2 Practical Reasons Why You Need an API License Agreement!

I have been delaying writing a blog post about API licensing, as I could not find a good real world example to go along with the post. Well, Twitter just gave me that real world example. They recently changed their API license agreement, which caused quite an uproar in the Twitter community. Take a read below, as every company seeking a venture capital investment or growth equity should be aware of these 2 great reasons why companies with an API need an API license agreement (instead of going naked with no agreement).

For background purposes, Twitter changed their API licensing terms to further restrict how their API developers use their API (oh yea, there are over 750,000 registered apps). Twitter now wants its API developers to build “tools” . . . not businesses or applications.
Quote from Twitter email re: their new API Rules of the Road on March 11th (2011):

“Developers have told us that they’d like more guidance from us about the best opportunities to build on Twitter. More specifically, developers ask us if they should build client apps that mimic or reproduce the mainstream Twitter consumer client experience. “The answer is no.” (emphasis added) Here is the link to the whole email.

1) Your API Developer Use Case, Could Change. As you know, things change rapidly in the software and SAAS world. You may open up your API and then realize that you opened it up too much, and you want to restrict what your API developers are doing.

• Twitter realized this, as developers were using their API to compete with Twitter or simply duplicate their interface, and caused confusion in the market place (plus trademark issues, changing the tweets, etc).

As most API license agreements are pretty one sided (you are giving them something for free and it is your technology), you can change the terms at any time. However, if you don’t have an API license agreement and then you change your API program, your API developers may not only get really upset, but if they lose $ as a result of the change, you may be responding to lots of complaints and maybe a lawsuit or two (= not very fun). So think about putting an API license agreement in place, as it can expressly give you the right to change your API terms without any liability to you.

2) Communicate the Right Expectations to Your API Developers. As with any agreement, the API license agreement helps to communicate your model (setting expectations of what your developers can and cannot do), and most users actually want to know where the boundaries are (having a great API FAQ is a good idea too). I find that most software or SAAS companies don’t know what the terms of their API license agreement should be, so they avoid the issue (remember, no decision is still a decision). Well, maybe you get lucky and you don’t need to make significant changes, but I would not recommend relying on luck.

• I bet you if Twitter did not have an API license agreement with (a) limitations of liability, (b) disclaimer of warranties, (c) specific language giving them the right to change the agreement at any time, etc., they would have been sued for this recent change. The API users would have probably argued that they relied on this access without restriction and created a business around it (i.e. spent $), and now Twitter cannot make a change without compensating them for the loss.

Well, a good API license agreement can help avoid this whole argument, as it can help communicate your API development model and set the right expectations with your API developers.

Anyhow, I could go on and on with other reasons, but if you can remember that (1) things can and will change in your API model (i.e. remember that you cannot see the future), and (2) you need to set the right expectations with your API developers, then you get the 2 main reasons why you need an API license agreement. Any company seeking growth equity should be aware of this (it may even help with creating your competitive advantage).

TechCrunch Post on the Twitter API Change.

ZDNet Post on the Twitter API Change.

Disclaimer: This post is for informational and educational purposes only, and is not legal advice. Hire an attorney if you need legal advice.