International Game Developers Association

Table of contents 1 IP Agreements Independent Developers Sign 1.1 Overview 1.2 IPR Agreements in the Lifecycle of a Game Development Business 1.2.1 Seed / Startup Stage. 1.2.2 Growth / Expansion Stage. 1.2.3 Decline / Exit Stage. 1.3 IPR Agreements in the Game Development Lifecycle 1.3.1 IP Contract Types 1.3.2 Content Acquisition and Retention Agreements 1.3.3 Proprietary Platform Agreements 1.3.4 Third Party IP Agreements 1.3.5 Publisher Related IP Agreements 1.3.6 Miscellaneous IP Agreements

[edit] IP Agreements Independent Developers Sign

[edit] Overview

Independent game developers create games from code, art, sound, and imagination. They work in teams and use various tools to accomplish that task, therefore the developer as a legal entity enters into numerous business agreements with employees, suppliers, contractors, investors, and publishers over the course of this life cycle.

Many of these agreements relate to or affect Intellectual Property rights. These agreements will help the developer acquire ownership of the game assets, license the tools and technology necessary to make the game, acquire licensed IP to make the game and convey ownership of the game, or license the game to the publisher who takes it to market.

At the most basic level, Intellectual Property Agreements are legal contracts between a party "A" with specific Intellectual Property Rights, and a party "B" who does not have those specific rights, in which party "A" establishes conditions under which party "B" can use the associated Intellectual Property. There are many possible forms of Intellectual Property Agreement, but in practice the following details are typically determined:

• What permissions does party "B" acquire?
• What rights does party "A" reserve?
• What does "A" get in return?
• Is ownership of anything transferred?
• Under what conditions is the agreement rescinded?
• What happens when the terms of the agreement are violated?
• What laws apply to the agreement?

These themes differ little from those of any legal contract. In many cases both parties have Intellectual Property Rights and the agreement determines who can legally use and own them. In addition, it is common for Intellectual Property Agreements to be embedded in, or otherwise determined in, other contracts.

[edit] IPR Agreements in the Lifecycle of a Game Development Business

A game development business typically follows a four-stage lifecycle. Intellectual Property Rights may play an important role in each stage.

[edit] Seed / Startup Stage.

In this stage the business develops from an idea to a legal entity with products in development. The business is typically funded using the team's own time and capital, grant funds, or advances from customers. The business is focused on determining its legal structure, matching its skill set to market opportunities, and finding a market niche.

Developers often create a lot of intellectual property during the Seed / Startup stage, as they create the innovative game assets, system architectures, engines, characters, and game worlds that will establish their niche. Patents, trademarks, and copyright will establish that the developer created these intellectual properties. IPR agreements will determine whether the developer, or someone else, has the legal right to make decisions about them.

Developers often need rights to 3rd party intellectual property during this stage, as the business does not yet have a stockpile of re-useable assets, brands, and development tools. IPR agreements give the developer the legal right to use modeling and animation tools, to develop for "closed" hardware platforms, incorporate 3rd party music and images, and build on 3rd party graphics, sound, and user interface engines. These same agreements may prevent the developer from disclosing 3rd party information to others.

The business signs its first publishing deal in this stage, and the deal nearly always involves negotiations over Intellectual Property Rights.

Sadly, most businesses fail during this stage. Intellectual Property Rights are assets of the business, and IPR agreements, as well as applicable business law, will determine who owns these assets if the business fails (see Decline / Exit Stage, below).

[edit] Growth / Expansion Stage.

In this stage, the business is profitable with one or more published titles. The business is healthy enough to seek funding from banks and investors, or to fund itself with profits. The business typically hires more employees, and tackles more ambitious game projects. Since the developer's niche has proven profitable, other developers target it, and competition mounts.

During Growth and Expansion, the developer will formalise and revise its business practices. Often this is an opportunity to revise and clarify Intellectual Property Rights agreements with existing employees, and among partners.

In this stage, other developers may try to "clone" the developer's games and undersell it, or to introduce incremental innovations to the developer's basic game design, in order to make a quick profit. The developer's Intellectual Property Rights allow it to exercise control over the competition.

The developer can generate additional profits in this stage by licensing their technology or game design to another developer, if they still have the Intellectual Property Rights (e.g. haven't assigned them to a publisher). In this case, they'll want agreements to establish exactly what can and cannot be done with their IP.

A developer's Intellectual Property Rights might also be used as collateral for loans, or to reassure prospective investors that the company has a protected business model.

[edit] Decline / Exit Stage.

Developers go out of business - it's natural, and no cause for shame. During the Decline / Exit stage, the developer is no longer able to compete effectively, and consequently is no longer profitable. The business is funded by consuming its own assets, and those of the owners. Employees leave the business, whether to seek greener pastures or due to downsizing. The developer places a fair dollar value on the business, and seeks to maximise that value in order to cash out.

During this stage, the developer's Intellectual Property Rights become coveted spoils. If the developer hasn't carefully planned an exit strategy including Intellectual Property agreements, the developer's IP may be hopelessly entangled in a briar of contracts with the net effect that nobody can use the IP.

The more likely case is that the developer's Intellectual Property Rights - whether brands, technologies, or copyrights - will become key assets of the business, critical to achieving a high valuation.

The specific IPR agreements that independent game developers sign during each stage of the business life cycle depend on internal factors such as how the business is structured, and also on external factors such as the outcome of negotiations with publishers, technology partners, contractors, and other 3rd parties.

[edit] IPR Agreements in the Game Development Lifecycle

A game develops in stages. The earliest stages of game development, pre-production, include design, research, prototyping, proposal-writing, and tool acquisition. The middle, or production, stages involve asset development, feature implementation, and integration. The final post-production stages require testing, balancing, final modifications, and all of the activities that get a game into the distribution channel: package design, technical and user documentation, release coordination, replication, and shipping.

Throughout this lifecycle, the development team acquires and creates intellectual property.

[edit] IP Contract Types

These different types of IP agreements used in this process fall into these basic classes.

• Content Acquisition and Retention Agreements: the IP agreements used in conjunction with the assets used by or created by the developer
• Proprietary Platform Agreements: the IP agreements which allow the developer to develop games on proprietary platforms (such as most console game platforms)
• Third Party Agreements: the IP agreements involved in conjunction with the software tools and technology used to facilitate the creation of the game assets.
• Development, Publishing, and Distribution Agreements: the IP agreements with the publisher or distributor through which the developer "sells" the finished product.
• Entertainment Property Agreements: the IP agreements involving the licensing or ownership of the IP upon which the game is based such as a film or novel or an original concept.

Types of legal contracts which independent developers may use that often include the above IP agreements include:

• Employment contracts
• NDAs with console manufacturers, publishers, subcontractors
• Work for hire contracts (by developer with subcontractor, or publisher with developer)
• Licenses for using someone else's IP: content, tools, tech, other IP
• Licenses that authorise a developer to develop for a platform

[edit] Content Acquisition and Retention Agreements

The initial set of IP agreements any independent developer needs to consider are those between the team members or subcontractors and the developer itself. These sometimes-overlooked initial agreements convey the IP rights of those contributing their work to the game to the developer. Under traditional principles of intellectual property law, the creator of a "work" owns copyrights associated with that work. So, for example, an artist owns the image he creates. If that image is a part of the game, the artist still owns it unless it was done while being paid as an employee or under a work for hire contract. In either case it is then considered "work for hire" and is owned by the employer instead.

The nomenclature "work for hire" refers to the principles through which IP rights transfer within a corporate enterprise or between a purchaser and contractor. The US Copyright Act defines "work made for hire" as "(1) a work prepared by an employee within the scope of his or her employment; or (2) a work specially ordered or commissioned for use as a . . . part of an audiovisual work . . . if the parties expressly agree in a written instrument signed by them that the work shall be considered a work made for hire." Video games are deemed audiovisual works for purposes of the Act. Essentially, unless an employee's contribution to a game is within the scope of employment, or an independent contractor such as a music or sound provider is bound by a written agreement, copyright ownership remains with the employee or contractor. This is true even if the copyright material originates from the idea of, and is paid for by, the developer. To avoid any possible loss of IP rights to copyrighted material, and at the insistence of publishers, employees and contractors are required to sign contracts that acknowledge the work is made for hire and provide for the explicit and absolute transfer of all IP rights in the video game to the developer at the outset of the engagement of the employee or contractor. Failure to properly account for the transfer of all copyright interests can have potentially devastating consequences for a developer.

One common pitfall is the case where at the early stage of the project the team members are not yet employees, they are merely contributing their work to the project in hopes that funding will be obtained to make the game. So, the first IP agreement most independent developers should sign is one with the contributors conveying all right title and interest in the contributed "works" to the developer. Otherwise the developer may not own some of the assets, a serious potential problem later on.

Other licenses that fall into this category would be licenses to pre-existing libraries or collections of assets (sound effects, images, etc). Similarly, utilising content from a prior game may require an agreement.

[edit] Proprietary Platform Agreements

Most console manufacturers require the developer to sign a license in order to have access to the proprietary information (API, etc) needed to develop games on that platform. These licenses identify proprietary information (trade secrets) and control the dissemination of such information. They also often protect related hardware and software, for instance a development kit may continue to be owned by the manufacturer and legally only temporarily leased to the developer.

[edit] Third Party IP Agreements

Many of the software tools used to create the game assets will be licensed from third party software companies. Some, like the license to use the operating systems in the workstations, are pretty straightforward and simple. Others, such as the high-end seat licenses for the graphics and animation tools are more complex. Finally, the ever-increasing reliance on the licensing of third party game engines creates an even more complex set of IP licenses to deal with. For instance, if the developer creates its own engine, then it may end up licensing its engine to other developers for use in their games through another IP agreement.

Other licenses with third parties may relate to IP licenses of non-game content that will form the basis for the back-story to the game, the game characters and environment, the music and script. Often these licenses are acquired by the publisher as part of the publishing contract with the licensee. However, at times a developer may directly enter into an agreement to an IP license relating to a game, especially if the game is self-funded by the developer prior to placing it with a publisher. A strong third party IP can drive game sales and such an association can be a big help in getting the publisher to fund a game. Often licenses to third party IP are based on a share of revenue or royalties, with some minimum guaranteed level of payment. These agreements are pretty much one off contracts that are negotiated and custom drafted for each specific deal.

Third party content contributors will have IP agreements associated with them as well. It is common for developers to use an independent third party source to supply some of the game assets. The most common third party contributors involve sound design and music, although game assets like movies and motion capture animations may also be contracted to third parties. Depending on the type of contribution, these assets are either accompanied by a "work for hire' type of agreement or secured with a license agreement.

[edit] Publisher Related IP Agreements

Of course, the main IP agreement that an Independent Developer signs is that with its publisher. But the developer/publisher relationship actually has several contracts that comprise IP agreements associated with it. The first in the process is normally a mutual Non-Disclosure Agreement (NDA) that should be executed by both the developer and the publisher prior to the developer presenting its project to the publisher for consideration. This agreement determines the scope of the proprietary information to be exchanged and the responsibilities of each party with respect to not disclosing that proprietary information. It is important to have legal review of any NDA which you sign, to be sure of exactly what rights you are conveying and what you can expect from the other party.

If the publisher is willing to sign the game and the developer and publisher come to an agreement as to the basic terms of their relationship, these terms are set out in a subsequent contract, typically a development contract or publishing contract. –The contract may first be outlined in a Letter of Intent or Heads of Agreement (LOI), which confirms the core agreement terms prior to the entry into the final Long Form Agreement without getting too bogged down in the minutia that often fills the more formal final agreement. The scope of the LOI varies considerably, and it is important to have legal representation when completing one.

The IGDA Business and Legal Committee (http://www.igda.org/biz/) has released and is in the process of updating a White Paper detailing developer publisher agreements (the Contract Walk-Through). Those with interest in these agreements can get a great deal of information from that White Paper.

[edit] Miscellaneous IP Agreements

The final formal developer/publisher agreement is, at its core, all about IP. The ownership of IP created for the game might be retained by the developer and licensed to the publisher, or a portion of it may be owned by the publisher. Some IP might revert back to the developer if the project is terminated, and there are often specifics related to the use of the IP for sequels or derivative works that the publisher or developer may do. Or, the entertainment property (or brand) may be a licensed property owned by a third party and the publisher agreement will deal with the remaining IP created and associated with the game IP.

If the developer retains ownership of the entertainment IP in the game, and the game is a smash hit, there may even be post release IP agreements such as movie, comic or even "action figure" licensing agreements. And then there are the expansion packs and sequels. Now that's something we can all hope for!