Archive for Game Development

SOPA and its Effect on Digital Distribution for Independent Development

January 11, 2012 Current Affairs, Game Development, Intellectual Property, Litigation No comments

The Stop Online Piracy Act (SOPA) is one of the most contentious pieces of legislation to hit the Internet in recent history, even more so than the Pro IP Act. The Act is purportedly designed to institute measures that will restrict piracy arising from foreign websites. However, the effectiveness of those measures has been put into question by the legislation’s opposition. According to opponents of the Act, the government and private authority granted by the legislation creates a number of complex concerns, including freedom of speech, user privacy, and Internet security. These concerns are only the tip of the iceberg.

Additionally, that original purpose seems to only appear sporadically in the legislation. Some of the procedures and policies presented in the body of the Act, particularly those concerning private enforcement actions, seem to have little to do with preventing piracy originating in foreign countries. Instead these provisions raise the question as to whether they are meant to work hand in hand with the DMCA safe harbors or operate as back door. While the DMCA safe harbors are a far cry from perfect for the purpose of eliminating piracy, they are at the very least effective, although not always efficient.

The 78 page Act in its original form is a substantial body of legislation with a bare minimum of eight moving parts. These parts break down to both government enforcement and private enforcement. This poses another problem in the Act: according to opponents, the Act’s lack of cohesion and the sheer number of regulations it imposes on any number of Internet businesses makes meaningful discussion concerning the entirety of the Act a difficult proposition. Tackling the entire body of the legislation in one go would be next to impossible.

Yet taken in parts, we can get a clearer picture of the potential effect this Act may have on things like digital distribution for small game developers. One of the more disconcerting parts of this legislation from the perspective of independent game development comes in the form of the private enforcement actions available under Section 103 of SOPA.

Section 103

This section permits private individuals and entities to pursue civil actions against website owners. Additionally, the legislation gives private parties the authority to cut off financial support to that website by forcing payment vendors and advertisers to suspend their services.

Who is liable under section 103?

Section 103 of SOPA, entitled “Market-Based System to Protect U.S. Customers and Prevent U.S. Funding of Sites Dedicated to Theft of U.S. Property”, at its outset does not apply strictly to foreign sites. By way of example, other parts of the legislation impose regulations on “Foreign Internet Sites”, which are defined as Internet sites that are not Domestic Internet Sites*. Alternatively, Section 103 uses an entirely different and considerably broader definition to define those sites punishable under that section. Instead of focusing on foreign sites, this section imposes regulations on any “Internet site dedicated to theft of U.S. Property”. This is not limited to either foreign or domestic sites, but pretty much any site that falls under that definition. And the definition itself is expansive. It embodies any website or any portion of that website that can be construed as operating for the purpose of or is marketed for the use of offering any goods or services in a way that “engages in, enables, or facilitates” copyright or trademark infringement.

This language is problematic for several reasons. First, based on the legislation’s use of a new definition for liable parties, it is clear that Section 103 isn’t intended to apply solely to foreign websites. On the contrary, the new definition potentially casts a wide net on any Internet site that contains or points to infringing content. Secondly, the entire site itself need not be used exclusively for infringement purposes. If any portion of the website (for example, a single page from a forum) can be construed as operating for infringement purposes, the entire site can arguably fall victim to a claim from a private party.

There is also the problem of determining whether the website owner his or her self need be the direct cause of the infringement. Because expansive terms such as “enables or facilitates” are used in the act, there is a strong argument that website owners need not be the direct infringer. Instead it seems the legislation intends to impose a new standard of secondary liability on website owners—however, U.S. law already maintains a legal standard for imposing secondary liability that is not contemplated in the Act. Furthermore the DMCA Safe Harbors exist in part to prevent secondary liability from being imposed on those sites or services that support user generated content.

Under U.S. law a defendant can be held liable for indirect infringement in two cases: contributory infringement and vicarious infringement. Contributory infringement requires that the defendant have “knowledge of the infringing activity of another and induces, causes or materially contributes to that infringing conduct.” Gershwin Publishing Corp. v. Columbia Artists Management, Inc., 443 F.2d 1159 (1971). This is a significantly higher standard of review than the one provided in the legislation. After all, the mere fact that a site or a page from that site containing or pointing to infringing content exists arguably “enables or facilitates” that infringement—the plain meaning of “enable” is “to make able”, and the definition of facilitate is “to make easier or less difficult”. Neither definition requires the exacting standard of inducing, causing, or materially contributing to infringement.

Vicarious infringement also imposes a higher standard than that set forth in the Act. Under U.S. law a defendant can be held vicariously liable if the defendant “has the right and ability to supervise the infringing activity and also has a direct financial interest in such activities.” Shapiro, Bernstein & Co., Inc v. H.L. Green Co., Inc., 316 F.2d 304 (2d Cir. 1963). Although both the right to supervise and the requirement of a direct financial benefit are broadly construed in many jurisdictions, this standard is still higher than the “enabling and facilitating” standard imposed by the legislation.

SOPA and the DMCA

In addition, imposing liability for either contributory infringement or vicarious infringement is curtailed to a great extent by the DMCA Safe Harbors. The safe harbors limit service provider liability if that website institutes and complies with a notice and takedown procedure for infringing content. The site must also register the agent that will receive those notices with the Copyright Office. Even if a website would ordinarily be held liable under a contributory or vicarious theory due to something like user generated content, they are shielded provided they follow the rules set forth in the DMCA. This creates a potential conflict between the DMCA and SOPA—although the Act maintains that it does not diminish liability under the DMCA Safe Harbors, nothing in SOPA expressly requires potential plaintiffs to exhaust available remedies under those Safe Harbors.

Another source of conflict is the website owner’s knowledge of infringement. Under the DMCA, website owners that host user generated content are not required to monitor for infringement except as needed for the takedown procedures. It’s often believed that the more monitoring and moderation a website owner engages in, the higher the likelihood that they might be accused as having knowledge of a particular case of infringement, thereby eliminating the DMCA Safe Harbor shield. However, SOPA will hold a site liable if it “is taking, or has taken, deliberate actions to avoid confirming a high probability of the use of the U.S. Directed site to carry out acts” that constitute copyright infringement. Construed narrowly, this will only apply if a website owner refuses to investigate “red flags” pointing to infringing activity. But interpreted broadly, this could also apply to those sites that actively refuse to moderate or monitor user generated content beyond the takedown procedure for the purpose of maintaining the DMCA Safe Harbor liability shield.

How Section 103 works

So what can plaintiffs do once they’ve decided to go after a website that they believe infringes on their intellectual property rights? The Act requires harmed parties to send a notification to payment vendors and advertising providers asserting that the website infringes on an intellectual property right. This notification is similar to the one required under the DMCA. Once the payment vendor or advertising provider receives the notice, they have five days to terminate services to the website. This is in contrast with the DMCA’s take down provision, which only requires service providers to act “expeditiously”.

The payment vendor or advertising provider, upon receiving notice, must also ensure “timely delivery” of that notification to the allegedly infringing site.  There is no requirement that the payment vendor or advertising provider send that notification prior to terminating their services. The website owner can then file a counter notification asserting that the website isn’t infringing.

The counter-notification procedure, in some ways, presents a difficult choice to foreign sites. Under the counter-notification procedure the website must concede to U.S. Jurisdiction. In other words the foreign website owner, who may assert the position that their site isn’t a U.S. directed site for purposes of the Act, must avail itself to U.S. laws in order to have their payment and advertising services restored. The alternative is not sending a counter-notification to preserve their jurisdictional claim and having those services terminated permanently without further legal action or evidence of actual infringement. This could possibly lead to a chilling effect for foreign sites; it may also give competitors of those sites an easy way to eliminate their foreign competition without the need for due process or a valid infringement claim. This isn’t a far-fetched possibility: according to Google, more than half of the takedown notices it receives under the DMCA Safe Harbor were sent by businesses targeting competitors.

Furthermore, the notice and counter-notification procedure shares the same “flaw” as the DMCA safe harbor notice procedure—a plaintiff need only have a good faith belief that the website is infringing when submitting a notification, whereas the defendant must have that same good faith belief “under penalty of perjury”. This imposes a higher degree of liability on the defendant for misrepresentations.

SOPA’s effects on Digital Distribution

Digital distribution has changed the face of game development. Independent game developers are able to release quality products and see real profit without relying on conventional box sales. However, SOPA may end up causing serious problems for the very digital retail channels that have revolutionized the industry. Instead of targeting specific infringing content, the Act permits private parties to cut off all revenue and payment options to a digital distribution channel even if most or all of the content of the site is non-infringing and original. This will make better sense if we use an example (note that this is a hypothetical and any resemblance to past or future real life events is purely coincidental):

You’ve got Edge, baby:  “Game Downloader” is a popular, community based site that lets game developers upload their products for sale in the global marketplace. Approximately 40% of its developers are based in the US, while approximately 60% of game purchasers are US residents. The website is based in the U.K. and makes its profit through user fees and paid advertising. Both the payment vendor and the advertising providers for Game Downloader are located in the U.S. When a game is uploaded the site automatically creates a separate page through the developer’s profile. The page provides payment options, information concerning the game, and download options. “D-Day studios”, also located in the U.K., uses Game Downloader to sell its products and has experienced satisfying results with its sales. Its latest release, “Edge Wielder”, has become a huge hit and has received excellent reviews from critics. However, trouble is brewing—Game Downloader has received a complaint from the alleged owner of the “Edge” trademark and wants Game Downloader to remove the game. Game Downloader refuses, stating that no copyright violation exists and it has no obligation to remove the game.

Angered, the trademark owner sends notifications to Game Downloader’s payment and advertising vendors asserting his rights under the recently enacted SOPA. The trademark owner alleges that a portion of the Game Downloader site (citing the “Edge Wielder” page) that is directed to the U.S. market, “engages, enables, and facilitates” the sale and distribution of goods bearing a counterfeit mark as defined in section 34(d), and the trademark owner is the owner of the counterfeited mark. Not wanting to lose their immunity under SOPA by failing to comply, both the payment vendor and the advertising provider terminate services to Game Downloader and send the website the SOPA notification. As the website is based in the U.K., it hesitates in sending a counter-notification that may impose U.S. jurisdiction on the company. In the meantime, the site is forced to shut down as games can no longer be purchased through the site and many innocent game developers not a party to the action are forced to look elsewhere for digital distribution.

This is just one (not particularly unrealistic) way in which SOPA could be used to injure legitimate distribution channels. In reality this scenario can play out in a variety of contexts, from mobile marketplaces like the iTunes store to digital retailers like Steam. The harm to innocent, non-infringing parties due to the questionable allegations of a plaintiff acting in “good faith” could be substantial, and many distribution channels may hesitate to direct sales to U.S. markets as a result of this threat. Instead of protecting intellectual property, this kind of usage has the ability to drive digital distribution channels away from the U.S. marketplace altogether, thereby increasing the likelihood that once-legitimate purchasers will rely on piracy to get the content that’s no longer available.

Conclusion

There is no question that piracy is detrimental to the games industry—however, creating legislation that can significantly hinder legitimate digital distribution will likely have a damaging effect. Film, music, and video games all benefit from recent advances in digital distribution. More and more customers are using Netflix, Hulu, Steam, and other digital content providers instead of relying on piracy. Throwing a wrench into that progress is unlikely to protect anyone’s intellectual property interests.

Other options exist, both legislative and commercial, that may have a better chance at reducing piracy. Improving digital distribution, making content accessible and reasonably priced, and providing content that is of higher quality than what customers can find through illegitimate channels has already seen exceptional success. Hulu alone has seen exponential growth since 2009. Although digital rental and sell-through currently accounts for only 1/5 of total revenue for the film industry, there is clearly room for improvement and growth—and it’s still growing, with digital video rental increasing 19% in 2010. Game digital retail channels like Steam and Impulse are also providing more and better options for customers.

On the legislative front, an alternative bill to SOPA has been presented. The OPEN Act puts jurisdiction over foreign online piracy in the hands of the International Trade Commission without passing authority to private parties. Although flawed (particularly with regard to enforcement), the OPEN Act is a clear attempt to steer intellectual property enforcement away from injuring innocent non-infringers prior to any show of evidence supporting infringement.

SOPA shouldn’t be treated as the best or only option to preventing online infringement and has the potential to cause considerably more harm than good. For the sake of the future of game development, it’s unfortunate that organizations like the ESA, which should be taking steps to protect digital distribution, are working towards making digital distribution a minefield of legal liability.

 

For the sake of balance and argument, I recommend checking out this post in favor of SOPA. It presents some alternative interpretations to some of the language I’ve pointed out here and is worth taking into consideration. 

What Happens When You Don’t Have a Written Agreement: [Part 2, Real Life Application]

January 9, 2012 Contracts, Game Development, Litigation, Negotiations No comments

This article is the second part of a two part series. Please refer to Part 1, Contract Basics, if some terms or examples seem unclear.

Now that the contract basics are explained, it’s time to examine real life application of those principles. Ideally you don’t want disputes to go to litigation. Hopefully you’ll be able to negotiate terms that, if not favorable to all, are at least enough to make sure that everyone lets go of the matter before dumping thousands into legal fees. However, much of that negotiation will depend on your leverage under the law and your ability to determine whether the law is on your side. Below we’ll employ some of the contract principles learned before in some fairly typical contract dispute situations and specifically when no formal agreement exists.

Types of Informal Agreements

In most cases when we’re looking at the independent developer space, the contracts you’ll see most often are work-for-hire agreements or collaboration agreements among individuals. These almost always count as service agreements and don’t necessarily require a signed writing to be enforceable. Note that while service contracts that take longer than a year to perform require a signed writing, service contracts for an indefinite term don’t necessarily require the same. So even if you don’t have anything definitive in writing, a contract may still be enforceable if the circumstances suggest a valid agreement.

The Gentleman’s Agreement (Oral or Handshake Agreement) and Enforceability

                Oral contracts and handshake agreements are fairly common in the entertainment industry. They are particularly common in independent game development. They rely on mutual trust and knowledge among the contributors and are frequently the result of prior relationships. It’s often said that an oral contract is “worth the paper it’s written on,” and in some cases that is definitely true. There are certainly a number of draw backs to having an oral agreement over a written one, not the least being enforceability and the likelihood of a shorter statute of limitations.

However, oral contracts are enforceable under many circumstances and shouldn’t be dismissed so easily. The problem with enforcing an oral contract is evidence—if it’s just an agreement between two people the dispute will inevitably break into to a “he said, she said” finger-pointing match unless you have a witness or some other evidence pointing to an actual agreement. Sometimes that evidence can be performance itself; however, unless there’s definitive proof or witness testimony concerning compensation for that performance, a court of law may only apply the market value of the performance instead of what was actually agreed to in order to make the person “whole”. Let’s look at an example:

Example #6: Among Friends: Anne, Bill, and Charlie worked together at a game studio that fell on financial difficulty. The three decide to go off on their own to create their own game and meet at Bill’s house to go over duties and logistics. They decide that Anne will handle art and music assets, Bill will handle design and act as production manager, and Charlie is in charge of programming/tools. They’re each entitled to a third of the income. However, no written agreement is formed. Bill acts as the unofficial leader of the group and also handles license procurement and applications to the requisite online distribution channels like as Steam and Impulse. Nine months later they complete a simple but engaging game and release it on Steam. The game is a hit and Bill starts receiving payments from Steam, which he fails to distribute to Anne and Charlie. Anne and Charlie sue Bill for breach of contract asserting their entitlement to two-thirds of the proceeds. Bill argues that he treated them as independent contractors and they are only entitled to 10% each. Everyone’s testimony is equally convincing, so the court relies on expert testimony and the market value of the contributions performed by Anne and Charlie. The experts disagree as to market value, but it’s clear that the contributions exceed 10% of the finished product. The court awards Anne and Charlie 20% each for their contributions, with the remaining 60% going to Bill.

The example above demonstrates the difficulty in proving the terms of an oral contract—however, this problem becomes less obvious if more people are involved or if disinterested third parties know about the agreement and can act as witnesses against the person breaching the agreement.

The “Living Contract” (E-mail Exchange)

Another often-seen disputed agreement comes in the form of e-mail exchange, which is probably more common than the handshake agreement these days. While e-mail or letter exchanges provide more evidence of an existing contract, they come with their own host of problems concerning enforceability. First, there’s the question of validity—is there a valid offer and acceptance, is there a counter-offer, and has a counter-offer been rejected or accepted? Then there’s the question of whether any particular e-mail constitutes a “written agreement” or “integrated agreement” for purposes of the parol evidence rule. Additionally, there’s the issue of whether later e-mail exchanges act as modifications or amendments to the earlier contract.

Offer, acceptance, revocation, and counter-offer

As mentioned above, mutual agreement requires offer and acceptance. A counter-offer is essentially a rejection of the original offer, so once a counter-offer is made, the original offer is typically treated as invalid unless offered again. An offer can be revoked at any time prior to acceptance. In the case of an e-mail exchange, many offers or counter-offers may be made before there is acceptance—and if the acceptance is based on an earlier offer that has already been revoked or rejected with another counter-offer, there’s an argument that the acceptance isn’t valid. Let’s look at an example.

Example #7: Whose line is it, anyway?: Nick and Alice are in the process of putting together a team for their newest project, “Delilah’s Curse”, a post-apocalyptic RPG where the player is the parent of the harbinger of the apocalypse. The parent is presented with a Hobson’s choice: He or she can either save his or her child or protect the world from complete annihilation. Ultimately the goal is to achieve a balance where both can be saved. Nick, without disclosing the project details, sends an e-mail to his friend Tom, a skilled level designer, and asks if he’d like to get involved with the project. Tom responds with a request for more information. Alice, who is CC’d on all correspondences, replies that the contents of the game concept can’t be disclosed without an NDA, but she strongly believes Tom is an excellent fit for the project. Nick then sends Tom an NDA for negotiation purposes. Tom doesn’t sign the agreement, but responds with the statement “I accept the terms of your NDA. Please tell me more about the project and the compensation you’re offering.” Alice sends Tom a brief synopsis of the game and the work they expect Tom to perform. She offers him $3,000 per milestone deliverable and contingent compensation of 10% of net profit. A few minutes later, Nick sends the same synopsis and offers him $2,500 per milestone deliverable and a contingent compensation of 15%. Confused, Tom accepts Alice’s earlier offer. Nick responds that Nick’s offer was meant to replace Alice’s offer and Alice’s offer is no longer valid. Tom refuses Nick’s offer and insists on Alice’s offer. Alice suggests in her reply that Nick’s offer is more favorable—however, Tom responds that he would still prefer Alice’s offer and rejects Nick’s offer. The next day he sends a follow up e-mail saying he’s thought about it, and he’s willing to consider taking Nick’s offer if the milestone deliverable payments are upped to $2,700. However, unbeknownst to Tom, Alice had sent an e-mail in the middle of the night stating that she’s sorry for his rejection, and they’ll look for someone else. The next day, Nick sees Tom’s counter-offer. He sends Tom a response stating “Let me talk to Alice and get back to you. I think she’ll accept. In the meantime, here is the work order for the first milestone deliverable.” Tom begins work on the first milestone deliverable. Two weeks later, he receives a response from Alice, which states “I’m sorry, but we’ve already found someone else for the position. Please ignore Nick’s prior e-mail.”

Tom, believing that he’s entitled to the contract for $3,000 at 10% contingent compensation, or at the very least $2,700 at 15%, sues Alice and Nick for breach of contract. The case eventually goes to Court, and the Court finds the following: 1) under that jurisdiction’s law, Tom’s acceptance of the NDA in addition to his electronic signature constitutes a valid agreement for purposes of the NDA; 2) Nick’s subsequent offer after Alice’s initial offer constitutes a revocation of Alice’s original offer; 3) Tom’s rejection of Nick’s offer and acceptance of Alice’s original offer was a counter-offer by Tom; 4) Alice’s late night e-mail constituted a valid rejection of the counter-offer by Tom; 5) Tom’s next day e-mail constituted a new offer by Tom; 6) Although Nick’s response to Tom’s offer may have created some expectancy of being hired, nothing in the response constituted an acceptance of Tom’s offer, so no contract was formed; 7) Because nothing in the e-mail sent by Nick actually requested performance on the work order, no request for work was actually made and Tom is not entitled to damages arising from promissory estoppel; and 8) Alice’s final e-mail constituted a rejection of Tom’s offer.

Note that the decisions reached by the Court are only hypothetical—depending on the jurisdiction and the language used in any given e-mail, Nick may have created a reasonable expectation in Tom that Tom’s offer would be accepted. In that case Tom’s performance may have entitled him to promissory estoppel. There is also the question of authority between Nick and Alice—if Alice is the person responsible for the project and Nick is only acting as her agent, a whole other slew of issues concerning agency law arise. The main point here is that the “living agreement” can get convoluted and it isn’t always clear whether a contract has actually been formed or not.

Parol Evidence Rule and the Hybrid Oral Contract/Living Agreement

A “Living Agreement” can be even more convoluted if you throw in oral correspondences in addition to e-mail exchanges. For example, if Tom had accepted Nick’s second offer of $2,500 and contingent compensation of 15%, and then later sent his e-mail accepting Alice’s first offer, the question of acceptance versus counter-offer would become even more complicated. For this situation most jurisdictions have imposed the “Parol Evidence Rule”, but even that rule may not be applicable in all circumstances. Simply stated, the Parol Evidence Rule prohibits things outside of an existing contract, such as oral or written communications (this extrinsic evidence is called “parol evidence”), from being admitted as evidence when a final or “integrated” contract exists if that evidence contradicts or adds to the written terms. This is limited to prior or contemporaneous evidence, like oral communications or e-mail exchanges made prior to or at the same time as the execution of the final written agreement.

The most obvious question for our purposes is whether an “integrated” agreement actually exists. A contract is integrated if it is a final written agreement between the parties. In other words, all of the necessary terms are set out in the agreement, and as an additional security the parties may include a merger clause that asserts that the agreement is the final agreement between the parties. The more common problem when no formal contract exists is that an agreement may only be partially integrated—in that case, only some terms are clearly agreed to between the parties while others are left in dispute or not discussed at all. In that case, some parol evidence may be admissible if it expounds on those undefined terms.

When we’re looking at an e-mail exchange, it’s possible that a partially or fully integrated agreement could come into existence through one or more of the correspondences. Let’s return to our earlier example concerning Delilah’s Curse:

Example #8: Let’s assume that Tom has decided to accept Nick’s offer of $2,500 per milestone deliverable with 15% contingent compensation. Prior to responding to Nick’s offer via e-mail, Tom calls Alice and Nick to further discuss his role in the project, when payments will be made, and when milestones are due. However, in his next correspondence he states nothing more than “As per our conversation, I’d like to accept the level design position for $2,500 p/MSD and 15% contingent compensation on release.” During the phone discussion, Nick and Alice agreed that milestone delivery payments would be paid within 10 days of delivery regardless of whether or not the milestone was approved. However, the work order forms (none of which are signed by the parties) states that payment will only be made if the deliverable is approved by Nick and Alice. A few months down the road, Tom submits a milestone deliverable. Nick and Alice fail to make payment within 10 days. Tom contacts Nick and Alice about the payment and they respond that they had some problems with the milestone that need to be fixed before they’re willing to make an agreement. Tom argues that they’d agreed to make the payment regardless of approval. However, Nick and Alice point to the provision in the work order requiring approval before payment. Angered, Tom refuses to do any more work on the project and sues Nick and Alice for breach. Nick and Alice file a counter-complaint asserting breach of contract against Tom.

The suit goes to trial and the Court decides the following: 1) A partially integrated agreement existed with regard to Tom’s position and compensation; 2) the work orders are integrated into the agreement based on Tom’s past performance of those work orders and failure to dispute the terms of the work orders; 3) the oral agreement made prior to Tom’s formal acceptance is barred by the parol evidence rule since it was made prior to the partially integrated agreement and directly conflicts with the term of the work order; 4) Tom is in breach for refusing to perform; 5) neither Nick or Alice are in breach, but are expected to exercise good faith when determining whether a milestone is “approved”.

The parol evidence rule could go many different ways depending on the circumstances; for instance, if the work order didn’t say anything about payment depending on approval, Tom’s testimony regarding their prior conversation may be admissible as clarifying a key point to the agreement. Also, the work order itself may be treated as parol evidence instead of being treated as an integrated part of the agreement if Tom disputed the payment terms prior to delivering the first milestone (in the contract world, “performance” is frequently treated as “acceptance”). All sorts of contingencies can change the game in a contract dispute—a formal written agreement that clearly defines the agreed upon terms is the easiest way to minimize those contingencies.

Conclusion

The most obvious lesson to take away from this is to always, always get something in writing; but more importantly you need to make sure you understand what’s written down. As stated in Part 1, you don’t need a massive legal document with a bunch of legalese and recitals to formalize your agreement. A document written in plain English with your agreement spelled out in plain and simple terms while taking into consideration as many contingencies as possible is vastly more valuable, legally speaking, than a form agreement that neither party understands. Knowing what to put in that agreement is equally important—for example, if the agreement doesn’t address intellectual property issues, confidentiality, or indemnification matters properly, you’re not covering your bases and you may end up in a conflict down the road. Although living contracts and handshake agreements are enforceable in many cases, they will rarely if ever provide you with the kind of protection you’ll want or need regardless of the outcome of your project.

 

The Business and Legal Issues Surrounding Team-Building

February 9, 2011 Business Planning, Game Development, Intellectual Property No comments

Building an independent game development team or think-tank for the first time is typically an organic and exciting process. Although going with the flow and letting things happen can be wonderful for the creativity and enthusiasm of your team, it doesn’t hurt to think ahead and plan for your success or failure. Riding the euphoric tide of a brilliant idea may leave you and your team stranded on a desert island! Once the Honeymoon period is over and your idea begins to take shape as a viable project or set of projects, it’s time to think about more than your design documentation.

This means paying attention to your business and legal relationships and developing some adaptable goals that fit your motives. Don’t misunderstand—developing is your priority, and will always be your priority. It’s frustrating when you’re forced to take time away from development to concentrate on things you simply do not want to think about, like failure. However, anything you invest in, especially when you involve other people, will create risks and possible rewards. Those risks and rewards deserve due consideration and diligence on your part. They will inevitably demand the creation of a business and legal strategy. Thinking about these things early on can save you a serious headache in the future.

I’ve already discussed collaboration agreements. That’s the starting line—the bare minimum you need to get up and running. This article will cover business and legal decision-making from the ground up: who makes the decisions for your project? What’s the purpose of what may now only be a loose cooperative of likeminded individuals? What will you accomplish and how will you evolve? And just as importantly, what business and legal issues should you consider based on your answers?

Your Team: Who’s In Charge Here, Anyway?

You may start with one or two people building on a simple game concept. You might start with a larger group of like-minded individuals focused on idea-sharing and education. You could live in different countries, or you could meet in your community every few weeks through LinkedIn, Facebook, or Meetup. You might be classmates working on a project with other students, professionals, and hobbyists. Your team’s goals and their success or failure will vary as much as the composition of the teams themselves.

The most challenging question you must ask before you can even begin the decision-making process is “how do we make decisions?” The more collaborative and organic the team’s origin, the more uncomfortable teams become when discussing leadership. Sometimes leadership occurs naturally—you’ll have a charismatic voice, an “idea (wo)man”, or someone who has championed and spear-headed the project from the word “Go”. On the other hand, a team may be truly collaborative. Everyone will want to have a say in how things operate. In the case of the “key man” situation, there’s a lack of checks and balances. In the latter democratic scenario no one can act as a final arbiter in the event of a serious dispute. Looking at some examples may help illustrate these problems.

Illustration One: Mary is a recent graduate from a top notch game development program. She wants to bolster her design portfolio for the sake of her job hunt. To do this, she wants to build a team to develop a game concept she’s passionately yearned to create since her youth. The game charts the journey of Squea, an alien taking the form of a sweet, pink nosed, golden eyed white kitten. Squea seeks out the energy created through joy, which she then converts to charge her spaceship. “Joy points” are earned by finding and cheering up lonely and scared young boys and girls throughout the galaxy. Mary attracts a motley team of developers, including an odd artist cousin or two, but it’s clear to everyone that she is the driving force behind the operation.

As the game nears completion Mary’s cousin, Emily, suggests they register the game with the Copyright Office. Mary doesn’t consider this a priority and forgets along the way. Additionally, she fails to include copyright notices on the game’s assets. Because Mary has full responsibility over all aspects of the project, no one else takes it upon themselves to override her. After submitting the game to several game competitions and receiving multiple awards, Mary’s team starts selling the game through digital PC channels. A year later, Emily finds an identical copy of the game ported for free to the Android Marketplace. Furious, she contacts Mary, who subsequently contacts an attorney. The attorney informs the team that although they still own the copyright in the game, their claim for damages may be substantially reduced due to a failure to register the game and a failure to include proper notice of ownership to potential infringers. Emily holds Mary responsible for the sudden dearth of legal remedies and a massive falling out ensues. Family affairs are now tense, and Mary (without consulting the rest of the team) pulls her game from the PC marketplaces. The rest of the team sues Mary, claiming ownership and equal rights to exploit the work.

The fact that Mary was the sole person responsible for all aspects of her game, including its legal protections, worked to the team’s detriment. Most political tyrannies fail; it’s no surprise that business tyrannies meet even less success with the existence of competitors and pirates. Having a checks and balances system in place where multiple team members take mutual responsibility for ensuring the game’s critical and commercial success is an important step to securing your team’s future. However, having too many cooks in the kitchen can lead to its own problems.

Illustration Two: Bill and Carly started a game developer group on Meetyou.com, a popular local event creation site. Every month, the group meets to discuss programming and design concepts, pitch ideas, and collaborate on a variety of projects. After two years the listed members for the group number over a hundred; some are more active than others, but there are roughly 30 or 40 people who are continually involved in projects developed by the group. IP ownership is never discussed and everyone assumes they own their own contributions. Additionally, several of the members are students or employees. Several of these are improperly using third party licenses in connection with their own contributions. Bill and Carly have taken a “hands-off” approach to this; their motivation is to facilitate idea creation, collaboration, and education, and they don’t want to force rules and restrictions on the group.

However, one project becomes a break-out success and sells hundreds of thousands of digital downloads through various mobile marketplaces. Five group members who actively participated in the project’s development can’t seem to agree on who owns what. Several more group members who participated in meetings where the idea was first pitched also claim a “stake” in the game. The fight becomes heated as the game earns more and more. Finally, the group members go to the group founders seeking guidance. Unfortunately, neither Bill nor Carly developed a contingency plan for this possibility. As dissension spreads the group begins to fall apart. Bill and Carly become disheartened and stop scheduling meetings. Eventually the group is disbanded; meanwhile, at least one suit has been filed against the other group members involved in the dispute.

Bill and Carly wanted to engender a wholesome, developer-friendly environment; unfortunately, a total lack of leadership or guidance in any collective that produces a commercial project poses a legal danger to the collective and its individuals. Several alternatives to the laissez-fair approach taken by Bill and Carly include creating a voting membership of core members, creating a set of guidelines for project management, or formalizing as a non-profit or LLC that assists developers in organizing their own projects. These alternatives may permit Bill and Carly to remain in the background while still engendering the type of environment they hope to create.

Your Goals: What Are We Doing?

Both scenarios described above include specific reasons behind the decision to do (or lack thereof). Goals are important. A goal to “make something”, even if you don’t know what, is still a goal. Your goal is the soil in which you will plant the seeds of your ideas—the richer and more substantial your goals are, the greater the likelihood of a good harvest. A goal becomes substantial when it goes beyond “what” and “how” you develop and includes “what happens after we’ve finished?” However, it’s also important that your goals be flexible. This is especially true in the beginning. Finally, it is important that the key players within your team understand the end game and want to accomplish the same or similar goals. Many of your decisions and the way you make those decisions will flow from your underlying purpose.

Let’s re-examine the scenarios mentioned above. In Mary’s case, registering the game’s copyright may not have seemed important because she wasn’t thinking of commercial success. She wanted to bolster her portfolio and she wanted to see her brilliant idea come to life. Without discussing this goal with her teammates, she created a high likelihood that her teammates would participate in the project for entirely different reasons. Certain decisions, such as the decision to formalize, determine IP ownership, and establish profit distribution seem unnecessary when the project is a hobby portfolio builder. These decisions are mandatory when you want to create a commercially successful game.

Similarly, the decision to not focus on commercial projects is just as important to your decision-making process. Bill and Carly only hoped to bring people together and create a community of likeminded friends and developers. Collectives, Start-up Weekends, and Co-Ops are popping up everywhere for iOS, XBLA, and Android/Google game development. The original organizers themselves may seek only to bring people together; they may not have an active interest in making a profit off of the games produced by the collective. In those cases, you have an entire bevy of options both simple and complex: formalizing as a non-profit with a robust IP management and asset distribution assistance program; organizing as a for-profit business entity that also helps distribute the games produced and taking a commission;   may provide both financial stability and legal protection for the collective.

Documentation and Assets

When you formalize the design and technical elements of your game, you put that in a document. Your game documentation is the roadmap for your game, and project leadership relies on this roadmap to complete the game. Your team’s collaboration agreement, operating agreement, bylaws, articles of incorporation, or organizing documents all serve the same purpose—they provide a roadmap, and also spell out how those assets should be distributed and managed. Many, many conflicts are the result of a misunderstanding because something wasn’t “spelled out” in an agreement, or because the parties didn’t anticipate certain possibilities such as failure, dissension, and the investment they may be forced to make to finish the project. Sometimes nothing was written down in the first place. While this may not result in the failure of a project, it may certainly result in the collapse of your team.

Once you’ve decided to put things in writing, and as with design documentation, you may need to reevaluate what you originally wrote down. If you have something in writing and check it frequently when things change, you are taking an important step to keeping the peace. Your agreements let you know how decisions should be made and what decisions are already determined. This goes a long way to clearing up future disputes and the legal costs associated with those disputes.

Finally, knowing the assets that you are creating /contributing and putting a value to those assets is imperative. This is especially true in Bill and Carly’s illustration, where teams are constantly changing and the underlying group is constantly expanding. Determining ownership, distribution, and control of the various intellectual properties (including copyrightable content, trademarks, trade secrets, proprietary and prior works) embodied in a project can be a massive undertaking late in the project’s development. However, an adaptable approach can be taken at the outset to avoid the kinds of problems Bill and Carly experienced. For example, a simplified project documentation form that lists team members, their roles, and their initial ownership interest is a good starting point. Elaborating on that with provisions that spell out what happens in the event of a teammate’s withdrawal, removal, or replacement also goes a long way to avoiding future conflict.

Conclusion

Even if you don’t expect your team to live past the first project, it’s always important to consider the road ahead. “Let’s make a game!” involves a lot of technical and creative elements, but “Let’s make a game people can play!” also involves decisions that have little to do with the creative and programming processes of your game and more to do with your team’s goals and underlying business. Finding time to make those decisions early and often will go a long way toward preparing you for all of the thousands of possibilities and inevitabilities that await your team.

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