Licensing and IP Issues for Mobile and Social Game Developers

By Sam Wiley and Adam Falconer

Introduction

Gaming is big business, involving unique opportunities and challenges.  In the gaming ecosystem, there are technology and hardware companies, production companies, investors and publishers, content owners, consumers, and of course developers, designers and artists.  As the lines between mobile app development, social gaming and traditional gaming continue to experience confluence, intellectual property (“IP”) rights issues are becoming more important than ever.  This article highlights some of the issues that mobile and social game developers and other contributors who are looking to monetize their ideas, games and technology should be aware of.

Licensing Issues

Licensing existing IP to be used in the development of a mobile or social game is a good technique for getting a head start in game development, but also presents risks.  Existing IP may come with a pre-existing fan base as well as a proven concept, and thus allows the developer to spend more time on the game mechanics, engine, graphics and story.  However, there are many risks to in-licensing a major IP that developers should be aware of, including the risk that the IP will not produce the expected return on investment, or that the license agreement surrounding it may contain terms that will threaten the long-term health of the studio.

For example, certain IP may be so popular that it virtually guarantees sales of a game; imagine, for example, a game based on the characters from the Harry Potter series of books and movies at the height of their popularity.  However, this is the exception to rule.  According to Dan Figueroa, the Director of Legal & Business Affairs, with Sony Computer Entertainment America, “Great games create great IP, not the other way around.”  The history of the gaming industry is full of failed games that featured popular licensed characters but lacked compelling game play.

Moreover, in the comfort of signing a licensing deal with a major IP holder, developers may run the risk of becoming complacent in developing a game that players would actually want to play.  However, most independent or small game studios can’t afford to sink even thousands of dollars in to a failed effort.[1]

While major IP holders have been licensing to movie studios and console developers for decades, there are issues unique to mobile and social game development that may not be appropriately reflected in boiler-plate license agreements.  In particular, license agreements typically retain for the licensor broad rights to “derivative works” based on the original game.  With movies and console games, which can cost millions of dollars to develop and years to produce, the risk that the IP owner will use any such provisions to the short-term disadvantage of the developer is fairly low.

With mobile and social games however, the time from the start of development to market can be as little as three weeks, and the investment may be in the five-figure range.  It is therefore imminently possible to remake a developed game as a “sequel” so rapidly that the original game is all but lost in the shuffle, leaving the developer with little revenue and no recourse.[2]

Copying, Look-and-Feel, and Trade Secrets

Gaming in general is an industry that aligns itself around certain “genres.”[3]  The games themselves are basically comprised of various elements such as a game engine, mechanics and mathematical models, characters, sound effects, music, dialog, etc.[4]  Importantly, the game design, development and testing process starts with an idea, which usually is to some degree based on an existing game concept.

From a developer’s perspective, the goal is often to develop a portfolio of projects.  A publisher will invest in the game developer, basically paying the developer on an advance basis and then the publisher recoups on the advance at certain milestones.  A mistake that eager developers often make, is signing heavy-handed publisher contracts.  Jennifer Stanley, a partner with Fenwick & West in San Francisco, who regularly advises game developers cautions that “Anything that can be reusable, this is where the developer needs to be very careful.”[5]

Generally, Ms. Stanley stresses the importance of good communication in negotiating a development arrangement.  Each party in the deal needs to take the time to understand the others’ perspectives and various business considerations.  As a tip, Ms. Stanley says that “It’s usually ok to grant the publisher long-term rights to the developer’s tools and technology for a particular project on which the developer worked.  But when a publisher asks for rights to the developer’s tools and tech for a sequel, it’s a ‘tough ask’ for a small developer unless it’s a royalty bearing license.”  Ms. Stanley goes on to comment that when a developer creates a game with unique qualities or appeal, that the developer might “be able to negotiate a small percentage” of ancillary revenues (merchandising, etc.) relating to the game itself, serving as a sort of bonus for the developer.

In addition to transactional issues, developers need to be aware of some simple tactics for avoiding litigation pitfalls.  Litigation is expensive, and can drain valuable resources from the project portfolio.  To get a litigators perspective, Jennifer Lloyd Kelly, also a partner at Fenwick & West, described some of the issues she sees regularly in her practice focused on gaming and technology IP litigation.  Ms. Kelly described a prevalent practice in gaming called “fast following” – referring to a marketing concept where the second-mover into a market takes a less risky path than the first-mover, yet capitalizes from many of the same advantages.

Ms. Kelly is frequently asked by clients  how they can protect their IP, how much protection they can  get relative to what other people are doing and have done in the past, and how to best protect the “look and feel” of a game?  Ms. Kelly is quick to point out that the legal analysis is different depending on the applicable law, but she generally described a process whereby a court will “pick apart” a game to strip away the un-original and unprotectable elements of the game.  She said generally her “clients are concerned about surviving that process” and that “many clients do not want to test the line.”

In lieu of suing, there are different tactics used to mitigate the infringement risks in app development.  Ms. Kelly describes certain “front-end” techniques she helps clients with to navigate the process.  For example, if a client has a concern that their game might be a little too similar to another game, she investigates the creative process and the inspiration for the game.  Through such analyses, she provides her clients with valuable information to guide their business decisions for game design and development.

And sometimes, the issue of copying can come up in more benign ways.  Neel Chatterjee, the co-chair of Orrick’s global IP Group, has seen over the course of his career situations where game developers independently came up with virtually identical game elements literally thousands of miles apart.  “Sometimes in a genre, no matter how creative the expression, there are still issues with similarity that cannot always be avoided” commented Mr. Chatterjee.

Another issue that comes up is when employees or contractors are hired or depart during the design and development process.  The gaming world is relatively fluid in this regard compared to other industries.[6]  For developers and studios, a fairly straight forward tactic to mitigate such risks is to implement “screening” procedures.[7]  These could take the form of a simple questionnaire for new employees, seeking to highlight issues that need to be addressed.  Also developers and studios can implement a clear policy on information use and security.

NPE Threats

One IP issue that game developers are frequently unaware of is the legal threat from “non-practicing entities,” companies who assert patents against game studios they claim develop games with infringing technology.  This can result in an expensive settlement or lawsuit, and many development studios are not financially or structurally equipped for this risk.[8]

Data assembled by RPX Corporation, a defensive syndicated patent aggregator, indicates that the NPE threat exists at all phases of an app studio’s life cycle.  Even if the royalty demands might be correspondingly lower for earlier stage studios, a relatively low settlement demand could be disastrous for a cash poor early-stage studio.

Michael Kallus, a director with RPX, frequently advises game studios and other app developers of tactics they can use to proactively protect themselves from NPE threats.  These include practices to cut costs after a studio has been sued, such as joint defense groups, limiting discovery and tactical re-examination, as well as proactive steps that can reduce a company’s NPE risk including patent litigation insurance, strong indemnification provisions with cash rich vendors and procuring the patents of struggling competitors before they end up in the hands of NPEs.

 

Conclusions

Game developers, to their credit, often view their work as an artistic endeavor.  This attitude no doubt has contributed to the incredible surge in creativity and innovation in the game industry over the past ten years; yet, the intellectual property and licensing issues discussed in this article are often at odds with the more artistic vision of the game studio.  It is possible to see this as a sign of an industry that needs to “mature” particularly with respect to IP.  However, this would be poorly advised.  Rather than abandon their creative ways, game developers simply need to become more fluent with IP issues so that they can not only avoid risks but also take greater advantage of the opportunities provided by IP and licensing.  Mobile and social gaming can only benefit from greater education outreach on IP, and it is hoped that this article will be a just a small step in that regard over the next several years.


[1] Even in the case where the license calls for only a royalty and no upfront payment, the cost to develop a failed game (along with the reputational hit) can be impossible to recover from.

[2] Developers should be aware of this risk during negotiations, and possibly consider retaining counsel even for what appears to be straight-forward licensing discussions.

[3] General game categories listed on GameStop’s website, available at www.gamestop.com.

[4] Some of these elements are legally protectable, and others are not.  The differences between protectable game intellectual property and unprotectable game intellectual property is a deep and interesting topic, but beyond the scope of this article.  General information is available at http://www.newmediarights.org/guide/legal/Video_Games_law_Copyright_Trademark_Intellectual_Property%20 and specific inquiries are best directed to a competent and experienced gaming intellectual property attorney.

[5] Ms. Stanley has honed a set of best practices for developers and studios for structuring, drafting and negotiating transactions relating to IP.

[6] For example, a new employee may be in possession of their former employer’s IP (code, renderings, engine, etc.).

[7] Similarly, an employee may also have continuing legal obligations from a former or current project, such as non-disclosure, non-compete or other common post-employment obligations.  The enforceability or lawfulness of these provisions is an interesting topic, yet beyond the scope of this article.  For more general information, see Nolo for discussions of Trade Secret Basics available at http://www.nolo.com/legal-encyclopedia/trade-secret-basics-faq-29099.html.  Nolo also has a discussion of noncompete agreements available at http://www.nolo.com/legal-encyclopedia/noncompete-agreements-how-create-agreement-29784.html.

[8] It should be noted that some people in the gaming IP community feel that a small game studio would be unlikely to be targeted by an NPE until it was either well-funded or strongly revenue positive.

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