Developers

We start with the game developer.  These are the people who actually think up and create computer and video games.  A typical game development company consists of game designers and programmers and can include artists and writers on the creative side and physics and artificial intelligence simulators on the technical end.  Typical business roles within a development company will often include a producer, who is responsible for managing the development process and keeping all of the various parts working in harmony.

Some of the implementation details in game development may be contracted out to third parties.  This can include a broad range of services such as art, animation, and music.  In such situations, the developer’s producer has the additional task of coordinating resources both inside and outside the company to come up with the final product.

Development companies can be either independent companies or subsidiaries of publishers.  A typical independent development company will contract and work with a publisher.  The publisher will pay the developer advances as the developer reaches target milestones in developing a game, and in addition, pay a royalty based on units sold once the game gets to market.  Usually the advances help the developer meet cash flow needs while getting the game out the door, but do not usually include substantial profit.  Instead, the developer will usually have to rely on the royalties for profit.  However, the royalties are only paid to the developer after the publisher has recouped the development advances.

The leading trade organization for game developers is the International Game Developers Association (IGDA).

Publishers

Publishers are at the center of the game pipeline.  Publishers tie the game developer at the beginning to the merchant selling the finished product to the consumer at the end.  Typically, a publisher will contract with an independent game developer to make the game and will contract with merchants to sell the game to consumers.  In general, publishers exercise the most control over the game development pipeline.

On the development end, the publisher will manage the process, providing the funds for the developer to make the game and setting deadlines for its completion.  The publisher typically provides most of the financing for the game development.

On the sales end, the publisher handles the marketing and promotion of the game.  The publisher will also typically handle any licensing arrangements with platform owners, such as for game consoles or mobile devices.  Publishers usually handle the physical manufacturing of the game and its packaging, and arrange for its shipment to distributors and retailers.  A publisher will contract with merchants, both distributors and retail companies, to sell the games to consumers.

Various of the functions performed by a publisher can be contracted out.  Some areas commonly done by outside companies include marketing by advertising agencies and quality assurance by testing companies.

In exchange for their ubiquitous role in the development pipeline, publishers typically receive a substantial percentage of the revenue from the games that are sold.  Merchants pay the publisher for the games they sell and the publisher pays advances and royalties to the developer.  The publisher keeps the amounts over and above its expenses and what it pays the developer.  However, the publisher also is the one that disproportionately bears the risk of loss.  If the game does not sell, the publisher typically eats the advances it has made to the developer, as well as all of the distribution, marketing, and sales costs.

Publishers vary from large international companies such as Electronic Arts and Activision down to small regional organizations focusing only on certain categories of games.

Game platform holders often act as exclusive publishers for their platform.  Platform holders are companies that exercise strict licensing controls over their hardware platform, such as most video game console manufacturers.  Game developers must pay licensing fees to the hardware manufacturer, as well as paying fees upfront for development kits.  Effectively, the proprietary platform holders control whether or not any particular game appears on their hardware.  This is in sharp contrast to the PC computer game market, where the platforms are open to all.

The leading trade organization for game publishers is the Entertainment Software Association (ESA).

Merchants

Merchants are the companies that get the final game product into the hands of consumers.  They can take the form of large national retail chains down to small, local or regional game shops.  Typically, publishers deal directly with the large retail chains, while distributors are often intermediaries between publishers and small retailers.

For brick and mortar stores, the available shelf space is a valuable commodity.  A retailer must pick and chose among the games available for the limited space.  Only the best selling games have a chance.  In contrast, for the emerging online retail market, shelf space is virtually unlimited, allowing a broader range of games with lesser sales to be stocked.

For national retail chains, the publisher often has a very interactive role, providing the retailer with in-store advertising and posters and often even providing staff that go from store to store stocking and organizing the games on the shelf and setting up any in-store displays.

The retailer is compensated by taking a large percentage of the sale price right up front, often close to a third.  In addition, the retailer only pays the publisher for the games actually sold.  Unsold games are shipped back at the publisher’s expense.

The leading trade organization for game merchants is the Entertainment Merchants Association (EMA).

Game Development Pipeline Audio Podcast

Game Development Pipeline Video Podcast

The California law on Violent Video Games would have banned the sale or rental of “violent” video games to minors under the age of 18.  However, in 2009, the Federal 9th Circuit Court of Appeals invalidated the statute as unconstitutional by holding it violated the free speech provisions of the First Amendment of the United States Constitution.

In Video Software Dealers Association v. Schwarzenegger, the 9th Circuit Court held that the content of video games is protected speech under the First Amendment, with any attempted regulation requiring strict scrutiny.  The Court noted that absent a demonstrated compelling state interest, the state cannot prohibit or regulate such speech.  The Court then went on to conclude that the state of California had failed to demonstrate any compelling interest in regulating the speech in video games, because there was no support in the record showing any causal link between “violent” video game content and “violent” behavior by those who play such games.

Trademarks can be licensed. Trademarks are often licensed in connection with franchises, such as McDonald’s and Taco Bell. Where a trademark is licensed, an owner must take efforts to police the use of the mark so as not to lose right to the mark. This normally takes the form of retaining control over the quality of the goods or services that the licensee provides under the trademark. Accordingly, it is important for the trademark owner to include strong quality control provisions in any license agreement.

In the game industry, a trademark can similarly be licensed to another company to produce game-related products. One example is Blizzard’s the World of Warcraft computer game trademark. Blizzard licenses its trademark to other companies to sell related products such as card games, figurines, and stuffed animals. Necessarily, Blizzard carefully monitors the use of its licensed trademark to assure the quality is maintained for the goods being produced, so as not to negatively impact the value of its trademark.

Besides being licensed, a trademark can also be assigned so as to transfer all rights to the mark to a new owner. By definition, an “assignment” is the transfer of all of the rights to another. In contrast, a license is the transfer of only limited rights to use a mark for a limited time.

The author is ordinarily the original owner of a copyright.  However, when the author creates the work under a contract with another, it may be a “work for hire” where the employer or other hiring party owns the copyright.  Typically, in a job where content creation is involved, an employee will often have signed in advance an express assignment of all rights to anything created at work to the employer.

The owner can license the rights to copyrighted material to others in many different subsets.  Each of the rights of reproduction, distribution, performance, creation of derivative works, importation, and exportation can be separately licensed to different people under different terms.  Further, each of these categories can be broken down further and licensed separately by such divisions as area (country or region), place in the supply chain (publisher, distributor, or retailer), and nature of use (commercial or personal).

In each of the multiple categories, the copyright license can be either exclusive or not.  If exclusive, that same right, as limited by category, cannot be granted to another.  Where the license is non-exclusive, however, the same rights can be granted to an unlimited number of persons, many of whom may be direct competitors.  Exclusivity is often important, since it protects the acquiring party from competitors acquiring the same rights.

Copyright licensing issues come up frequently in developing computer or video games.  Where a game is taken from a literary work, such as a screenplay or novel, the developer must get an appropriate copyright license from the owner of the work.  A game based on another work is called a “derivative work” in copyright legalese.  If the original work is fiction, then a license must be obtained to develop a derivative work based on the same characters and story.  On the other hand, if the original work is non-fiction, the underlying historical facts themselves are not protected by copyright.  However, the particular way in which those facts are presented may be protected.

An important factor in copyright licensing is determining what other licenses have already been granted to others by the original owner.  To the extent non-exclusive licenses have already been granted to others for the same use, the licensee may face direct competition.  Further, where the new license being granted to the new licensee is not exclusive, the new licensee needs to be concerned about competition from possible future licensees.  Where there are multiple already existing licensees with different bundles of rights, a new licensee may want the licensor to obtain direct assurances from previous licensees that the new license will not conflict with the earlier licenses.

Another important issue is the extent to which the licensor may want to retain some control over the adaptation of their work into a computer game.  A licensor may be concerned about how the portrayal of the work in a game adaptation may affect the value of his original work, and how it may affect the marketability for additional derivative works.

The licensor may want to retain rights to license to others for other uses and could be concerned about whether a poorly done derivative game work might lessen the original work’s value to others.  Any provision where an licensor is given any kind of approval rights as to the derivative work must be carefully thought through.  If the licensor unexpectedly fails to approve the work, it could cause catastrophic delays in the game’s development.

A licensee will normally want to obtain warranties from the licensor as to its ownership of the copyright and that the original work does not infringe on the copyright of others.  In order to prevent problems at the outset, the licensee should request documentation showing the licensor’s rights and request disclosure of all prior licenses granted.  The owner should provide express assurances that no prior licenses conflict with the new one being granted.

Copyright Licensing Audio Podcast

Licensing arises primarily in three main areas of intellectual property law: copyrights, trademarks, and patents. We will discuss each of these licensing areas in more detail in separate later posts. For today, we will focus on general licensing concerns common to all three type of intellectual property.

License versus Assignment

First, we distinguish two broad concepts: assignment and license. An assignment is a transfer of all of the rights to a piece of intellectual property for its full duration. In other words, in an assignment, the transferor does not retain any rights to any aspect of the property that has been transferred. In contrast, a license is a transfer of less than all of the rights or less than the full duration of those rights. In other words, the transferor retains some rights in some aspect of the intellectual property that has been otherwise transferred.

License Terms

In a typical license agreement, the areas limiting the rights transferred should be spelled out in detail. These typically include details as to the field of use, duration, geographic area, and exclusivity of the license.

Field of Use

Field of use limits how the transferee can use the intellectual property. For example, in a model often used for online software, a license can be restricted to non-commercial, personal use only. Under such a license, the transferee may not use the software in a commercial or business setting. Such a license is often free. A separate license may be offered for business or commercial use that requires the payment of a fee.

Duration

Duration limits how long the license lasts. A license can be for a fixed term, can terminate upon the occurrence of specified conditions, or can be perpetual. The duration provisions can provide that at the end of the term, the rights go back to the transferor, or can provide that the rights then transfer to a third party. The license can provide that it is terminable upon notice, or that it automatically renews unless notice of termination is given.

Geographic Area

Geographic area limitations specify the regions where the intellectual property can be used by the transferor. This may be on any regional basis, be it country-by-country or state-by-state, or other geographically definable area.

Exclusivity

Exclusivity is an important limitation that should be spelled out carefully in a license agreement. Any exclusivity provisions usually have a significant impact on the economic value of a license. If the license is exclusive, that means that the transferor cannot license conflicting rights to another. Exclusivity means that the transferee well not face competitors within the scope of the license. On the other hand, a non-exclusive license means that the transferor can transfer the same rights to third parties, who may then be competitors of the transferee.

Warranties and Disclaimers

Another area to cover in a license agreement is to specify warranties and disclaimers. For example, software licenses typically disclaim or limit damages to the cost of the software, excluding consequential damages such as business profit losses that result from the failure of software. A common warranty often demanded by transferees is that the intellectual property being transferred is owned by the transferor and does not violate the rights of third parties.

Sublicenses

A license agreement can provide that the transferee may sublicense or transfer the license to others, within the scope of the original, parent license. If the transferor does not want the transferee to have this right, the agreement should expressly prohibit any further transfer or sublicense.

In conclusion, the proper licensing and assignment of intellectual property is at the core of the game business. It is important to identify all needs to acquire intellectual property rights early in a project, and to protect and control acquired and developed rights through a careful licensing programs.

Trademarks are usually either words or logos, or a combination of those, that are used to identify a company’s products.  While colors, sounds, and smells can sometimes be used as trademarks, they are not common, particularly in the game industry.

Trademark rights can be acquired both under state and federal law.  Under state law, once you start using a mark in commerce, you immediately obtain limited protection for that mark in the area in which you use it, both geographically and in a product category, as long as you are the first to use it in those areas.  Rights obtained by the simple use of a trademark in commerce are generally referred to as “common law trademarks”.  Common law trademarks are indicated by the use of the ™ symbol.

The problem with common law trademark protection is that two different companies can develop rights to a trademark by using the same or similar mark in two different parts of the country.  They would each then have the exclusive right to use their mark where they had used it first, but they could not use it in the areas of the country where the other company had used the mark first.  Obviously, this causes a substantial identity problem, leading to confusion over the source of products on a nationwide basis – just the problem that trademarks are supposed to solve.

To help prevent the confusion caused by conflicting common law trademarks, there is a federal system of registration overlaying the state common law system.  Once a trademark is federally registered, it keeps anyone else from using the mark nationwide, unless they already have used the mark before it was registered.  If a company has already used a mark that someone else registered, their rights become frozen to the use they made of it before the other company registered the mark.  They cannot further expand their use of the mark, either geographically or by product category.  The use of a federally registered trademark is indicated by the use of the ® symbol.

Obtaining a federal registration of a trademark requires one to file an application and go through an examination process.  The process begins with a search to see if any similar marks have already been registered.  If there is use of the mark, but it is in an unrelated field, it may still be possible to register the mark for limited use in a different field.

If the decision is made to go forward with the registration application, the process normally takes about a year, with the trademark office reviewing the proposed mark to make sure it is not similar to others in use in the same field, and that the mark otherwise satisfies the requirements of trademark law.  One of the most common restrictions that can cause problems is that the mark cannot be “descriptive” of the product or a “generic” word.  For example, “Apple” as a trademark for computers is just fine, but it could not be used as a trademark for an apple orchard’s products.

In fact, there are five categories of trademark strength.  A fanciful mark is strongest.  A fanciful mark is a made-up name that is not a part of the normal language.  Examples in the game industry include “Xbox” as a hardware device and “Tetris” as a computer game.

An arbitrary mark is one that has a common meaning, but the meaning is unrelated to the goods or services being sold under the mark.  The best example in the computer industry is the use of “Apple” to refer to computer products.

A suggestive mark suggests a characteristic of the goods or services with which it is used.  An example in the gaming world would be “Playstation”.  The risk in using a suggestive mark is that it could be interpreted as being descriptive, which as you will see below, could invalidate it.

A descriptive mark is actually descriptive of the product or services with which the mark is being used.  Descriptive marks cannot be used as trademarks unless a company has so heavily used the name in commerce that it has gained a “secondary meaning” to the public over a period of five years or more.   An example would be “Comp USA” or “Computerland” used to describe computer stores.  Trademarking a descriptive name is both risky and expensive.

Lastly, a generic mark cannot be protected at all.  An example would be the use of the word “Apple” as a trademark for the product of an apple orchard, or “Interactive Computer Games” as a trademark for computer games.

There is no limit on how long a trademark can be legally protected.  As long as the mark continues to be used in commerce, it remains protected.

It is important to monitor the use of a mark in commerce, not just by infringing competitors, but by the public.  Rights to a trademark can be lost if through widespread use it loses its identification with a particular source of a product.  For example, “Aspirin” was once a trademark of Bayer, which it lost because the term came into common usage to refer to not just Bayer aspirin, but also to the products of its competitors.  An example of a trademark that is carefully protected is “Coke”.  The company aggressively polices its mark to make sure that the term does not become generic.  Due to the company’s vigilance, if you ask for a “Coke”, you are highly unlikely to get a “Pepsi” or  an “RC”.

Penalties for trademark infringement can consist of both damages for the wrongful use of the mark and an injunction prohibiting its further use.

The common definition of trade secret is in two parts.  First, the information must be such that it derives independent economic value from not being generally known and not being readily ascertainable by proper means.  Second, reasonable efforts must be used to keep the information secret.

The type of information that can be protected by trade secret law is broad.  Basically, anything that confers commercial or competitive business advantage and that can be kept secret can be a trade secret.    This can include such things as customer lists, mailing lists, business contacts, formulas, methods, databases, software, tools, and devices, as long as they can be kept secret within the company.

The protection conferred by trade secret law is the right to prevent others from using the trade secret if obtained improperly from the owner.  It does not protect against someone developing or discovering the information independently or from another source.  It does not protect from someone reverse engineering from publicly disclosed sources, such as publicly disseminated computer code or hardware devices.

Common examples of trade secrets in a game company include customer lists and internal development tools.  Also, details of business deals and licensing agreements, if kept confidential, can qualify as trade secrets.

Trade secrets have indefinite duration.  As long as the information is protected from public disclosure, the protection continues.  Also, there is no cost or governmental process involved in obtaining trade secret protection, unlike copyrights, patents, and trademarks.

The heart of trade secret law is simply that the secrecy of the information must be maintained.  This typically requires that anyone that has access to the information sign confidentiality agreements recognizing that the information is secret and is not to be disclosed to others.  These agreements should be signed by all employees or business partners who have access to the information.

Further, access to the confidential information should be controlled.  For physical information, this may entail locking the information in file cabinets.  For electronic information, it would include password protecting access to the information.

If trade secrets are taken improperly, an owner can seek damages in the amount of its own lost profits, or alternatively, of the profits of the party who took the information.  In addition, the owner can obtain an injunction prohibiting the taker from further use or disclosure of the information.

Unlike copyrights and patents, which are protected under federal law,  trade secret law is state law and can vary in its details from state to state.

In summary, to protect your company secrets as trade secrets, you should make sure nondisclosure agreements are signed by all who have access to the information and that access to the information is restricted and controlled.

In order to obtain a patent, the inventor must go through a long and complex process referred to as “patent prosecution”.  The process is long and drawn out, and it generally takes three years or more to obtain a patent.  The process is interactive and usually requires revisions to the application before a patent is granted.  The process can be expensive to pursue, both in terms of the inventor’s time and attorneys’ fees.

While the protection provided by a patent can be more extensive than other forms of IP protection, its term is shorter.  A patent generally has a lifespan of twenty years from the date the application is filed.

Traditionally, patents are used in the game industry to protect hardware devices and features, such as game consoles and peripherals. With the current spate of new types of peripherals appearing, such as motion detectors and 3-D vision glasses and goggles, patents are coming to the forefront of new innovative game technologies.

Patent law is fundamentally different than copyright law. Patent law protects the first person to conceive of an invention. The owner can stop others from making or using that invention, even if they come up with it independently at great expense. This is in contrast to copyright, which only protects from someone actually copying the protected property.  Copyright does not protect from someone coming up with the ideas independently.

The patent consists of two main parts.  The first part is generally called the “specification”, which consists of drawings and text explaining in detail how to make and use the invention, including disclosing the inventor’s preferred embodiment.  The second part contains the “claims”, which spell out in legalize exactly what is protected by the patent.  The claims are the most important part of the patent.  For there to be an infringement, the claims must “read on” the accused device or method.  In other words, if the accused device or method must contain each and every of the limitations set out in one or more of the claims.

In order to keep a patent in force, the owner must pay periodic “maintenance fees” to the government.  If these payments are not made, the patent will expire early.

Patents are enforced in federal court in a patent infringement action.  Patent cases tend to be complex and are generally some of the most expensive cases to take to trial.  A successful owner can generally obtain both a monetary remedy compensating for the infringer’s wrongful use and an injunction stopping further infringement.

The time limit within which you must file a patent application, and be barred from later filing, is triggered by the first offer for sale, sale, or public use of the invention.  You have only one year after the earliest of these events within which to file your application.

Patents can be declared invalid even after the patent office issues them.  The two most common ways this happens are “anticipation” by “prior art” and obviousness.  Anticipation invalidates a patent if prior art is found that has all of the elements of the invention.  Obviousness is found if it would have been obvious to one skilled in the art to make the invention by combining two pieces of prior art.

While a patent application give no real protection to the inventor until a patent is actually issued, the inventor can at least mark the patent with “patent pending” after filing a patent application.  This marking serves to alert the public that if the invention is copied, and a patent is later issued, the maker would have to stop making and using the product.  This often serves to discourage copying, since when the patent issues, the then infringer would have to stop, losing their investment in bringing the item to market.

As listed in the copyright statute, categories that are eligible for copyright protection include literary works; musical works; dramatic works; pantomimes and choreographic works; pictorial, graphic, and sculptural works; motion pictures and audiovisual works; sound recordings; and architectural works.  The statute then goes on to expressly exclude from protection any idea, procedure, process, system, method of operation, concept, principle, or discovery embodied in an otherwise protected work.

Putting these two descriptions together defines copyrightable material as fixed expressions of ideas, rather than the ideas themselves.  In other words, copyright will protect the particular stories, characters, places, music, and graphics used in your game as fixed expressions of ideas, but it will not protect the general ideas behind those expressions.  As an example, the details of the character of Arthas as the Lich King in the popular online role-playing game of World of Warcraft is protected, but the ideas behind that particular character, such as his background as a prince who kills his own father in his fall into madness while seeking ultimate power is not protected.  In fact, that plot contains many of the elements of the ancient Greek myth of Oedipus and Shakespeare’s King Lear.

Games themselves as an overall product are protected both as “audiovisual works” and as “literary works”.  In addition, copyright protection extends to underlying computer code itself as “literary works”.

Copyright protection comes into existence upon the creation of an eligible work in a fixed medium.  No formalities are necessary.  Registration is not required.  However, copyright registration does confer significant benefits.  First, it is a prerequisite to filing a suit for copyright infringement.  While the registration can be filed after the infringement, it must be done before filing suit, thereby delaying enforcement.

Second, and more importantly, failure to register will eliminate the right of the owner to recover statutory damages or legal costs and attorneys’ fees for any infringement occurring before timely registration.  To be timely, the registration must be filed before the act of infringement, or within three months of the publication of the work.  The loss of the right to recover statutory damages, costs of suit, and attorneys’ fees can be significant.  Statutory damages are important where actual damages are hard to prove, such as where the infringer failed to make a profit, and attorneys’ fees in copyright litigation can be very expensive.

Third, the registration provides a legal presumption that the registrant owns the copyrighted work.  This presumption only applies if the registration is done withing five years of publication.

Copyright registration is simple and inexpensive, involving a form of only a few pages and a fee of $30.

“Derivative works” is a copyright doctrine that has important applications in the game industry.  Derivative works are ones based on existing copyrighted work that are recast into a different form of protected work.  A long-standing and common example would be a book being turned into a movie.  In the game industry, the common analogy would be a game based on a movie.  The copyright on the original Harry Potter books provides an example of a full continuum of derivative works from the original books, to movies, and then finally to games.  For the derivative works to be produced, a license was necessary from the owner of the original copyright, in the case of Harry Potter, that would be the original author J.K. Rowling.

Copyrights have a very long duration.  For works prior to 1978, there are various copyright terms.  However, since commercial computer games have all been created later, the uniformly applicable copyright term is 70 years after the death of the author if an individual, or 95 years after publication or 120 years after creation, whichever is shortest, if the author is a corporation.

IP in a game company includes such things as your game’s computer code, art, writings, music, graphics, pictures, audiovisual, and hardware innovations.  In other words, just about everything your company makes, and hopefully, sells.  IP also includes some other areas that might not originally occur to you, such as customer lists, contracts and their terms, development tools, and importantly, your company’s name and logo.

Of the four types of IP protection, copyright has the broadest application to the game industry.  It is generally the most effective tool for protecting creative works, such as computer code,  story, art, graphics, and cinematics, which collectively are usually most of a game company’s assets.  Copyright protects from others copying creative works without the owner’s permission.  It does not protect the owner from others coming up with the same or similar creations independently.

Patent law protects someone who first conceives of an idea and then obtains a patent.  Patents traditionally only applied to physical systems, methods of operation,  and compositions.  For game developers, this means that patents have limited or no applicability to most game IP, such as computer code, art, writings, and cinematics.  Instead, these items are usually protected by copyright.  In recent years, there has been some expansion, and then retraction, of the coverage of software patents.  The one area in which patents are clearly applicable in the game industry is for hardware devices, such as game peripherals.  With the current advances in such things as 3-D devices and game controllers using motion feedback, patents are becoming more valuable as a way of protecting game IP.

Trade secrets protect proprietary business information that is kept confidential.  This can apply in part to source code for games when that source code is not revealed during use, such as programs implemented with compiled object code.  Trade secret law also applies to general business information that is kept confidential, such as customer lists, contractual arrangements, and the terms of business deals.  Trade secret law only protects you from someone improperly obtaining the information from you.   It does not protect you from someone independently developing or obtaining the information, and it does not protect you if the information is revealed through reverse engineering.

Trademarks protect the names and logos used to identify companies and their products.  Such protection allows the public to rely tradenames used with products as showing their true source of origin.  State laws generally protect names to the extent they are actually used in commerce in a particular area.  Federal registration provides nationwide protection.

Protecting Intellectual Property Audio Podcast