Tips for Game Developer and Game Publisher Licensing Agreements
By Justin M. Jacobson, Esq.
Once a game developer protects the unique elements of its title with the appropriate intellectual property law protections such as copyrights and trademarks, the developer must then be aware of how its protected intellectual property (“IP”) can be licensed, sold, or used by another party. In fact, with the recent success of the “Arcane” animated series, the “The Last Of Us” television show, and the “Super Mario Bros.” motion picture, this knowledge is crucial for game developers of all sizes including independent or “indie” ones.
Game Publishing Licenses for Game Developers and Game Publishers
When a game is created, a developer has a variety of opportunities to monetize their title. One of these existing avenues is entering into a licensing agreement with a third-party game publisher to distribute or otherwise publicly sell the title. A “license” or a licensing agreement is a type of written contract that provides the licensee (i.e., the game publisher) with the “right to use” the IP (i.e., the game) owned by the licensor (i.e., the game developer) pursuant to the provisions of the written agreement. While the exact language of these documents differs, this article highlights a few crucial contractual clauses that a game developer should be aware of when negotiating these types of deals with a game publisher and that may be included in many of these standard agreements.
While every document is different, these contracts usually outline the rights and obligations of both parties as it relates to the licensed IP as well as address the decision-making procedure for the game’s development, marketing, and sale. A standard licensing deal also contains information on the current and future financing of the title, the royalties earned from the game sales, the game’s overall development plan and timeline, as well as information on to the game testing and “localization” of the product. These types of arrangement also commonly address how and when the game will be distributed, marketed, and manufactured, and in which countries and on which gaming platforms.
Video Game Licensing Agreements for Game Developers and Game Publishers
A license can be structured as an exclusive or a non-exclusive agreement. An exclusive one is where no other party can use the IP during the term or forever for any purpose or solely for the stated purpose. In contrast, a non-exclusive arrangement permits other parties to use and monetize the same IP at the same time as another entity for the same or similar purpose. In most cases, an agreement between a game developer and a publisher is fashioned as an exclusive contractual arrangement but this can certainly be altered by the contracting parties.
A standard video game licensing agreement usually addresses the scope of the arrangement between the game publisher and the developer, including stating which rights are provided and to whom as well as speaking on which party owns the finished game and the title’s IP. Some deals involve full ownership interest in the game and its related IP; while other agreements could incorporate a “carve-out” provision or other limitations that fashion the agreement to apply to only one or a few select categories, such as for a particular geographic territory or for a specific technological platform. For example, a game publisher could contract for one specific gaming platform (i.e., just console or just mobile) and not for all platforms as well as receive rights to one geographic territory or country. Accordingly, a standard agreement specifies the applicable platform or platforms as well as lists the territory or territories that the game publisher is authorized to work in, such as solely in North America, only in the U.S., or for the “universe” or “world.” A developer might also license the game for publishing and distribution in various languages. In these cases, a standard agreement usually specifies the licensed language, such as translating the game from English to Spanish or Japanese. Another common provision in this type of document is focused on whether the game developer is responsible for delivering all versions of the game for each platform or if the publisher can contract with other developers to create those other versions which is referred to as “porting.”
What is in a Game Licensing Agreement?
Furthermore, a typical licensing agreement may discuss which party possesses the right to create or authorize other parties to make “derivative” works based on the game’s IP. For example, a “derivative” work is a creation that is based off an existing game title’s protectible assets such as a television show, a motion picture, a literary work, a tabletop game, physical and digital merchandise, and any other media piece or item incorporating or based off the title’s IP. In addition, a video game publishing agreement commonly addresses which party possesses the merchandising and other ancillary rights to the game title including speaking on which entity has the right to permit the creation of sequels, prequels, and spin-offs based on the original IP. A typical license may also speak on whether the agreement provides the game publisher with rights to sell and distribute any downloadable content (DLC) that is later created and released by the game developer.
Another common clause in a standard game licensing contract is a provision addressing the “term” of the agreement. The term is the length of the license, and this time frame could be in terms of days, weeks, months, or years. Alternatively, the IP could be licensed in “perpetuity” or for the “life of the copyright.” The term provision in a video game publishing agreement might also include information on any “options” to renew and extend the contract. These clauses will typically include information on any guaranteed time periods referred to as “firm” options that can extend the deal. The agreement might also address the procedure to exercise an option, such as requiring the mutual approval of both parties. Alternatively, this provision might state that an option is operable if certain game sales or other financial milestones are achieved, or when any other criteria that the parties agree to in writing are reached.
Game licensing deals may also include language on the compensation payable to each party. Under these agreements, a game developer might receive an up-front payment referred to as a licensing fee or “advance.” In addition, or in lieu of this initial payment, a game developer could potentially earn a royalty for each game sale, or some sort of revenue or profit-sharing arrangement. Accordingly, a game developer may receive an advance, a residual payment or royalty fee, or a combination of these. Generally, the licensing fee advance paid by a game publisher is either recoupable or non-recoupable from future earnings under the agreement. Most game publishing agreements structure the payment advance to be recoupable from all potential revenue streams related to the game. However, a game developer might agree in writing to any other arrangement such as imposing restrictions that exclude certain revenue streams from recoupment by the game publisher or by “capping” the total earnings that a party can receive. For example, a potential limitation might be excluding merchandising income from the game publisher’s recoupment. Furthermore, the licensing document usually lists how and when the advance monies are dispersed such as providing the entire amount to the developer at once or distributing the funds in smaller payments based on achieving agreed upon milestones or any another listed event.
What is in a Video Game Publishing Agreement?
These deals also generally list the responsibilities and commitments of each party, including addressing whether the publisher is contractually obligated to publish and distribute the game as well as incorporating written assurances by the licensing entity to provide marketing and promotional support for the game’s release. For example, a game publishing contract could require the publishing of the game by a specific date or within a certain time frame (i.e., 60 days after the delivery of the finished game) or the game developer may be able to terminate the agreement. This document might also specify the game publisher’s promotional and advertising obligations, such as creating a gameplay trailer to promote the title. Accordingly, it is prudent to ensure that these agreements list the specific amounts that will be contributed to the marketing of the game.
A standard game publishing licensing agreement also generally incorporates language addressing how “post launch” game support is conducted. Since post launch support occurs after the game is initially released, the developer might need to continue working on the game, including implementing gameplay “patches” as well as fixing any gameplay “bugs” or other usability errors. If a developer is obligated under the agreement to provide post launch support, then the developing entity may try to include language that provides the company with additional payments to provide on-going support for the title. Alternatively, the game developer can instead fashion the agreement to limit the type of post launch support provided after the game’s release to only serious issues instead of any issue that may arise and then require payment for anything beyond these specific limitations.
What clauses are in a Game Publishing Agreement?
Video game distribution agreements entered with game publishers might also discuss creative control over the finished game, including defining the approval rights for the game’s marketing and for the final product. Accordingly, the license might provide either party with the sole approval right over the finished game or it may require mutual approvals. Similarly, this type of agreement also generally includes information on the approval rights for the product packaging, the digital and print advertisements, any merchandise designs, the gameplay mechanics, as well as the game pricing including the title’s initial price and any other potential discounts.
In light of current events, some game publishing agreements might incorporate termination provisions in the form of a “morals” clause. This contract provision provides a party with the right to cancel or terminate an agreement if the other party is engaging in “unsavory or unethical behavior.” Additionally, the developer may try to include language that provides the company with the ability to terminate the license if the game publisher is not fulfilling its side of the bargain, such as not publishing the game when required to or if they are not making timely payments to the developer. Furthermore, a game publishing license agreement might also incorporate provisions related to each party’s “post termination” rights. This clause could address how the game and its associated IP are handled when the deal is over, including describing what occurs after the term or contract ends. For instance, upon termination or expiration of the agreement, the licensee might be obligated to immediately cease using the IP rights and to remove any references to the IP from all its public materials. Alternatively, this agreement might include a “sell-off” period provision that entitles the licensee to “sell-off” any remaining items or to “wind-down” its usage without being able to create any new or additional products or projects. Some game distribution deals also include a reversion right so that the IP rights “revert back” to the original owner if the agreement is violated, terminated, or otherwise expires. This clause enables the developer to regain its rights to the video game and its IP so that they can find a new publisher or licensee to distribute the game and monetize its IP. Similarly, a “kill fee” provision might be in a standard video game licensing agreement which requires the game publisher to pay some portion (or all) of the promised fees if they end the agreement prior to the expiration of the contract.
What provisions are contained in a Video Game Publishing Agreement?
Additionally, after the expiration or termination of an agreement, some deals may include “holdback period” or “non-compete” provisions which prevents the game developer from working on a similar game with another publisher for a certain time after the deal ends or after a specific release date. Another related provision incorporated in many game publishing license agreements is a “right of first refusal” or “first negotiation.” This clause provides the game publisher with the first opportunity to negotiate exclusively with the game developer for further titles. In addition to the right of first negotiation, some agreements could incorporate language that permits the publisher to have the “right of last refusal” for certain ancillary rights such as television, motion picture, or other derivative projects such as a sequel, a prequel, or a spin-off. In these cases, the publisher might be provided with the opportunity to match any third-party offer that the developer receives for any ancillary rights. In these cases, if the original game publisher matches the offer from the other entity, then the first company will receive those rights on those terms.
Finally, many of these agreements may also include language that requires each party to “police” and to provide notice to the other entity about any alleged Infringement or other damaging and unauthorized usage of the game. This fact is in addition to standard clauses in many of these agreements that address the governing law and jurisdiction applicable to the agreement, including which state (or country) governs the deal. This point is especially important when a game developer is dealing with foreign or international publishers or if they are working with companies in different states or nations.
Ultimately, there are many legal facts for a game developer to be aware of since they can earn substantial sums through licensing of their entire finished game, an individual character, or any other specific protected component of a finished game such as the sound or animations. Accordingly, with the plethora of lucrative possibilities, it is important for game developers of all sizes to be prepared and to properly protect themselves when dealing with any third party utilizing or acquiring rights to its game or to any of the developer’s other protected IP assets.
This article is not intended as legal advice, as an attorney specializing in the field should be consulted.
(c) 2023, Justin Jacobson Law, P.C.