From Indie to Businessman

The iOS industry is maturing. Like many industries that mature past their embryonic stage, designers and developers are becoming aware of common growing pains analogous to most any industry.  With an influx of capital, widely publicized legal battles and increasing competitiveness, Indie’s are beginning to recognize the importance of cultivating their business as much as their work product.  I’ve been lucky enough to ride along shotgun, advising many clients, large and small, on how to tackle some of the business and legal issues that often arise.  My goal in this article is to touch on many of the common issues that affect the iOS industry and offer up paths to their solutions.  Keep in mind, these paths should not be construed to be individual legal advice.  Though it is a disclaimer, it could not be truer; nothing is a substitute for informed competent individualized legal advice from a licensed attorney.  An attorney should be a vital part of your business plan just like an accountant should.  An attorney client relationship is built on trust.  The earlier in your business you retain an attorney, the more fruitful and less expensive the relationship will be long term.  I use the words informed and competent in the sentence above because like a developer that knows java but not Cocoa would not be helpful to build an iOS app; an attorney who does not understand your language/business would not be very helpful advising you.  If an attorney does not know what it is you do on a day to day basis nor do they understand your business then they will be blind to issues that may greatly affect you.  The number one qualification for an attorney you hire should be his knowledge of the issues that affect the industry.  Followed up closely by their awareness of your business and how they fit into it.

So let’s get to the meat.  Probably the most common question I get asked by developers is about patent trolls and ways to protect against them.  I start off with this topic because I believe the best way to protect against patent trolls is a basic step that every new developer, company, startup, or consulting studio should do.  That step is incorporation.  Whether you are doing this part time as a hobby at night, trying to build a startup, or consulting at night, you’re in business.  Running a business comes with necessary risks and liabilities.  However, exposing your personal assets and family is an unnecessary risk and one that can easily be avoided through limited liability entities.  

So what entity should I chose?  Here’s a brief high altitude view of the differences:

C Corporation – Double Taxation on all income whether given as a salary to employees or distributed as dividends to shareholders.  Have to adhere to corporate formalities (keeping minutes of board meetings when passing any resolution that effects the company, annual meeting of shareholders, etc.) Most common entity choice for Venture Capitalists due to flexibility in classes of stock/granting of options.

S Corporation – Have to adhere to same corporate formalities as C Corporation.  Pass through taxable entity that is limited to 100 shareholders and all must be US Citizens or permanent residents.

Limited Liability Company (LLC) – Flexible pass through entity, income and loss can be allocated disproportionately however must claim income whether left in the company or distributed out.

If you would like a more in depth discussion on the topic go here - http://www.mcstartup.com/blog/2008/3/7/choosing-a-business-structure-llc-vs-c-corp-vs-s-corp.html

Next to incorporating, the best possible way to protect yourself is to have a well drafted, well negotiated contract.  I get ask all the time at conferences whether a contract off the internet is sufficient.  The problem with a contract or boilerplate language off the internet is that you don’t understand exactly what it could be saying.  My contracts professor in law school use to on a daily basis retort to insufficient answers from students that “words mean something!”  A contract should be a memorialization of the agreement that you and the other party come to.  

A common clause at the end of a contract is called a Merger clause and reads:

“This Agreement, together with all Statements of Work constitutes the complete and exclusive understanding and agreement of the parties with respect to the subject matter hereof and supersedes all prior understandings and agreements whether written or oral….”

A Merger clause is intended to cement the parol evidence rule, a common law rule, which prevents a party from introducing extrinsic evidence to create and clarify an ambiguity or add to the written terms of the contract. Stated simply, the clause means that only the terms written in the contract are your agreement, so you better understand what those words mean.  Many developers write detailed proposals at the beginning of a relationship with a client before they understand fully what the client wants.  These written proposals often include cost estimations, an explanation of deliverables and some type of time table on delivering the code.  Often times, a written proposal is a first blush look at the project and an invitation to open negotiations on a deal; not the product of a finalized deal.  However, if you do not have a written executed contract, then the terms of the written proposal and some interpretation of it can end up being seen by a court as your agreement.  My advice, hire an attorney to review or draft any agreement.  

The second reason a contract from online is a bad idea is that it generally involves zero negotiating.  One party gets it off the net and then puts it in front of the other party.  That party either does not care to change the agreement or wants to change it.  However, the party giving the internet contract is worried to change anything in the agreement because they never understood what it said in the first place.  Negotiation is oxygen to a healthy business relationship.  The process of negotiation fleshes out assumptions from both parties about the work and generally leaves both parties feeling at the very least their concerns where heard.  Negotiation can be the difference between a constructive resolution and repair of a business relationship to one that is completely soured.  It is the initial communication between two parties and can even prevent bad relationships from beginning. 

So how do I read a contract? What do I look for and what are some common sections of contracts that jump out to me?

I always approach any contract and subsequent negotiation with a risk/reward analysis.  Almost all contracts you enter into should be negotiated to some extent.  It is very rare that I am reviewing a contract written by one party that has fully contemplated both sides risks and rewards and drafted it accordingly.  For every clause in a contract, one party is ultimately taking on some risk or gaining some reward at the other party’s expense.  In reviewing a contract for my clients, I want to prioritize what risks are acceptable, somewhat acceptable based on the reward and under any condition unacceptable.  From there, let the negotiations begin.

The major sections that first catch my eye in most developer contracts are in order: (1) the dickered terms (things such as price, milestones/deliverables, term, payment time, scope and change in scope); (2) Inventions or Intellectual Property Ownership clauses; (3) Termination; (4) Warranty, Indemnification, Limitation of Damages, Non-Compete/Non-Solitication; (5) Confidentiality; (6) Miscellaneous Sections including Forum/Venue selection.

The dickered terms are of vital importance because without them you may not even have a legally enforceable contract, which is the whole point of having a written contract.  The Inventions/Ownership clause is important because it lays out in detail exactly what it is you’re giving away.  One of the unique issues in the industry is that many developers work on many different projects and hold many different titles all at the same time.  A indie developer may be an employee at a startup or company, have their sandbox they play in at night, developing a coffee or sportsball app, and then have a game they are working on with a couple of their friends from their local cocoaheads meetup.  The developer is creating Intellectual Property in all three of these roles, employee, indie developer, partner.  The Intellectual Property created in all three roles is related to the mobile or iOS industry, even though they may be topically completely different.  The problem with this scenario is that depending on the Invention/Ownership clause in the indie developer’s employment contract he or she may have already given ownership of all the IP they are creating in the 3 roles to the startup/company.  This can be a very bad situation, especially if the coffee/sportsball app or game with his friends takes off.  The following is only one of many real world examples I have come across that run into this exact problem.  I could write another entire article just on differences and the legal meaning of work for hire, assignment and licensing language in Invention/Ownership clauses of contracts.  Needless to say, this is a very important section of any contract a software developer/designer signs.

There are many scenarios I could give you where the remaining sections listed above can be as important as the first two discussed.  As you can begin to tell, these situations become fact sensitive quickly.  For example, if a contract includes a warranty clause that states your code will be bug free and tacks on a termination clause that says you are required to fix the bugs to the client’s satisfaction then you could be spending iOS update after iOS update upgrading their app under the original agreement without pay.  This is where having an attorney that understands the industry and what you do on a day to day basis comes in hand.

The last issue I will touch on is the most obvious reason developers seek out an attorney.  When should you sue someone? What happens if you get a letter threatening to sue you?  

It should go without saying that you should seek legal advice as soon, if not before, you receive a letter threatening legal action.  Most definitely, you should seek legal advice before you speak to the client/litigant again.  However, I often am surprised by how many developers I speak to that are owed say $10,000.00 from a client who stiffed them after a project was pulled do not pursue legal action to retain the money owed to them.  Most of the time, the developer or company says something along the lines of “well it will cost more money to pursue in legal fees then I would ever recover.”  This is a common trap/scare tactic used and the majority of the time is completely false.  Depending on the situation, many attorneys will take on suing and collecting money owed based on a written contract and charge the client some percentage of the amount recovered as the fee plus court costs.  It’s a no brainer and makes no logical sense to not pursue money owed in these situations.  

As you can tell, there are many issues and potential pitfalls out there facing the indie developer, startup, or consulting company.  I have only scratched the surface on these issues in this article but hope at the very least I have made you more aware and conscious of these issues moving forward.  With the maturing of the iOS industry, it is imperative that the indie developer add the hat of business man or woman to their arsenal.  With patent trolls abound, competitiveness on the rise and the influx of capital in the industry the stakes have become too high now. No matter whether you are running a startup, a consulting company or you are an indie developer having a relationship with an informed competent attorney is a vital step in the process of moving from Indie to Businessman.

NSBrief podcast

While in Denver at 360iDev, I happened to come across this really cool guy Saul Mora. After hearing my talk on “What an iOS Developer needs to know about the law,” Saul asked me to sit down with him for his podcast NSBrief and have a conversation about Law and software developers.  I have to say I had a wonderful time talking to him and answering some of the direct questions he posed.  His perspective as an indie is something that I believe many developers can relate to.  It also gave me a chance to really explain in a conversational manner many issues in general that I believe affect the industry.  You really should take the time to check it out.

The podcast can be found here - http://nsbrief.com/109-jonathan-rhyne/

Thanks Saul!

Privacy Policies: How Mobile Developers should Handle Them

I was planning on tackling some of the logistical questions raised in my last post but after getting multiple responses from my invitation for topics, it seems they’ll have to wait for another day.  The most common topic asked to be covered was privacy policies.  Don’t say you didn’t ask for it.

Privacy policies are a hot button topic right now for mobile app developers and requirements have either arrived or are on the horizon in the near future.  Currently, only eleven states have individual privacy acts that could affect app developers, all of which vary in their scope.  The stir really began when the State of California sued Delta Air Lines for its alleged failure to post a privacy policy in regard to its mobile app (People v. Delta Air Lines, Inc., Cal. Super. Ct. No. CGC 12-526741). California’s Online Privacy Protection Act requires commercial operators of online services to conspicuously post privacy policies informing users of what personally identifiable information is being collected and how it will be used.  The suit surrounded Delta’s failure to post a privacy policy in its “Fly Delta” app, as well as Delta’s alleged failure to comply with its own website privacy policy.  Ultimately, the California state court dismissed the case citing federal preemption.  However, if the company would of not been a federally regulated airline, it is likely a failure to make their privacy policy easily accessible would have been a violation of the California privacy act.  Why does this matter to you?  It matters to any app developer because if a state to which you are marketing to has a privacy protection act like California’s, you could run into significant liability (that one big oops I was talking about before).

In addition to the eleven states with privacy acts, a Federal law has been proposed to Congress this year.  The duly named Application Privacy, Protection and Security App (“Apps Act”) (you have to love how they come up with these names) suggests providing “for greater transparency in and user control over the treatment of data collected by mobile applications and to enhance the security of such data.”  Among other things, the bill would require developers to clearly explain the types, uses, and retention period for any personal data collected. The Act also gives the Federal Trade Commission authority on mobile app transparency. If enacted, many mobile applications will be required to restructure their privacy policies to ensure they are clearly understood by the consumer and include all necessary information.

There are a couple advisory reports put out since the beginning of the year that give detailed explanations of what should be included in a privacy policy to ensure the developer is not subject to possible liability.

Best Practices for Mobile Application Developers - https://www.cdt.org/files/pdfs/Best-Practices-Mobile-App-Developers.pdf (App Privacy Guidelines by the Future of Privacy Forum and the Center for Democracy & Technology)

Privacy on the go: Recommendations for the Mobile Ecosystem http://oag.ca.gov/sites/all/files/pdfs/privacy/privacy_on_the_go.pdf (put out by the California Attorney General’s Office) 

Both of the reports are helpful for the would be developer that is trying to take their own crack at writing a privacy policy.  Though, let me caution you.  Being your own attorney is similar to outsourcing development services, just at the high stakes table.

The report put out by the California Attorney General’s office is especially helpful.  The report suggests that developers contemplate all the personally identifiable data that their app could collect.  Once the personal identification data that the app may collect is identified, the developer should determine things like how this data will be used, how it will be collected, how long it will be retained, with whom it will be shared, and other such decisions. Finally, the report suggests the developer determine how this information will be protected.  Things such as limited data collection and retention and using security safeguards are all recommended.

When drafting the actual privacy policy, the report suggests the policy should be easy to find.  A recent standard has even been agreed to by various stakeholders for what is being called an “at-a-glance” privacy notice.  The report suggests that the notice must be available to users prior to downloading the app, and it must also have a link within the app that allows for access to the policy at any time.  The policy must be easy to read; the use of plain language is highly recommended, so don’t get an old school attorney to throw in some hitherto(s) and hereinwith(s). The policy should explain the app’s practice regarding the collection, use, sharing, disclosure, and retention of personally identifiable data items. If the app collects sensitive information, it is recommended that the developer make it very clear to the user that this information is being collected.

The two words used repeatedly in these reports are “transparency” and “security.” The more transparent the developer is with their collection of personal data, regardless of whether or not they believe it to be “sensitive,” and the more secure they are with the data collected, the less they will have to worry about being subject to a lawsuit for violation of an individual’s privacy.

The problem with writing on such a topic as privacy policies is that the requirements are not yet in place and they shift like the sands of the desert.  Also, I could probably write a Tolkien novel on the subject.  Let me know if you have any questions or comments.  I can be reached by email or @jdrhyne on twitter.

Next post looks to be either logistical questions or diving into Copyright/Work for hire and what every mobile developer should know about it.

360|iDev Conference Speech

For those of you who don’t know yet, I was pleasantly surprised to be selected to give a talk at 360 this year in Denver.  The conference runs from September 8 - 11 and I’ll be speaking on the final day, Wednesday at 10:40 AM in Room 1.  This conference sells out every year so get tickets while you can at http://360idev.com @360idev

The topic of my talk is descriptively titled “What an iOS Developer needs to know about the law?”  I’ve asked my clients and I’m asking you guys. If you had an attorney’s time, What would you want to hear about? Send me an email or hit me up on twitter @jdrhyne 

In gathering my thoughts and hearing feedback from my clients, it seems some of the most common questions are logistical: When do I need an attorney? Where do I find an attorney? Followed up quickly by: How much should I expect to pay?  I’ve gotten the, I don’t need an attorney until something bad happens or the budget for the project is so small it’s not feasible to hire an attorney.  Some of these logistical questions are just as important as the 300 level substantive law questions.  I think generally they are harder questions to for the developer because they can be purely business questions and not a problem you can delegate out.  They are also less sexy than hacking away at a new idea and less fulfilling than squishing a bug.  However, like most industries, these business decisions are generally the difference between a successful, stable, thriving company and another that’s one big oops away from being out of business.

The substantive questions I get ask the most are unsurprising geared to Non-Disclosure Agreements (NDAs), General Contract Negotiation, Settlement/Breach of Contract, Licensing, Trademark, Copyright, and every now again I get a question regarding Patent Law (most of the time concerned about whether they can develop an idea or not).  I cannot emphasize this enough, an iOS developer’s livelihood is their Intellectual Property.  Protecting your common code library, the side project you’re doing at night, or the idea in your head, etc. is everything.  Don’t just trust the client and sign the contract because they’re good guys.  And please, don’t just download a contract off the internet and use it.  It’s the equivalent of off-shoring development and unfortunately the stakes are much higher.

All of these questions ultimately ask the underlying question: Why I need an attorney? I plan on flushing out my thoughts for my talk over the next few weeks by writing on my blog in hopes of answering that question.  I’ll hit on some of the major topics and most likely a few that fly under most developer’s radars.  Again, I would love to hear from any developer that has a topic they would like to hear about on here.

Boston Marathon

For anybody that runs or dreams of running a marathon, the Boston Marathon is and will remain the holy grail. To think that someone would attack such an event where the ethos of commitment, perseverance, good health, life and diversity are celebrated is truly a tragedy. They didn’t just attack Boston or America, they attacked runners, families, friends, co-workers, and spectators of sport from around the world.

My prayers go out to all the families and friends who were effected by this. Also, I think the city of Boston and all the volunteers deserve a huge thanks for their work in the immediate aftermath.

Hanging My Single.

At the beginning of this year, I decided to leave the law firm I was with to start my own firm.  Over the past few years, I have had the pleasure of representing talented iOS development studios such as MartianCraft, Empirical Development, Zarra Studios, Dragon Forged and most recently Cross Forward Consulting.  Through that experience, I realized there is a need in the mobile software field for an attorney that truly understands the landscape these developers work in and the unique legal issues they encounter.

If you would like to get in contact with me regarding how I can help your company, feel free to send me an email at jdrhyne@gmail.com 

Adobe Complaint Behind Possible Apple Antitrust Investigation

Bloomberg reported that the discussion between the FTC and Justice department over a possible antitrust investigation into Apple was triggered by a complaint from Adobe.

U.S. antitrust enforcers are considering an investigation of Apple Inc. following a complaint from Adobe Systems Inc., according to people familiar with the matter.

Adobe says Apple is stifling competition by barring developers from using Adobe’s products to create applications for iPhones and iPads, said the people who spoke on condition of anonymity because they aren’t authorized to discuss the case.

The complaint triggered discussions between the Justice Department and the Federal Trade Commission over which agency should review the allegations of anticompetitive behavior, the people said. Neither agency has decided whether it would open an investigation, one person said.

Whoa - you don’t say? Never knew capitalism meant, if you can’t beat a competitor, complain to the feds and they’ll stop them.

The WSJ and Reuters Report Possible Antitrust Suit

Yesterday, I called bullocks on the NY Post report that the Federal Trade Commission and Justice Department were looking into initiating an antitrust suit against Apple for their changes to the license agreement to developers of the iPhone and iPad.  Today, both the Wall Street Journal and Reuters echo that report.

Let’s cut to the meat and potatoes of each article (their argument as to how Apple’s actions are anticompetitive).

Reuters: Regulators mull antitrust look at Apple

"What they’re (Apple) doing is clearly anticompetitive … They want one superhighway and they’re the tollkeeper on that superhighway," said David Balto, a former FTC policy director.

The superhighway being their products - a smartphone and tablet - and controlling the user’s experience on the products.  I still don’t see how that is clearly anticompetitive or anything different than any number of gaming consoles.  It’d be different if they were the only smartphone out there or only tablet but they arent.

Apple said allowing third-party tools would result in “sub-standard” apps. But critics say the company is abusing its position.

"For us and the whole developers community, it really locks us into a single platform," said Michael Chang, chief executive of mobile ad network Greystripe, of Apple’s rules.

Chang said a basic iPhone app might cost $75,000 to build on Flash, and a few thousand dollars more to convert it to work on Google Inc’s Android mobile platform. But with the new restrictions, a developer must spend another $75,000 to build the app from the ground up for a non-Apple platform.

"For a small or medium-sized company, it becomes a real financial issue, and that’s how it becomes anticompetitive," he said.

So the argument here is that you have to do more work (i.e. expense), which can become to expensive to have your apps work on multiple different platforms and therefore it is anticompetitive.   Basically, if you’re a small company and it’s too expensive to make an app/implement your idea on a certain platform then it’s anticompetitive.  That’s just ridiculous, should Apple pay small and medium-sized companies electric bills too?

WSJ: Apple Draws Scrutiny from Regulators

The Journal’s article does raise an interesting point about the mobile ad market…

Apple’s new language forbidding apps from transmitting analytical data could prevent ad networks from being able to effectively target ads, potentially giving Apple’s new iAd mobile-advertising service an edge, executives at ad networks say.

I could see how this can be argued as anticompetitive action. 

Some developers said it would be difficult for Apple to enforce the provision about not transmitting iPhone data to the extent that the language implies. Ads inside apps are a key revenue source for developers of free or inexpensive apps.

"At the end of the day, developers need a way to make money," said Krishna Subramanian, a co-founder of ad-exchange network Mobclix Inc.

She makes a good point.  The irony of the point is that developers will make a lot more money through Apple’s new iAd mobile-ad service than through services like Mobclix.

Final word: still don’t see an antitrust suit coming out of this.

New York Post: Apple May Face Antitrust Suit - Bullocks!

Josh Kosman, of The New York Post reported today that Apple may face an antitrust suit soon over their implementation of the new section 3.3.1. in the iPhone Developer Program License Agreement.  In short, the section that keeps Adobe’s Flash and other cross platforms from being run on the iPhone and iPad.

According to a person familiar with the matter, the Department of Justice and Federal Trade Commission are locked in negotiations over which of the watchdogs will begin an antitrust inquiry into Apple’s new policy of requiring software developers who devise applications for devices such as the iPhone and iPad to use only Apple’s programming tools.

Regulators, this person said, are days away from making a decision about which agency will launch the inquiry. It will focus on whether the policy, which took effect last month, kills competition by forcing programmers to choose between developing apps that can run only on Apple gizmos or come up with apps that are platform neutral, and can be used on a variety of operating systems, such as those from rivals Google, Microsoft and Research In Motion.

Read that last sentence again. I keep reading it trying to figure out how an antitrust suit would have any merit at all.  How does it kill competition?

In forcing computer programmers to choose developing an Apple-exclusive app over one that can be used on Apple and rival devices simultaneously, critics say Apple is hampering competition since the expense involved in creating an app will lead developers with limited budgets to focus on one format, not two.

Ohhh, Apple is making it expensive to create an app.  WHAT?!  

First, the statement that it is expensive to create an app is false.  There’s no overhead other than a computer, the electricity to run/charge the battery and the fee for the SDK.

Second, how many gaming platforms require developers to code specifically for their platform? Microsoft Xbox, Sony Playstation, Nintendo Wii, etc.  It doesn’t kill competition to require that developers code specifically for one format.  It actually would spur on competition.  Hence, companies such as Google developing a platform that does allow use of cross platforms. You don’t have to buy an iPhone or iPad and there is surely a market to develop apps for other smart phones.

There won’t be an antitrust suit, and if there is one filed, it’ll get dismissed.

Seriously? “A Lost iPhone Shows Apple’s Churlish Side”

So a few weeks after the lost iPhone stories comes this media reaction piece in the NY Times. Are you serious?  The journalist, David Carr, does his best (and fails miserably) to make an argument that Apple has shown with iPhone-gate why they should be looked at differently.  Just read the last three sentences from the piece…

But in engaging the long arm of the law on behalf of his corporate interests, Mr. Jobs may lead us to think, um, differently about Apple’s growing cultural dominance.

Really? Any shareholder of Apple (myself included), would want Jobs to use the law to protect his corporate interests.  He’d be a horrible CEO if he let someone steal the company’s product, sell it to a technology media site, and not prosecute them to the fullest extent of the law. Get real David Carr.  If someone stole a journalist’s computer that contained the latest soon to be released blockbuster story of the NY Times, you bet your ink stained quill they would prosecute them.

Sadly, this is not even the worst of the article…

According to a report from Wired, at some point people identifying themselves as representatives of Apple visited the home of the man apparently trying to peddle the phone, asking to search the premises. Home visits seem a little more up the alley of the Church of Scientology, another nongovernmental organization preoccupied by secrecy. 

Apple = Church of Scientology.  Next thing we know, Apple will be spoken in the same breath as the Illuminati and the Free Masons.  Oh, David Carr.