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How to Avoid App Liabilities - 1/6/2015 -

Tenenbaum                 Zottola              Brubaker
How to Avoid Liabilities

Developing an app?  Here are five vital legal concerns to take care of first.

By Armand T. Zottola, Jeffrey S. Tenenbaum, and Morgan E. Brubaker

Mobile devices are outselling personal computers, and an increasing percentage of Internet access is made through mobile devices. However, there are some pronounced and unique intellectual property, ownership, privacy, data security, and advertising considerations that every nonprofit should keep in mind when developing a mobile app.

1. Intellectual Property Considerations
Generally, apps may contain trademark rights with respect to identifying the app, related services, or the nonprofit; copyrightable content, including the code used to build the app; trade secret rights with respect to the functionality and development of the app; and, in some circumstances, an app may even contain patentable subject matter. Retaining these rights in an app may require further action to ensure that the various parts of the app are properly protected.

2. Work-for-Hire Arrangements
To assert intellectual property rights in an app, a nonprofit should ensure that any contractors or third parties who assist in the development of the app (even if such development is done on a cost-free or volunteer basis) sign a work-for-hire agreement or that their contracts contain a work-for-hire provision. While a nonprofit may obtain intellectual property rights in an app ó if it is created by an employee within the scope of their employment ó for greater certainty, nonprofits should consider a signed agreement by which the employee-developer assigns all intellectual property rights in the app to the nonprofit. 

3. Distribution Considerations
Nonprofits should consider how to disseminate the app and to inform others that the app is available for download. Consider whether the app will be available for free or for a fee, which could create additional obligations to facilitate the payment process. Consider further which app stores and mobile platforms will provide the opportunity and the right to distribute an app. Platforms and app stores often require certain amounts of insurance for liability coverage and will reserve their right to change or alter their terms at any time and are therefore free to introduce additional requirements. The app must comply with such conditions at all times, as failing to do so has the potential to give rise to legal action and/or the removal of the app from the platform.

4. Privacy and Data Security
Mobile apps may collect technical information, such as IP addresses, geo-location, and other transaction data that may be considered personal information and subject to privacy and other regulations. Note that these regulations may vary by state and country and are constantly evolving. Some state laws specifically require the posting of a privacy policy within the mobile app if any type of personal or credit card information is collected via download or operation of the app. Privacy policies can be monitored by governmental agencies and third parties for accuracy. Non-compliance or inaccuracy can be considered a deceptive trade practice that can lead to fines and other consequences.

5. Advertising Considerations
Marketing or selling an app subjects a nonprofit to additional laws and regulations governing advertising. Certain solicitation efforts may require additional compliance with laws governing outreach or communication with end users. Contests and sweepstakes offered through an app likewise require additional compliance. Potential advertising issues require particular consideration when building the functionality of a mobile app. For example, all communications sent through or in connection with a mobile app can require additional compliance actions with the Telephone Consumer Protection Act and related Federal Communications Commission rules. The Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 (CAN-SPAM) rules regulate certain commercial email and text message communications to consumers. Additionally, many state laws exist that regulate commercial text messages. 

Overall, app development can bring great opportunity, visibility, and income to a nonprofit organization. Nonprofits, however, should consider the significant issues associated with development, marketing, licensing, and distribution of an app to avoid potential liability risks.

Armand J. (A.J) Zottola and Jeffrey S. Tenenbaum are partners, and Morgan E. Brubaker is an associate at Venable LLC. Donít miss a more detailed article on this subject by the authors, appearing in the January/February 2015 issue of Signature magazine.


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