Brand Considerations When Launching Mobile Phone Apps

As smartphones, such as the iPhone', Android', and BlackBerry', have become for many both a coveted accessory and a necessity for everyday life, the number and diversity of mobile phone applications (“Apps”) has exploded. Businesses, in turn, are launching mobile Apps in record numbers to reach consumers and maintain and increase market share. New devices, such as the Apple iPad', are providing a platform for even more sophisticated and complex Apps. However, prior to launching Apps on smartphone devices, it is advisable that brand owners pause ' even if momentarily ' to consider the new trademark and related legal issues that this new medium presents.

Unlike online media generally, where a business can publish and distribute software applications and tools under its own guidelines and parameters, development in the App medium is constrained by the guidelines and rules set forth by a limited universe of third-party smartphone providers (e.g., Apple, Inc. (“Apple”), Google, Inc. (“Google”), Research in Motion Ltd. (“RIM”), and Nokia, Inc. (“Nokia”)). Prior to launching an App, App developers are required to enter into one or more click-through App license agreements with the smartphone provider (“App Agreements”). These App Agreements contain detailed terms and conditions governing the creation and launch of the App, and provide for intellectual property licenses between and apportioning liability among the App developer and smartphone provider. As a general matter, these agreements are non-negotiable and binding the moment that the App developer clicks assent.

In general, App Agreements: 1) restrict how an App developer can use and display the smartphone provider's trademarks; 2) require the App developer to grant a license to its trademarks to the smartphone provider; 3) require the App developer to indemnify the smartphone provider for third-party intellectual property infringement claims arising from publication and use of the App (including an indemnification arising from use of the App developer's trademarks); 4) allow for modification of the relevant App Agreement, typically with notice-to and opt-out rights; and 5) allow the App developer to terminate the App Agreement upon 30 days written notice.

Brand owners also should consider trademark and related risks when entering into such App Agreements. First, there is a brand control risk given that there are typically limited or no restrictions in the trademark license granted to the smartphone provider in the App Agreements. Second, there is the possibility that, in the context of the broad indemnity by the App developer in the App Agreements, the relevant trademarks at issue have not been cleared in all territories or all intellectual property is not, in fact, available for license by the App developer. Third, as many businesses are using third-party software developers to develop and launch Apps, it is important for businesses to have adequate oversight over the third-party developers (particularly if such third-party developer enters into the relevant App Agreements with a smartphone provider). Lastly, there is a risk that third parties will create counterfeit Apps using a company's brands to lure unwitting customers.

Growth in Mobile Applications

The number and diversity of Apps has dramatically increased. One study estimates that global revenue from mobile applications ' including paid downloads and mobile advertising ' will increase from $4.1 billion last year to $17.5 billion by 2012. See Chetan Sharma, Sizing up the Global Mobile Apps Market, Industry Study Commissioned by Getjar, March 2010, p. 2 at www.chetansharma.com/Sizing_up_the_Global_Mobile_Apps_Market.pdf Apps simultaneously have become increasingly sophisticated expanding to consumer banking, music, video gaming, medical, educational, governmental, and social networking applications. Id. The growth of iPhone App downloads has already moved decision-makers, such as chief information officers at major Fortune 500 companies, to develop mobile App strategies in an effort to further market their products, strengthen customer relationships, and provide additional services to consumers. See Ann All, Thanks to Apple, Mobile Apps Are Top of Mind for CIOs, www.itbusinessedge.com/cm/blogs/all/thanks-to-apple-mobile-apps-are-top-of-mind-for-cios/?cs=39648 (Feb. 25, 2010, 11:23 EST); See also Dan Butcher, JP Morgan Chase bets on mobile to expand customer relationships, Mobile Marketer, June 18, 2009, www.mobile marketer.com/cms/news/banking- payments/3504.html. As companies, including banks and other institutions, invest considerable time and resources to create and develop Apps, it is important for these companies to consider potential intellectual property risks associated with the launch of such Apps.

App Agreements and Potential Brand Risks

Restrictions on Use of Smartphone Provider's Trademarks

A key component of virtually every App launch strategy is to advertise and promote the use of the new App on the particular smartphone device. The App Agreements, however, grant the App developer limited rights and provide detailed guidelines regarding use of the smartphone provider's trademarks, including, in most cases, the image of the smartphone itself.

For example, Apple's Developer Program License Agreement (“Apple App Agreement”) requires the App developer to comply with Apple's trademark and branding guidelines in the event that it uses Apple's marks or makes reference to Apple's products or technology. There are specific restrictions in the event that the App developer uses an image of an Apple iPhone when marketing or promoting its App, such as only using the image of the iPhone as provided by Apple and not altering or modifying such image. See App Store Identity Guidelines for Developers, July 8, 2008. Similarly, the RIM Blackberry App World Vendor Agreement (“RIM App Agreement”) grants a limited license to the App developer to use RIM's marks to market and promote an App, which use must be in accordance with RIM's branding guidelines. Google's Android Market Developer Distribution Agreement (“Google App Agreement”) permits the App developer to use Google's Android trademark, but not the Google trademark, when marketing or promoting an App. Nokia's Ovi Store Publisher Registration and Distribution Agreement (“Nokia App Agreement”) prohibits most uses of Nokia's trademarks, even for marketing or promotional purposes.

As companies increasingly launch campaigns to promote their Apps, they should verify that marketing and advertising which depict a smartphone or reference a smartphone provider comply with the detailed guidelines and restrictions set forth in the applicable App Agreement.

License to App Developer's Marks

App Agreements uniformly require that the App developer grant a royalty-free license to its trademarks to the smartphone provider both for use in a relevant App store and for marketing and promotional purposes. The App Agreements generally do not define precisely which trademarks of the App developer are subject to the license to the smartphone provider. Although certain App Agreements state that all names and marks owned or licensed by the App developer are subject to the license (e.g., the Google App Agreement and Nokia App Agreement), other App Agreements indicate that the license may be limited to names and marks that appear in the App or otherwise are provided to the smartphone provider (e.g., the Apple App Agreement and RIM App Agreement).

The App Agreements vary with respect to the degree of control reserved to the App developer regarding the use of its marks by the smartphone provider. Under the RIM App Agreement, the App developer has a right to consent to the use of its marks by RIM if such use is for purposes not related to the RIM App store (e.g., for general marketing or promotional purposes) or if the App developer's marks are modified by RIM. Other App Agreements, however, such as the Apple App Agreement, Google App Agreement, and Nokia App Agreement, do not expressly provide that the App developer consent to the smartphone provider's use of its trademarks.

The broad trademark licenses contained in the App Agreements potentially could raise branding and other concerns for App developers, as the controls and approvals that they generally may require of a licensee may not be present in these form agreements. The potential branding risks here, however, are unlikely to give rise to actual risk given that smartphone providers in practice use such brands to identify and promote the App developer's App, not to designate a new or different product or service, and frequently consult with the App developer with respect to prominent uses of such brands in advertising campaigns and the like. Nevertheless, a company should consider monitoring the use of its marks by the smartphone provider, either formally, by engaging a trademark monitoring service, or informally, by relying on the marketing department, legal department, and other company employees to report misuses of its trademarks by the smartphone provider in the marketplace.

Amendments to the App Agreements

Any analysis of the terms and conditions of and potential legal risks associated with App Agreements must take into account that the App Agreements may change. App Agreements generally provide that the App Agreement may be amended by the smartphone provider at any time, provided that the App developer is given written notice of such changes, (most of the App Agreements additionally provide that the App developer must affirmatively consent to such amendments). However, as a practical matter, the person receiving notification of a revised App Agreement may be an IT specialist at the company or an outside IT service provider who uploads the relevant App. Thus, this person may not be evaluating the potential legal impact of such amendments.

Accordingly, a company launching Apps should consider including its legal counsel in the App launch process or otherwise actively monitor amendments to the App Agreements.

Indemnification of Third-Party Claims

App Agreements typically require the App developer to indemnify the smartphone provider against third-party intellectual property infringement claims related to the App (including third-party trademark infringement claims arising from the smartphone provider's use of the App developer's trademarks).

It is important, therefore, for an App developer to ensure that its trademarks, graphical content in the App, and the technology underlying the App are owned by or licensed to the relevant App developer, and that the associated intellectual property rights have been properly cleared. Further, with respect to technology, content and other intellectual property rights developed or provided by third parties, the App developer should obtain from these third parties appropriate indemnification, so that claims by a smartphone provider may be covered by the third-party provider indemnity. Finally, the App developer should ensure that any third-party rights associated with the App are sublicenseable, as the App Agreements automatically subject such rights to a sublicense to the smartphone provider.

There is an additional risk, in that the trademark license granted to the smartphone provider typically is worldwide, even though the trademarks used in or associated with the App may not have been cleared in all relevant jurisdictions. As a practical matter, the risk may be mitigated as the smartphone provider likely would promote the availability of the App only in those jurisdictions in which the App is targeted and intended. Nonetheless, brand owners should appreciate that Apps present yet another potentially “borderless” new media, which could expose the App developer to legal liability in countries where its brands have not been cleared and protected.

Use of Third-Party Developers

As companies have sought to rapidly expand their App portfolio, they have increasingly relied on third-party software development companies that specialize in developing Apps, which have the ability to more quickly and cost-effectively create Apps on a company's behalf.

In such instances, the third-party technology provider, not the company, may be the party entering into the App Agreement. Therefore, the company may have to rely on the technology provider to exercise the company's rights and remedies under the App Agreement, and provide all relevant notices received from the smartphone provider. Accordingly, agreements with third-party technology providers that will be launching the App should contain provisions concerning prompt notice, cooperation, and consent rights regarding the App Agreements.

Counterfeiting

Finally, as with all new frontiers in which brands are present, there is the potential for significant counterfeiting of famous marks and brands in the App context. Specifically, certain App publishers are labeling their Apps with popular brands, without authorization of the brand owner, to catch the attention of smartphone users. Accordingly, brand owners should consider adopting policies regarding monitoring and enforcement of their trademarks with respect to smartphone applications, akin to policing policies that they already pursue with respect to domain names and the Internet.

Conclusion

Apps have arrived and are literally everywhere. They are revolutionizing how companies market their products, provide services to consumers, and expand their market reach. However, as with any new medium, they present their own novel legal challenges. Prior to launching Apps, companies should consider the potential branding and intellectual property risks and formulate a policy and procedure as to how best to address them. In addition, following App launch, companies should continue to monitor how their intellectual property is being used under an App Agreement, so that they are in a position to act swiftly with respect to misuses and infringements of brands and other intellectual property in an App world.

Bruce Goldner is co-head of Skadden, Arps, Slate, Meagher & Flom LLP's intellectual property and technology group. Shivram K. Sankar is an associate in the intellectual property and technology group. Both are based in the firm's New York office.

As smartphones, such as the iPhone', Android', and BlackBerry', have become for many both a coveted accessory and a necessity for everyday life, the number and diversity of mobile phone applications (“Apps”) has exploded. Businesses, in turn, are launching mobile Apps in record numbers to reach consumers and maintain and increase market share. New devices, such as the Apple iPad', are providing a platform for even more sophisticated and complex Apps. However, prior to launching Apps on smartphone devices, it is advisable that brand owners pause ' even if momentarily ' to consider the new trademark and related legal issues that this new medium presents.

Unlike online media generally, where a business can publish and distribute software applications and tools under its own guidelines and parameters, development in the App medium is constrained by the guidelines and rules set forth by a limited universe of third-party smartphone providers (e.g., Apple, Inc. (“Apple”), Google, Inc. (“Google”), Research in Motion Ltd. (“RIM”), and Nokia, Inc. (“Nokia”)). Prior to launching an App, App developers are required to enter into one or more click-through App license agreements with the smartphone provider (“App Agreements”). These App Agreements contain detailed terms and conditions governing the creation and launch of the App, and provide for intellectual property licenses between and apportioning liability among the App developer and smartphone provider. As a general matter, these agreements are non-negotiable and binding the moment that the App developer clicks assent.

In general, App Agreements: 1) restrict how an App developer can use and display the smartphone provider's trademarks; 2) require the App developer to grant a license to its trademarks to the smartphone provider; 3) require the App developer to indemnify the smartphone provider for third-party intellectual property infringement claims arising from publication and use of the App (including an indemnification arising from use of the App developer's trademarks); 4) allow for modification of the relevant App Agreement, typically with notice-to and opt-out rights; and 5) allow the App developer to terminate the App Agreement upon 30 days written notice.

Brand owners also should consider trademark and related risks when entering into such App Agreements. First, there is a brand control risk given that there are typically limited or no restrictions in the trademark license granted to the smartphone provider in the App Agreements. Second, there is the possibility that, in the context of the broad indemnity by the App developer in the App Agreements, the relevant trademarks at issue have not been cleared in all territories or all intellectual property is not, in fact, available for license by the App developer. Third, as many businesses are using third-party software developers to develop and launch Apps, it is important for businesses to have adequate oversight over the third-party developers (particularly if such third-party developer enters into the relevant App Agreements with a smartphone provider). Lastly, there is a risk that third parties will create counterfeit Apps using a company's brands to lure unwitting customers.

Growth in Mobile Applications

The number and diversity of Apps has dramatically increased. One study estimates that global revenue from mobile applications ' including paid downloads and mobile advertising ' will increase from $4.1 billion last year to $17.5 billion by 2012. See Chetan Sharma, Sizing up the Global Mobile Apps Market, Industry Study Commissioned by Getjar, March 2010, p. 2 at www.chetansharma.com/Sizing_up_the_Global_Mobile_Apps_Market.pdf Apps simultaneously have become increasingly sophisticated expanding to consumer banking, music, video gaming, medical, educational, governmental, and social networking applications. Id. The growth of iPhone App downloads has already moved decision-makers, such as chief information officers at major Fortune 500 companies, to develop mobile App strategies in an effort to further market their products, strengthen customer relationships, and provide additional services to consumers. See Ann All, Thanks to Apple, Mobile Apps Are Top of Mind for CIOs, www.itbusinessedge.com/cm/blogs/all/thanks-to-apple-mobile-apps-are-top-of-mind-for-cios/?cs=39648 (Feb. 25, 2010, 11:23 EST); See also Dan Butcher, JP Morgan Chase bets on mobile to expand customer relationships, Mobile Marketer, June 18, 2009, www.mobile marketer.com/cms/news/banking- payments/3504.html. As companies, including banks and other institutions, invest considerable time and resources to create and develop Apps, it is important for these companies to consider potential intellectual property risks associated with the launch of such Apps.

App Agreements and Potential Brand Risks

Restrictions on Use of Smartphone Provider's Trademarks

A key component of virtually every App launch strategy is to advertise and promote the use of the new App on the particular smartphone device. The App Agreements, however, grant the App developer limited rights and provide detailed guidelines regarding use of the smartphone provider's trademarks, including, in most cases, the image of the smartphone itself.

For example, Apple's Developer Program License Agreement (“Apple App Agreement”) requires the App developer to comply with Apple's trademark and branding guidelines in the event that it uses Apple's marks or makes reference to Apple's products or technology. There are specific restrictions in the event that the App developer uses an image of an Apple iPhone when marketing or promoting its App, such as only using the image of the iPhone as provided by Apple and not altering or modifying such image. See App Store Identity Guidelines for Developers, July 8, 2008. Similarly, the RIM Blackberry App World Vendor Agreement (“RIM App Agreement”) grants a limited license to the App developer to use RIM's marks to market and promote an App, which use must be in accordance with RIM's branding guidelines. Google's Android Market Developer Distribution Agreement (“Google App Agreement”) permits the App developer to use Google's Android trademark, but not the Google trademark, when marketing or promoting an App. Nokia's Ovi Store Publisher Registration and Distribution Agreement (“Nokia App Agreement”) prohibits most uses of Nokia's trademarks, even for marketing or promotional purposes.

As companies increasingly launch campaigns to promote their Apps, they should verify that marketing and advertising which depict a smartphone or reference a smartphone provider comply with the detailed guidelines and restrictions set forth in the applicable App Agreement.

License to App Developer's Marks

App Agreements uniformly require that the App developer grant a royalty-free license to its trademarks to the smartphone provider both for use in a relevant App store and for marketing and promotional purposes. The App Agreements generally do not define precisely which trademarks of the App developer are subject to the license to the smartphone provider. Although certain App Agreements state that all names and marks owned or licensed by the App developer are subject to the license (e.g., the Google App Agreement and Nokia App Agreement), other App Agreements indicate that the license may be limited to names and marks that appear in the App or otherwise are provided to the smartphone provider (e.g., the Apple App Agreement and RIM App Agreement).

The App Agreements vary with respect to the degree of control reserved to the App developer regarding the use of its marks by the smartphone provider. Under the RIM App Agreement, the App developer has a right to consent to the use of its marks by RIM if such use is for purposes not related to the RIM App store (e.g., for general marketing or promotional purposes) or if the App developer's marks are modified by RIM. Other App Agreements, however, such as the Apple App Agreement, Google App Agreement, and Nokia App Agreement, do not expressly provide that the App developer consent to the smartphone provider's use of its trademarks.

The broad trademark licenses contained in the App Agreements potentially could raise branding and other concerns for App developers, as the controls and approvals that they generally may require of a licensee may not be present in these form agreements. The potential branding risks here, however, are unlikely to give rise to actual risk given that smartphone providers in practice use such brands to identify and promote the App developer's App, not to designate a new or different product or service, and frequently consult with the App developer with respect to prominent uses of such brands in advertising campaigns and the like. Nevertheless, a company should consider monitoring the use of its marks by the smartphone provider, either formally, by engaging a trademark monitoring service, or informally, by relying on the marketing department, legal department, and other company employees to report misuses of its trademarks by the smartphone provider in the marketplace.

Amendments to the App Agreements

Any analysis of the terms and conditions of and potential legal risks associated with App Agreements must take into account that the App Agreements may change. App Agreements generally provide that the App Agreement may be amended by the smartphone provider at any time, provided that the App developer is given written notice of such changes, (most of the App Agreements additionally provide that the App developer must affirmatively consent to such amendments). However, as a practical matter, the person receiving notification of a revised App Agreement may be an IT specialist at the company or an outside IT service provider who uploads the relevant App. Thus, this person may not be evaluating the potential legal impact of such amendments.

Accordingly, a company launching Apps should consider including its legal counsel in the App launch process or otherwise actively monitor amendments to the App Agreements.

Indemnification of Third-Party Claims

App Agreements typically require the App developer to indemnify the smartphone provider against third-party intellectual property infringement claims related to the App (including third-party trademark infringement claims arising from the smartphone provider's use of the App developer's trademarks).

It is important, therefore, for an App developer to ensure that its trademarks, graphical content in the App, and the technology underlying the App are owned by or licensed to the relevant App developer, and that the associated intellectual property rights have been properly cleared. Further, with respect to technology, content and other intellectual property rights developed or provided by third parties, the App developer should obtain from these third parties appropriate indemnification, so that claims by a smartphone provider may be covered by the third-party provider indemnity. Finally, the App developer should ensure that any third-party rights associated with the App are sublicenseable, as the App Agreements automatically subject such rights to a sublicense to the smartphone provider.

There is an additional risk, in that the trademark license granted to the smartphone provider typically is worldwide, even though the trademarks used in or associated with the App may not have been cleared in all relevant jurisdictions. As a practical matter, the risk may be mitigated as the smartphone provider likely would promote the availability of the App only in those jurisdictions in which the App is targeted and intended. Nonetheless, brand owners should appreciate that Apps present yet another potentially “borderless” new media, which could expose the App developer to legal liability in countries where its brands have not been cleared and protected.

Use of Third-Party Developers

As companies have sought to rapidly expand their App portfolio, they have increasingly relied on third-party software development companies that specialize in developing Apps, which have the ability to more quickly and cost-effectively create Apps on a company's behalf.

In such instances, the third-party technology provider, not the company, may be the party entering into the App Agreement. Therefore, the company may have to rely on the technology provider to exercise the company's rights and remedies under the App Agreement, and provide all relevant notices received from the smartphone provider. Accordingly, agreements with third-party technology providers that will be launching the App should contain provisions concerning prompt notice, cooperation, and consent rights regarding the App Agreements.

Counterfeiting

Finally, as with all new frontiers in which brands are present, there is the potential for significant counterfeiting of famous marks and brands in the App context. Specifically, certain App publishers are labeling their Apps with popular brands, without authorization of the brand owner, to catch the attention of smartphone users. Accordingly, brand owners should consider adopting policies regarding monitoring and enforcement of their trademarks with respect to smartphone applications, akin to policing policies that they already pursue with respect to domain names and the Internet.

Conclusion

Apps have arrived and are literally everywhere. They are revolutionizing how companies market their products, provide services to consumers, and expand their market reach. However, as with any new medium, they present their own novel legal challenges. Prior to launching Apps, companies should consider the potential branding and intellectual property risks and formulate a policy and procedure as to how best to address them. In addition, following App launch, companies should continue to monitor how their intellectual property is being used under an App Agreement, so that they are in a position to act swiftly with respect to misuses and infringements of brands and other intellectual property in an App world.

Bruce Goldner is co-head of Skadden, Arps, Slate, Meagher & Flom LLP's intellectual property and technology group. Shivram K. Sankar is an associate in the intellectual property and technology group. Both are based in the firm's New York office.