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Going Mobile: 5 Tips on Mobile App Creation

Do you have the next great mobile app idea? Here are 5 tips on the legal side of Mobile App Creation:

Due Diligence. Basically, do your homework. Google your idea and find out if a similar app already exists. Its better to do the leg work at this stage of the game then down the road when you have put money into development.

Preliminary Protection. A lot of the time, people want to talk about their idea to gain feedback or simply want to talk about it out of pure excitement. Please don't ... unless, of course, you have a signed Non-Disclosure Agreement. Not all NDA's are the same. This is such an important point in the early stages of development that I am going to state it again: Not all NDA's are the same. You need one specifically for Intellectual Property Rights. Also, be careful of other parties, such as Mobile App Developers, asking you to sign their NDA. Most likely it is written to protect their company's interest and not yours. Have a lawyer read it over to make sure that you are keeping full control of your intellectual property.

Ownership. Who owns the intellectual property? Once the app is built, who owns the rights? Did you use a work-for-hire agreement*? Are there multiple authors meaning joint ownership? Or, is it just you? Ownership must be established before you can take the next step and acquire advanced protection.

Advanced Protection. Can't I just copyright the idea? Unfortunately, you cannot. However, you can copyright the code used to write the app, artwork, text, etc. In order to keep the copyright in your name, you would need to write the code yourself or hire a programmer on work-for-hire terms. Once the code is written and artwork designed, then it can be filed for protection with the copyright office. At this stage, you can also search to see if your app is something that can be patented. To be on the safe side, register all your materials with the copyright and patent office before the app is launched.

License / Assignment. For most people, this is the most important part because this is how your app makes its revenue. One of the more common ways is by having companies or individuals purchase a license to your app. There are two types of licenses: exclusive and non-exclusive. An exclusive license means you license your app to a company or individual with exclusive terms of use such as a certain geography or client base. For example, Company A wants an exclusive license for North America. This means you cannot license your app to another company or individual in North America. You could, however, give an exclusive license to Company B in Europe. A non-exclusive license allows you to licenses to Company A in North America, but also to anyone else who would want to purchase a license in North America.

Another option is an assignment. In an assignment, you have the option to sell all your rights or sell (or assign) select rights that you have in copyright. For example, in a copyright, you can assign the right to reproduce and the right to distribute, but you might retain the right to make derivatives. Remember, with any assignment, whether you are assigning all or part of the various rights, you are selling your ownership, just as if you were selling your house.

* Work-for-Hire describes works that are produced for somebody else. The person who hires the creator holds the copyright to the finished work.

Related posts:

Does your Business Need Cash?
See the four part series on Starting a Business:
Part I: Laying a good foundation
Part II: More than one owner
Part III: Safe-guard your product
Part IV: Choosing your Corporate Counsel

Does Your Business Need Cash?

If you own a business and need an infusion of cash, borrowing from banks has become increasingly difficult during these recessionary years.  Most business owners logically look toward family and friends as sources of capital.  On face value this may be just fine; however, the "devil is in the details."

Technically, whenever a business is raising money it's in exchange for shares of stock or membership units.  Those shares or units are the evidence of ownership as a result of receiving the funds.  These shares or units are securities, and as such, are governed by both state and federal laws.  Granted, many small businesses taking money from friends and family fall within exemptions to state and federal securities laws; yet, it is critical to ensure that your company does in fact fall within and comply with those exemptions. Otherwise, penalties can be assessed, and depending on the circumstances, there can be other more serious consequences if any fraud or misrepresentation to the person or entity giving the money is proved (if a dispute happens down the road).

So if your business needs money and it can’t be obtained through traditional sources, what should you do?

•  Most of the exemptions to securities registration prohibit advertising, so you should not advertise that you need money unless you talk to a lawyer knowledgeable in the area.  There are limited "tombstone ads" that may be placed, but this shouldn't be done unless you have sought legal advice.

•  Assuming you are just asking a family member or friend for the money, you should definitely have the necessary legal documents drafted. These documents will reflect what needs to be done from the company's perspective in terms of complying with your Bylaws or Operating Agreement.  Other related documents will address the sale of the share or units in exchange for the funds, and still more documents will address appropriate disclosures to protect your company. Overall, you will generate some paper, but the "bark" here is bigger than the "bite."

•  Your company will need to file appropriate documentation with the state Department of Corporations. This is done online and is to be done within 15 days of the company issuing any stock in order to avoid penalties.

While all of this may seem a bit burdensome, in the end, doing this will position your company to reduce risk with respect to regulatory compliance and an investor who was your family member or friend, but is now your plaintiff.

 

This information is intended for general educational purposes and not specific legal advice.

Lawsuit vs. Settlement: Is suing the best answer?

Nothing will cost you and your business more than a lawsuit.  Not just money – time, energy and focus – it is an absolutely absorbing event.  Lawsuits don’t happen, nor end, overnight – they will hang as a dark looming cloud, demanding your time and taking you away from doing what you love to do: Run your business. Outcomes cannot be determined despite the best litigator’s gut feeling or best guess, whether the case is tried before a sole judge or a jury of your peers. It can take years to get to judgment. You should always allow your attorney the opportunity to attempt to resolve the matter via a settlement. It is not a sign of weakness to take the higher road.  Both parties of course have to be brought to the same junction and both parties have to be given the incentive that each side taking a little less that their original demand is in the long run a wiser choice. Pragmatic solutions are becoming the dominant mechanism for good reason – pure economics. When I am counsel in a situation like this, I evaluate every conflict as a business transaction and, putting the principle aside, find the logical solution. Occasionally, the answer is “Sue”.  More often than not, the solution is short of that mark, saving the client time, money, energy and sanity.

Starting a Business • Part IV: Choosing your Corporate Counsel

Every company should have legal representation.  If you are a start-up company you want to interview several attorneys (2-3) and give them a background on your company.  You want to know how they bill and what priority you will be given at the firm.  Which attorney will be assigned to your file?  The biggest issue plaguing most attorney-client relationships is a firm’s response system if your business is in a crisis.  Are phone calls returned same day?  Who is the team in place to assist your company?   But most importantly, does your attorney have a business sense for the operations of your business?  Many attorneys can give you the mechanics of a licensing or distribution agreement but they are not savvy enough to understand the nuances of the industry that will warrant that added provision in the agreement that avoids litigation down the road.  Establish an attorney-client relationship.  Sign a retainer with the firm so when a quick question needs to be asked your attorney is in place to take your call; guide you in order to avoid litigation or prepare the needed document that memorializes the handshake agreement before either side spends money on production or discovery.  99% of the time the parties are so anxious not to lose the “deal” that motion is set into place before a written agreement can be written and approved by both sides.  When conflict arises, human nature prevails, and each side remembers only the facts of the negotiations that benefited them.  Young companies believe they “save” money by not using an attorney at the beginning stages of growing company.  In actuality, that is when you need qualified advice most of all.

Click here if you missed Part I: Laying a good foundation, Part II: More than one owner or Part III: Safe-guard your product

Starting a Business • Part III: Safe-guard your product

Every good business owner is watchful of the company’s overhead.  But the old adage of being a “penny wise and pound foolish” rings true when a Company attempts to save the cost of attorney upfront on a deal only to pay a higher cost in legal fees to resolve a dispute that was not originally or properly documented at the beginning of the deal.  To save cost Company’s will sometimes pull boilerplate agreements from the internet and fill in the blanks to serve as a temporary need.  However, when a deal goes wrong the agreement is the only document that the parties can turn to in hopes that it includes terms that cover the current dispute.  Take the time to meet with your attorney if you are entering into OEM, Licensing, distribution, private-labeling or manufacturing agreements.  Having an experienced attorney who understands your business and who can set up at the beginning the necessary terms to protect you and to provide for the risks factors that should be included in the deal.

To be continued … Next week: Part IV: Choosing your Corporate Counsel
Click here if you missed Part I: Laying a good foundation or Part II: More than one owner

Starting a Business • Part II: More than one owner

If there is more than one owner of the business a buy sell agreement is always required.  Every shareholder or partnership dispute that I have been involved in always starts with my client stating, “You know, my partner and I were best friends in the beginning”.  If the business relationship goes awry a Buy Sell Agreement outlines the terms of how one shareholder or partner will buy the other out.  A buy sell agreement is always best to be negotiated while individuals are still in the best friend stage.  Having a buy sell agreement in place avoids costly litigation.  No one cares about a contract until everyone cares about a contract because there’s a problem and the frantic dissection of every sentence ensues.  We have to advise clients to address the problems before they exist, lest litigation bring the whole machine to a grinding halt.

To be continued … Next week: Part III: Safe-guard your product
Followed by: Part IV: Choosing your Corporate Counsel
Click here if you missed Part I: Laying a good foundation

Lets Talk Letters of Intent • Part II

Questions to Consider before the LOI is Signed

The issues posed may be based on the perspective of a buyer in the examples, but the concerns are the same for sellers.  Some big picture questions that need to be answered before an LOI is executed:

Will the deal be structured as an “asset purchase” agreement or a stock sale?  There are significant differences in the structure, particularly when it comes to the liabilities that will be sold and those that will be retained by the seller.

Does Seller plan on extracting all the cash from the business at the close of the sale?

What’s happening with the accounts receivable?

Does the Seller have much work in progress and, if so, what are his or her expectations for the revenue post-close?

Does the business rely on one or only a handful of key customers?  How much of their revenue is derived from the top customers and how are those relationships?

How much of the inventory is slow-moving or obsolete and therefore of little value?

What’s the track record for warranty repairs and will the seller assume covering any existing warrantied products or services for a period of time?

Will (or should?) Seller commit to staying on as a consultant or employee for a period of time while the transition of management takes place?  Either way, will they execute a non-compete agreement?

How will the purchase price be paid?  All cash? Will Buyer have an opportunity to apportion a certain amount of the purchase price in an “earn-out” provision?  Is there a note and, if so, can it be secured?  Are there other creditors that will make the security pointless?

How will the purchase price be allocated?  Goodwill, inventory, customer list, etc.

Will Seller refrain from entertaining other inquiries from other Buyers during the time period that you are conducting your own due diligence? Negotiating with a second buyer in the background may be counterproductive to your current negotiations.

Both parties need to be represented by an attorney at these early stages.  We often encounter clients that didn’t want to retain us at an early stage to help reduce costs and prior to confirming the transaction can go through after their diligence is complete.  That error can cost much more than our services, as the material terms in an LOI will be written in stone.  Parties can be forced to honor the terms of the “harmless” LOI when those same terms are the non-negotiable substance of the purchase agreement itself.  This effectively removes the room for much negotiation as the terms of the LOI will govern.

It’s never too early to involve counsel on your side, especially when you could unknowingly be locked into some less than favorable terms at such an early stage.  The LOI, despite whatever soft language regarding the intent is drafted, is a legally binding document.  Don’t let the descriptive title fool you – it’s a contract that creates rights and obligations.

Click here if you missed Part I of Lets Talk Letters of Intent: What is an LOI and Why a Attorney Should Review it Before Signing