Here is my exchange with a person with Google on this topic at Android
Market Help:

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-----Original Message-----
From: [email protected]
[mailto:[email protected]] On Behalf Of David
McLaughlin
(Android Advocate)
Sent: Tuesday, February 17, 2009 7:09 PM
To: Android Developers
Subject: [android-developers] Re: Charging for upgrading from free to
paid
version with new features

Hi,
You may not add a price to an existing app; instead, you will need to
upload a new application version and add a price to that. Section 3.3
states that people who download a free app can not be charged at a
later date for what they have already downloaded. For example, they
can't be charged an ongoing subscription fee for additional content.
However, the user can be redirected back to the market to download a
"full" version (this would be considered a different version) for a
price.

Thanks,
David

On Tue, Feb 17, 2009 at 4:31 PM, Jay <[email protected]> wrote:
Thanks David.
Given your clarification as well as the letter of 3.3, don't you think
Android Market Help is misleading and incorrect when it says:
> Please keep in mind, that in accordance with section 3.3 in the
> Developer Distribution Agreement, any users who installed the free
> version of your application ****are entitled to upgrades of that free
> version for no extra charge****.

"Upgrades...for no extra charge" suggests any new version even one
with
additional features must remain free to existing users of older
versions.
But clearly that is not what 3.3 requires and that is not what you are
saying either. Right?

Perhaps the language on
http://market.android.com/support/bin/answer.py?answer=138412&topic=15867
needs to be corrected/disambiguated?

Thanks
Jay

From: David McLaughlin [mailto:[email protected]]
Sent: Tuesday, February 17, 2009 7:45 PM
To: Jay
Subject: Re: [android-developers] Re: Charging for upgrading from free
to paid version with new features

I agree; the language could be confusing, and we will be updating.

Thanks,
David
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So while there may be some wiggle room on the question of whether
existing users are entitled to free upgrades, I think their current
policy on converting free apps to paid (without going through the
hoops of turning your free app into a trial version and releasing a
new paid app) seems to be NO.

Google, please reconsider this policy, it doesnt serve anyone
particularly well.
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