary advantage of working out of an incorporated entity is that you will be able to limit your risk to the assets of the entity for most liabilities. Additionally, if you are working with partners, then either an operating agreement (for an LLC) or a shareholders agreement (for a corporation) will be critical to define the rights between the parties.
2. Code Ownership
It’s basic, but often over-looked. Your company needs to own the code. Owning the code means that all rights originating with the developers, which may be independent contractors, full-time employees, open source community members, or just friends, need to vest in your company. Ownership will vest in your company via “work for hire” agreements and assignments of rights. In addition to actual ownership, if you are using any third-party code, then you need to have the correct license rights granted to your company covering the intended scope of use.
3. Open Source Usage
Open source usage is ubiquitous. Most open source licenses are easy to comply with, though you need to examine each license and implement the required terms. However, there are some open source licenses, often referred to as “copy left” licenses, that can potentially require you to expose the source code of your app, depending upon how you incorporate such open source. Examples of strong copyleft open source includes the GPL, AGPL, and the Sybase Open Watcom Public License.
4. Employee and Subcontractor Agreements
If you have employees and/or subcontractors, it’s critical to have proper agreements with them. These agreements will cover issues such as IP ownership, confidentiality, non-competition, non-solicitation, and equity and benefits rights.
5. IP Protection
Copyright was discussed preliminarily above in Code Ownership. Copyright protects your code immediately upon creation – without having to do anything else. However, effective enforcement will require registration with the U.S. Copyright Office. The value and timing of such registration will depend upon the nature of the app.
In the early stages of development, confidentiality is an important protection. You will want to ensure that all persons/companies exposed to ideas regarding the product, business plans and strategies are restricted by confidentiality agreements. This becomes somewhat less important after the app is launched. Once launched the “idea” of the app is usually not protectable. The only way to protect an idea that has been made public is through patent protection. Patent protection will not be available for most apps, and if available, will be limited to specific functionality, not the entire idea of the app.
Trademark protection can be very valuable and does not expire. However, depending upon your finances, it may make sense to delay the trademark registration until you see that the app is commercially viable.
6. Compliance with Development and Store Terms
Your app will usually launch through the Apple Store and the Google Play Store. Both platforms have rules and restrictions that must be complied with. These terms should be reviewed to verify compliance.
7. End User License
An app is software. End users’ rights will be defined in an end user agreement. It’s very important to prepare an end user agreement that grants necessary rights to end users, but still limits those rights granted to ensure that you maintain control over the scope of use. The end user license is also the key mechanism for limiting liability that may arise from use of the app.
9. Advertising and Promotions
An app cannot succeed without marketing. Various marketing approaches need to comply with applicable laws, such as CAN-SPAM, TCPA, contest and sweepstakes regulations, and the FTC and FDA regulations prohibiting a wide variety of deceptive advertising practices.
10. Compliance with Laws
Many laws and regulations may apply and regulate the use, operation and marketing of an app depending upon the industry. A legal audit can be useful for identifying such laws and regulations.
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