In this video, you will get answers to these questions:

  • What intellectual property information do app developers need to know?
  • How do you get a copyright?
  • What are trademarks for apps?
  • How to register copyright and trademark?
  • What are the things app developers need to know about contracts?
  • What are the things app developers need to know about investors?

Video Transcript

What do app developers need to know about the law? Imagine you are developing an app for a phone, or maybe it is for something else. You are probably wondering, “What are the areas of the law that I should be paying attention to— that I should learn about?” These are going to be areas like: How do I start a company? What intellectual property information should I consider? And what about bringing on investors?

I am going to talk about each one of those topics today. I am Aaron Hall, an attorney for business owners and entrepreneurial companies. If you don’t have my free cheat sheet yet, which helps you avoid common legal problems for new companies, you can get it at aaronhall.com/free/. It is a free download. Then you get some additional videos as well.

All right, so you are an app developer, or you are about to develop an app. Maybe it is for Android or iPhone or some other platform, and you are saying to yourself, “Okay, I understand the code, but what about the law? What do I need to know here?”

I am going to talk about an overview of issues for you to discuss with your attorney, or perhaps you are doing it on your own. But at least I want to help educate you and empower you so you can minimize legal fees, minimize legal risk, and protect yourself, especially with this investment that you are building.

All right, probably the highest on your priority is thinking about intellectual property. What intellectual property information do app developers need to know? Well, first, copyright. Copyright applies to your code. Whatever you code, you own the copyright to unless you got some of the code, like a snippet or something from another developer or another source, they may own that. If they own it, you need a license to use it. So that essentially just means you need permission to use it, and then once you develop your code, you have a copyright in it. In the United States, you don’t have to actually register the copyright in order to have a copyright. Registration gives important benefits like being able to sue somebody for infringing on your copyright, but you can merely have a copyright without it being registered.

How do you get a copyright? You simply create something. An artist automatically gets a copyright whenever they create anything, and I am using the term artist liberally. When you create code, when you paint a painting, when you draw a picture, you get the copyright in it. It is called the common law copyright. There are some exceptions to this. For example, if you work for an employer and this is part of your job, it is within the scope of your duties; your employer is getting the copyright, not you. Okay, so we have talked about the copyright for the code.

Let’s now talk about trademarks for apps. Think about it this way: if you own some cows in a field and they get out, how is somebody else going to know whose cow that is if they don’t know the cow? Well, you can put a brand on the cow. Cows are branded with some sort of a mark. That might be a logo, it might be a name, but there is something about that cow that indicates this cow came from this farm. That little analogy helps you understand how a trademark works. Again, that is different from copyright. The idea behind copyright is protecting the creative work of an artist. The idea behind a trademark is to help the public and the owner of goods or services, associate the goods and services with the owner with the provider.

So you are an app developer. You can have a logo, you can have a little icon, or you can have a name. All of those are different brands or marks if you will, and in the United States, just by using them, as long as you are not infringing somebody else’s mark, you get a trademark. Now, that is a common law trademark. It is not a registered trademark. What is the difference? Well, as soon as you start using a mark associated with your goods or services, you acquire a common law trademark for that mark in your county. But if you want it nationwide and you want all the other rights that go along with registering a trademark, that is when you are going to register a trademark with the US Patent and Trademark Office. By the way, quick pointer here: don’t get a state trademark. It is worthless, or almost worthless, because federal trademark law in the United States trumps all state trademark laws. So what matters is federal. Okay, so what do we do with that knowledge? You may want to get a registered trademark for an icon, a logo, a name, or any other kind of brand mark. Or you might wait for a little while to actually do a registered trademark and just rely on the common law trademark for a little while.

We have talked about copyright. We have talked about trademark. By the way, copyright: if you want to register it, you can do that yourself. All you do is send in some information to the copyright office, or there is a little form that you can fill out online. Trademark is not as easy. Generally, you do want to hire an attorney for a trademark registration, and that attorney is going to talk to you about the possible benefits of a trademark search and the cost associated with that, so you can decide whether that makes sense for you. It may also make sense to have an attorney familiar with some basic marketing principles and branding principles so that the attorney can raise concerns if whatever you are thinking about registering might have some business problems, or you can go to a branding expert for that. Okay, common app developers need to think about copyright, and they need to think about trademark.

Now let’s talk about the next category: contracts. You need to have some sort of terms of use or written agreements. What is that going to do? Well, it is going to protect you if somebody misuses your app or relies on your app in the wrong way. It really depends on what kind of app you have. If it is providing medical information, I would be much more concerned. If it is a photo editing app, you are not as likely to get sued if somebody misuses the app. Okay, so that is contracts, that is going to be your user agreements, etc.

If you have employees, there are a whole host of other issues that are beyond the scope of what we are talking about today. You also need to think about registering a business entity, and an LLC or a corporation is generally what you are going to pick, and most likely it is going to be an LLC. Maybe you would do an S corporation. I have another video on how to pick S corporation versus LLC.

The other issue you might be thinking about is investors. You are thinking about, “How am I going to bring in some funding to launch this app?” Maybe you are a coder, but you need somebody to do the marketing and branding and build the user base. Funding accomplishes that, and if you need funding, your options are a bank loan. When you go to the bank, you can talk to them about an SBA loan. SBA is the Small Business Administration in the United States. Those loans from the SBA are provided through local banks, so the best way to learn more is to go talk to your local banker. I prefer not to work with the big national banks that you see advertised on TV all the time. Pick a local bank with a smaller profile because it is more relationship-based and less advertising-based or kind of a big consumer brand. You want more of a business relationship where they can get to know your business and understand it. So you can get funding through a bank, but what about other investors? Maybe you are going to have a partner who brings a different skill set: SEO, PPC (pay-per-click) the online advertising, social media, or something else. I think it is a great option to do, but there are a lot of risks involving other owners or other investors. By the way, owner and investor mean the same thing. Anybody who is an investor is an owner, and vice versa. In an LLC, they are often called members because that is the term LLC law uses. In a corporation, they are often called shareholders. I like the term owner, though, because it does not matter which entity we are talking about here.

So, owner or investor, you want to bring them on. Well, you are going to talk about a number of things, of course. The obvious: How much are they contributing as far as money? What about labor? What about expertise? Any sort of context. What are you contributing? And then when the business is profitable, how do we divide the profits? Who gets to decide what portion of revenue is going to be spent on future expenses or invested in the future versus distributed to the shareholders or the owners? What if you have disagreements? How are we going to work that out? And then how are you going to work it out when somebody leaves one day? Because we know everybody is going to leave a business someday. Maybe it is death. Maybe it is bankruptcy. Maybe it is incapacity. Maybe it is because you don’t get along anymore. Maybe one decides to retire. Maybe it is on great terms. By the way, if people leave on great terms, and they can work out an arrangement at an exit plan at that time, that is great. That is the best-case scenario. You really don’t need a contract in place if you know it is going to work out well. But often it does not work out well, and that is why we have a contract.

Also, even with trusted friends and family members, one value of drafting a good contract among the owners at the very beginning is that it sets expectations. For example, what is your expectation as far as how much time and work each person is going to contribute to the business? And then, can they make adjustments over time, and how does that affect how much they are going to be compensated in wages? So as you can see, business owners have a lot of issues to think through in the beginning if they are going to have partners, investors, or other owners. That is a great time to involve a business attorney. Because, in my experience, the greatest potential for legal problems in a business with multiple owners is frustrations that arise over time because the business owners veered in their perspectives on something. Sometimes that happens with spouses, where a spouse will sway a business owner one way or the other, or they will need to move. And sometimes, it is changes in life. Changes in life philosophy, or you get older, you get more mature, you enter new stages of life, like having kids, buying a home, retirement, the passing away of loved ones, or significant life events that cause you to reassess your values and priorities in life.

It is frequent that business owners who start out aligned later end up with divergent interests. And so that is why setting up a framework in the beginning for resolving those issues, and a healthy process for avoiding potential problems is really helpful. That involves the legal piece, but also another process like Traction: EOS, the entrepreneurial operating system, developed by Gino Wickman. That provides a great business approach with routines in place so that business owners can stay in sync and work out issues as they arise.

So today, we talked about trademark, copyright, and contracts. We also touched on employees and types of entity, like LLC or corporation–typically that is going to be an S corporation. And then, we talked about business owner agreements and agreements among multiple owners to resolve issues and to try to keep a healthy relationship. And then, of course, upon departure, have a smooth process and framework in place for that. If you don’t already get my emails with other educational videos, and you have not received the free resource that I have on avoiding legal problems, you can get it at aaronhall.com/free.

I am Aaron Hall, a business attorney for entrepreneurial companies and business owners. If you like more educational content like this, I invite you to like this video and subscribe to the channel. And I look forward to getting to know you better as I continue to provide more educational content. By the way, if you have questions, you are welcome to put them in the comment section below. I look at those and use those to create new videos in the future.