"Famous Last Words"

Smooth Flow of Subcontractor Rights (August 2006)

Dear Jim:

We are developing a budget line PS2 game for a mid-level publisher and want to use local subcontractors for some of the programming and art development.

I know we have to get consent from our publisher to use subs, and we have already had preliminary discussions. They seem cool with it.

But the question has come up internally about ownership of the subs' work. When we pay our subcontractors, do we automatically own their milestones?

Dear Careful:

I'm glad you wrote about this – otherwise we might have to call you “Careless Developer.”

Under Section 102 of the United States Copyright Act (Title 17, United States Code), copyright protection subsists in original works of authorship, from the moment they are fixed in any tangible medium of expression.

For purposes of our industry, “original works of authorship” could include elements of games such as literary works, musical works, pictorial and graphic works, audiovisual works, and sound recordings.

Therefore, under the copyright law, any work delivered by your subcontractor, from the moment it was first “fixed in any tangible medium of expression,” would be a separate, divisible copyrighted work. And the owner of that copyright is the creator of the work – in this case, your subcontractor!

This issue of ownership of work product created by subcontractors has been litigated from time to time with mixed results. Some courts have sided with the copyright creator – some have determined that even without paperwork expressly transferring rights, if an intent of the parties can be uncovered from their actions, ownership has been found to reside in the contractor, and not the sub.

But that leads me to ask why would anyone want to leave such an important issue open to question; or to expensive and time consuming litigation??? Publishers take issues of ownership of IP very seriously. As the developer, you have to deliver clear title to certain rights and assets to your publisher. It is only prudent to make sure you have a clear record of ownership in and to all these rights and materials. Otherwise you can get caught in the middle. You'll be required to deliver something you may not own, and could find yourself in material breach of your own development agreement.

So where to start? The first step is to review your own dev agreement. Look to the grant of rights section for the description of what you must turn over to the publisher.

Next, when you are negotiating with your subcontractors, be sure they understand that rights have to be passed through you to the publisher. In constructing the written agreement between you and the subcontractor (and you must always have a written agreement!), follow the minimum requirements of your own publisher agreement.

That is not to say you may be interested in acquiring greater rights, or additional rights from your subcontractors. But at a minimum, you must have a clear path from sub to you to the publisher.

In reviewing your publisher agreement, pay close attention to whether your grant to the publisher is on a “work-for-hire” basis.

“Work for hire” is a special provision in the United States copyright law that covers work made by an employee for his or her employer. The statute then expands the concept to provide that under certain limited conditions, work performed by an unaffiliated third party can be regarded as “work-for-hire.”

Work-for-hire performed by an unaffiliated third party can include work specially ordered or commissioned for use as a contribution to a collective work, or as a part of an audiovisual work. And games are widely seen as qualifying as audio-visual works!

When work is “work-for-hire,” the so-called “employer-for-hire” is treated as both the owner and author of the work for copyright purposes. This doesn't go to the issue of the developer receiving credit on the box or elsewhere as the developer of the game, but does give the “employer-for-hire” greater rights than it would otherwise acquire in a simple transfer, or “assignment,' of ownership rights.

In order for a work to be treated as a “work-for-hire,” it has to fall into one of the categories described above, and, most important, there must be a writing between the parties identifying the work as “work-for-hire.”

If your publisher agreement requires that you deliver assets and materials as “work-for-hire,” that is generally viewed as a sufficient writing to satisfy the statute and obligate you.

But in contracting with your own subcontractor, unless you have similar work-for-hire language, those rights will not flow to you, you won't have them, and you can not transfer them to the publisher along with the rest of your game.

That's because you can not give (to the publisher) what you did not get (from your sub).

When you contract with your subs, be sure the grant of rights closely follows your own grant language to your publisher.

When this is done properly, it is smooth and painless. When it is not done properly, it can cause enormous headaches (mainly for the developer)!

By focusing on tying up all necessary rights with your subs at the beginning of the relationship, you will be able to focus on the most difficult job at hand – coordinating efforts to deliver the best game possible to your publisher.

Also, be sure to see the updated/extended June column on unenforceable contract clauses.