As mobile applications continue to gain popularity, more white-label mobile app deals are popping up. And while both the startup and the large company will certainly contract with respect to intellectual property asset ownership, an asset that may be overlooked is the ownership of the white-label mobile app’s users. Worst-case scenario, ownership of the white-label mobile app users can be insurance against the large company bailing out of the white-label deal.
The importance and value of a mobile app’s users isn’t novel. I’m pretty sure Alamofire, maker of Gowalla (ex-Southlake represent), recognizes this importance and values each user they acquire. And I’m also pretty confident Alamofire owns its Gowalla users. But Gowalla isn’t a white-label app. Different issues and incentives apply.
The White-Label User Ownership Wrinkle
At first glance, large company ownership of the white-label app’s users seems like common sense: the white-label app is branded as the large company’s app, so ownership of its users should flow to the large company. But depending on the terms of the white-label deal, the mobile app startup should consider staking at least a joint-ownership claim of the white-label app’s users.
In most white-label deals, the large company doesn’t want to bet their white-label app’s success on an unproven startup. Additionally, the large company has their own brand reputation at stake and most likely just isn’t used to working with small startups. Thus, the large company will push for various provisions in the white-label agreement that will allow them to terminate the agreement early (of course, the large company will not want to extend these same early-termination provisions to the startup). Furthermore, the large company is typically not willing to throw a bunch of immediate cash the startup’s way.
The large company will likely push for a short initial term and attempt to include various events that would each trigger an early-termination right for the large company. The startup will be held to various performance obligations and representations & warranties. Additionally, other early-termination provisions may exist in a service level agreement.
A trigger of any such early-termination provision and the startup could be given the boot…regardless of how successful the white-label deal is for the large company. Based on the white-label agreement, the large company could find it in their best interests to exercise early-termination and replace the startup with another company or in-house developers.
If a startup gets paid via a revenue share arrangement, the potential exists for the large company to exercise their early-termination rights and get their white-label app’s users free-of-charge (or worse, the IP). But even if the white-label agreement vests the startup with all IP ownership, including both the startup’s mobile app and the white-label app, the large company could still receive the free benefit of the jointly-grown user base.
The Distribution Channel
A requirement that the large company remove the white-label app from the various mobile app distribution channels will not prevent the large company from getting a free mobile-app user base. The large company could simply replace the white-label mobile app with a new mobile app via an “update” to all the existing white-label app users. Therefore, a large company should not be able to replace the white-label app, unless the startup commits some pretty serious performance-related offenses or rep & warranty breaches under the white-label agreement.
Heard of the term “starter wife?” Well, a startup could be the “starter developer” for a large company if too many large company-favorable provisions exist in the white-label mobile app agreement.
As a general practice, white-label mobile application agreements should include provisions concerning ownership of the white-label mobile application’s users. Additionally, ownership (sole or joint) of the white-label mobile app’s users can be a hedge against the large company terminating your white-label agreement in good times and bad.