"Famous Last Words"

Timing is Everything (November 2004)

Dear Jim,

Our PC game development contract provided for the final milestone payment to be made sixty days after the game shipped into retail stores.

The publisher said this was to assure we would not “lose interest” in the final stages of debugging, and if bug fixes were required after the game was released.

Now it is nearly six months after shipment and we have still not been paid.

This represents a lot of money for our studio. We keep trying to collect but all we get is ignored or broken promises.

Any ideas on how we can get our final milestone?

Dear Work!:

There are ways to recover this money – but they have a lot to do with the wording in your development contract. If the breach section was drafted by the publisher's lawyer and not heavily negotiated by your own counsel, there's a good chance the cost of any action to recover your money will be high, and it will take a long time before you see any results.

For an overview on the issue of breach and material breach, be sure to read the essay included in the second release of the IGDA Contract Walk-Through.

When you negotiate your development agreements, here are a few ideas to give yourself some clout to get paid:

1. Most development agreements assign copyright in the game to the publisher. Developers should attempt to make this assignment dependent on all milestones being paid by the publisher. In legal-ese, this makes the assignment of rights a “condition subsequent” to payment of the final milestone. If the publisher objects, ask them “don't you intend to pay us?”
2. Development agreements typically permit the developer to retain rights to its tools and technology included in the game. Rights to use this material in the game, and sometimes in subsequent or derivative products, are licensed by the developer to the publisher. Avoid words like “irrevocable” or “for the duration of copyright” in the description of the license. Try to include some language in the termination section covering failure of publisher to make required payments. If required payments are not made, give the required notice and take steps to terminate the license covering the included tools and technology. Without rights to use these included elements, it may not be possible for the publisher to sell the game. If the publisher tries to sell the game after termination of these rights, it is an infringer.
3. Register the copyrights in your tools and technology with the United States Copyright Office. If you have a registered copyright, and the registration predates an infringement, you can recover statutory damages (this is good) and attorneys fees (this is good, too) in an action against your infringer. See http://www.copyright.gov/circs/circ61.html for more information.
4. Many agreements provide for definitions of acts that constitute “material breach.” The most popular from the publisher side is any milestone that is even one day late. Developers should work to provide that a publisher failure to pay for milestones constitutes material breach. As discussed in the Contract Walk-Through essay referenced above, a material breach has greater ramifications to the breaching party because it purportedly goes “to the heart of the agreement.” One remedy for material breach not generally available for a “garden-variety” breach is termination of the agreement. Terminating for failure to pay may result in loss of rights for the publisher. This leverage may help the developer get paid.
5. In the U.S. system of civil litigation, each side has to pay the cost of its own legal counsel. This generally serves as a cooling mechanism in discouraging litigation. However, in the case of the frequent uneven financial positions of developers and publishers, it may result in developers lacking the financial ability to assert their right to be paid for the remaining milestones. Developers should consider whether they want to push for contract language requiring the prevailing party in any litigation to be able to recover attorneys fees and costs. If there is attorneys fees language in your development deal, you have a greater possibility of finding a civil litigator willing to take your case on a contingency fee basis. On the other hand, if your publisher sues you and prevails, you will be on the hook for its fees.
6. Generally, I believe that pushing back the obligation to pay the final milestones until some time after the game has shipped is an invitation for a slow or late pay. Publishers, like all of us, pay bills on a triage basis. The most critical get paid first. Once the crisis is past, and the game is in the market, the urgency to make the final payment is gone. If your deal can only work if you accept a post-ship payment date for the final milestone, attach some critical deliverable to receipt of payment – for example, no source code or development environment is delivered until all milestone payments have been received.

Developer should not consider a milestone complete until payment has been received from the publisher. Delivery and acceptance of code by the publisher are only the first steps. Each developer should have a proactive process to track invoices and payment at the publisher level so it knows immediately when payment is delayed. Take steps immediately when things go off-track.