Famous Last Words June09

DISCLAIMER: This column is intended for general educationaland entertainment purposes and is not legal advice. Every situation is unique. Anyone entering into a contract should have a lawyer who can provide counsel.

Jim Charne,

Attorney at Law

Developer's reps that say "DANGER AHEAD" (June 2009)

Dear Jim:

We notice in our game dev agreement, that our representations and warranties as the developer run to nearly one whole page. The publisher's reps are only a sentence or so. Anything there we should be especially concerned about?

Legally Challenged

 

Dear Challenged,

Representations and warranties are the heart of the so-called "boilerplate" of a development agreement.

Certainly the true heart is the description of the game, milestones, associated payments and royalties. But the reps and warranties provide the foundation on which the agreement is made.

So what is a rep or warranty? At their core, these are promises that each side makes to the other that form the foundation of the agreement. Each side has the right as a contracting party to rely on the promises of the other side in entering into and enjoying the benefit of the bargain.

Developer reps must be carefully read and considered. Where a rep has multiple sections, or clauses, each should be separately considered because each is a separate promise. If a developer can not confidently answer "yes" to each promise, the deal should be reconsidered, or the troublesome reps carefully negotiated.

For example, every game dev agreement requires the developer to warrant (promise) to the publisher that the game is original and does not infringe upon a long list of intellectual property and personal rights of any third party. The publisher has a good faith expectation that it will get original, non-infringing work. But in examining this rep, the developer may want to consider whether any parts of the game are being provided by the publisher, a third party licensor, middleware provider, or anyone else. In such a case, as a developer, you may want to limit your IP rep to infringing content that is original to you. There is no good reason why developer should stand behind any part of a game if it is not the original work of developer.

Similarly, the list of IP rights that are not infringed may include patent. Patent claims are different from copyright in that a patent may be unknowingly infringed. "Submarine" patent cases are a risk of participating in the games business. Developers often are able to limit their patent reps so they would be liable for infringement only for "patents known to developer." In some cases, publishers will accept this limitation if it also provides that this is "after reasonable affirmative inquiry by developer."

Here is another developer promise found in many game development agreements that must be carefully considered:

"Developer warrants that the gold master released to manufacturing will be free from programming errors (commonly known as "bugs").

Sounds simple. But consider: my experience with game code is that rather than being free of bugs, game code nearly always contains bugs! On occasion, the publisher is aware of those bugs but elects to go forward regardless. This is not to say that game programmers are deficient; but rather that code is enormously complicated and the likelihood of releasing totally bug-free code is difficult to say the least. Release dates, testing availability, and dev budgets all conspire against totally bug-free code going into production!

However, if a developer makes the above rep, it is on the hook for any damages suffered by the publisher arising from any bug(s) in the code. Examples of such damages could range from the cost of preparing a patch, all the way to all losses arising from a product recall and replacement if the bug is serious enough.

The best alternative for the developer would be to negotiate this rep out of the agreement. After all, the publisher is most likely overseeing testing, the game has to get past the sophisticated q.a. of the console manufacturers, and it is fundamentally unfair to place all this risk on the developer. Developer should stand behind the code - but the way to do that is to agree to fix bugs.

If the publisher flat-out refuses to remove the rep, the developer could accept it. But the agreement then could also provide that as an exclusive (sole) remedy, the developer would agree to fix any bugs. Anything less adds a huge long term risk to the deal for the developer.

And in no case, should a developer make a "no-bugs" rep if it covers code provided to developer by publisher or any third party. Like the warranty of non-infringement discussed above, developer's reps should not extend beyond those elements of the game that are original to developer!

Reviewing and fully understanding each rep and warranty is an important part of contract review. An experienced games industry lawyer can help with that review and analysis, and suggest ways to limit risk to the developer.

Is there language in your contract that has you scratching your head? Found something confusing or worse? Submit a question to Jim for developer-oriented analysis in this Famous Last Words column (IGDA members only).

Jim's Bio

Jim Charne practices law in Santa Monica, CA (www.charnelaw.com) where he represents developers, designers, and other clients in the games industry. Jim was the proud recipient of an IGDA M.V.P. Award at GDC 2006, is chair of the annual GDC legal and business tutorial, and a member of the Advisory Board of G.A.N.G. From 1998 to 2001, Jim served as President of the Academy of Interactive Arts and Sciences.

© 2009 Jim Charne. All rights reserved.