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MASTERING the GAME Business and Legal Issues for Video Game Developers Creative Industries – No Total width of maze blue lines should not exceed 224 pixels Total height including characters should not exceed 288 pixels (upper text may vary) may text (upper pixels 288 exceed not should characters including height Total NOTICE: - Please use this version as a reference for accurate position of characters when developing artwork based on the Pac-man 80s Arcade Game Maze. ACTION SCENE 4 - In addition, note that text/titles do not need to follow any exact position or pixel size and that the examples above are style references. (DRAMATIC SCENE) - Character artwork shall not exceed 16pixels x 16pixels. - Black areas should exist surrounding the maze. ©NAMCO BANDAI Games Inc. Last version: S/S 2012 MASTERING THE GAME Business and Legal Issues for Video Game Developers Creative industries – No. 8 By David Greenspan With contributions from S. Gregory Boyd, Jas Purewal and Matthew Datum Credits for Cover Screenshots: Image (top left) courtesy of Stuart Miles / FreeDigitalPhotos.net Prison Architect (top middle), © Introversion Software Ltd. Thralled (top right), © Miguel Oliveira Image (middle left and used on every odd page) courtesy of Stuart Miles / FreeDigitalPhotos.net PAC-MAN (middle right) TM & © NAMCO BANDAI Games Inc. To The Moon (lower left), © Freebird Games Inc. Battlefield and SimCity (lower middle and right), © EA Mastering the Game 3 TABLE OF CONTENTS LIST OF FIGURES 10 LIST OF TABLES 10 LIST OF BOXES 10 ABOUT THE AUTHORS 11 PREFACE 13 EXECUTIVE SUMMARY 15 CHAPTER 1 18 THE GlOBAL STRUCTURE OF THE VIDEO GAME INDUSTRY 18 1.1 The Current Video Game Industry Landscape 18 1.1.1 Console Manufacturers 19 1.1.2 Digital Distributors 19 1.1.3 Mobile 21 1.1.4 Major Companies 21 1.1.4.1 First Party 21 1.1.4.2 Console and PC publishers 23 1.1.4.3 Mobile publishers 23 1.2 The Changing Landscape of the Video Game Industry 24 1.2.1 End of Life Economics 25 1.2.2 Future Consoles 27 1.2.3 Rise of Digital Distribution 28 1.2.4 Rise of Mobile Gaming 28 1.2.5 Rise of Free-to-Play and other Monetization Schemes 29 1.2.6 Legal Challenges Created by Innovation 30 1.3 Impact of the Changing Landscape and its Effects on Game Development 32 1.4 The Role of the Publisher 33 1.4.1 Funding 33 1.4.2 Quality Assurance (QA) and Submission 33 1.4.3 Retail Distribution 35 1.4.4 Marketing 35 1.4.5 Worldwide Reach 36 4 Business and Legal Issues for Video Game Developers CHAPTER 2 37 DEALING WITH VIDEO GAME PUBLISHERS 37 2.1 The Role of the Publisher 37 2.1.1 Developer’s Concerns When Considering a Publisher 38 2.1.2 Publisher’s Concerns When Considering a Developer 38 2.2 The Publishing Agreement 39 2.2.1 The Long Form Agreement: Introduction 39 2.2.2 Ownership Issues 40 2.2.3 Rights Granted 41 2.2.4 Additional Rights Issues: Right of First Negotiation and Last Refusal on Future Games 41 2.2.5 Territory 43 2.2.6 Term 44 2.2.7 Developer’s Services; Delivery 45 2.2.8 Financials 47 2.2.9 Additional Royalty Issues and Payments 51 2.2.10 Accounting and Statements 52 2.2.11 Audit Rights 53 2.2.11.1 Parameters for Audits 53 2.2.11.2 Contesting a Statement 54 2.2.11.3 Costs of Audits 55 2.2.12 Publisher Commitments 55 2.2.13 Representations and Warranties 56 2.2.14 Indemnification 59 2.2.15 Insurance 60 2.2.16 Credits 61 2.2.17 Termination for Cause and Convenience: Remedies 62 2.2.18 Governing Law and Jurisdiction 64 2.2.19 Dispute Resolution 65 2.2.20 Additional Provisions 66 2.2.21 A Changing Role 66 2.3 SCENARIO 1: Questions for the Developer when the Publisher Owns the IP to the Game 67 2.4 SCENARIO 2: Questions for a Distribution Agreement Only 69 2.5 SCENARIO 3: Publisher Helps Finance a Game Based on Developer’s Concept 71 Mastering the Game 5 CHAPTER 3 72 INTEllECTUAL PROPERTY IN THE VIDEOGAME INDUSTRY 72 3.1 The Importance of Intellectual Property 72 3.1.1 Copyright 73 3.1.1.1 What Can Be Protected By Copyright? 74 3.1.1.2 What Rights Are Conferred by Copyright? 75 3.1.1.3 Some Examples of Copyrights 76 3.1.1.4 US Copyright Filing Information 76 3.1.1.4.1 Process and Cost 77 3.1.1.4.2 Length of Copyright Protection 77 3.1.1.4.3 Protecting Copyright 77 3.1.1.4.4 Penalties for Infringement 78 3.1.1.5 Derivative Works 79 3.1.1.6 The Public Domain 80 3.1.1.7 Scènes à faire Doctrine 82 3.1.1.8 Fair Use 82 3.1.1.9 Common Questions about Copyright 83 3.1.2 Trade Secret 84 3.1.2.1 What Can Be a Trade Secret? 84 3.1.2.2 What Rights Are Conferred by Trade Secrets? 85 3.1.2.3 Examples of Trade Secrets 85 3.1.2.4 Trade Secret Information 86 3.1.2.4.1 Length of Protection 86 3.1.2.4.2 Process and Cost 86 3.1.2.4.3 Protecting Trade Secrets 86 3.1.2.4.4 Penalties for Infringement 87 3.1.2.5 Trade Secret is State Law in the US 87 3.1.2.6 Common Questions about Trade Secrets 88 3.1.3 Trademark 88 3.1.3.1 What Can Be Trademarked? 89 3.1.3.2 Examples of Trademarks 89 3.1.3.3 Trademark Information 90 3.1.3.3.1 Length of Protection 90 3.1.3.3.2 Process and Cost in the US 90 3.1.3.3.3 Protecting Trademarks 91 3.1.3.3.4 Penalties for Infringement 91 6 Business and Legal Issues for Video Game Developers 3.1.3.4 Picking a Good Trademark 91 3.1.3.5 Notable International Variation 93 3.1.3.6 Common Questions about Trademarks 93 3.1.4 Patents 94 3.1.4.1 What Can be Patented? 95 3.1.4.2 What Rights are Conferred by Patents? 95 3.1.4.3 Patent Information 95 3.1.4.3.1 Length of Protection 96 3.1.4.3.2 Process and Cost in the US 96 3.1.4.3.3 Protecting Patents 98 3.1.4.3.4 Patent Litigation and Penalties for Infringing Patents 98 3.1.4.4 US Patent Pending and Provisional Patent Applications 98 3.1.4.5 Patent Invalidity 99 3.1.4.5.1 Anticipation and Obviousness 99 3.1.4.5.2 Timing a Patent Filing 100 3.1.4.5.3 Reasons to File a Patent Application 100 3.1.4.5.4 Common Questions about Patents 101 3.1.5 Rights of Publicity and Moral Rights 101 3.1.6 IP Strategy 101 104 3.1.6.1 Have a Relationship with Experienced IP Counsel 104 3.1.6.2 Protect IP in Advance 104 3.1.6.3 Protecting IP when Pitching a Game to Publishers and Investors 104 3.1.6.4 The Process is Complex, but Results are Achievable 105 3.1.6.5 Strategies for Small Companies and Individual developers 105 3.1.6.6 Strategies for Large Developers and Publishers 106 3.1.7 Three Important Points 106 CHAPTER 4 108 LICENSING IP FOR GAMES 108 4.1 Introduction 108 4.2 The Licensing Agreement: The Long Form Agreement 110 4.3 The Major Issues in Licensing Agreements 111 4.3.1 The Licensed Property 111 4.3.2 Rights Granted 113 4.3.3 Platforms 115 4.3.4 Territory and Term 116 4.3.5 Licensing Fee 117 Mastering the Game 7 4.3.6 Ownership Issues 120 4.3.7 Statements and Audits 121 4.3.8 Representations and Warranties 123 4.3.9 Indemnification 125 4.3.10 Approvals 126 4.3.11 Termination Rights 128 4.3.12 Expiration of the Agreement 131 4.3.13 Miscellaneous Provisions 131 4.4 Licensing Properties: Back to the Future 131 CHAPTER 5 132 MUSIC 132 5.1 Introduction 132 5.1.1 Hiring a Composer 132 5.1.2 Licensing Music: Master and Synchronization Rights 133 5.1.3 Licensing Music from Music Libraries 135 5.1.4 Public Domain Music 135 5.1.5 Anticipating Costs 135 CHAPTER 6 137 ISSUES DEALING WITH THE CONSOLE PLATFORM MANUFACTURERS 137 6.1 Introduction 137 6.2 Approving Publishers and Developers; Agreements 137 6.3 Development and Manufacturing Issues 140 6.3.1 The Submission and Approval Process 140 6.4 Business Issues 142 6.5 Legal Issues 143 6.5.1 Representations and Warranties; Indemnification, Limitation on Liability 143 6.5.2 Confidentiality 145 6.5.3 Assignment 145 6.5.4 Term and Termination 146 6.5.5 Choice of Law; Venue 147 6.6 Moving Forward 147 CHAPTER 7 148 DIGITAL DISTRIBUTION 148 7.1 PC Digital Distribution Introduction 148 7.2 The Long Form Agreement: Introduction 148 8 Business and Legal Issues for Video Game Developers 7.2.1 Rights Granted 149 7.2.2 Delivery of Materials 149 7.2.3 Continuing Obligations 150 7.2.4 Term 151 7.2.5 Marketing Issues 151 7.2.6 Revenue Share and Pricing 152 7.2.7 Statements and Audits 154 7.2.8 Termination 154 7.2.9 Limitation of Liability 156 7.2.10 Assignment 156 7.2.11 Other Terms 157 CHAPTER 8 159 THE MOBILE GAMING MARKET 159 8.1 Introduction 159 8.2 Dealing with Distributors (the ‘App Store’) 160 8.3 The Publisher – Developer Relationship 161 8.4 The End-User Monetization Models 163 8.5 Regulatory Considerations 164 8.6 Tax 165 8.7 IP Considerations 166 8.8 Compliance with Mobile Platform Rules 167 8.9 Moving Forward: The Constantly Changing Landscape 167 CHAPTER 9 169 THE REGULATION OF THE GAME INDUSTRY 169 9.1 Introduction 169 9.2 Data Privacy 169 9.3 Consumer Protection 171 9.4 Advertising and Marketing 173 9.5 Other Regulation 174 9.6 Ratings 174 9.6.1 Age Ratings and Content Descriptors 174 9.6.2 Factors in Rating a Game 178 9.6.3 Submissions and Review 179 9.6.4 Ratings for Online Games 180 9.6.5 Ratings for Mobile Devices 181 Mastering the Game 9 CHAPTER 10 183 CONFIDENTIALITY AGREEMENTS 183 10.1 The Purpose of Confidentiality Agreements 183 10.2 The Major Issues in a Confidentiality Agreement 184 10.3 The Major Terms in the Confidentiality Agreement 185 10.3.1 Preamble 185 10.3.2 What is Confidential? Exclusions; Permitted Uses of Confidential Information 186 10.3.3 Level of Care and Length of Term 187 10.3.4 Breach; Injunctive Relief 188 10.3.5 No License Agreement 188 10.3.6 Additional Terms 189 10.4 Deal Memos: Purpose and Potential Problems 189 CHAPTER 11 192 COMMON ClAUSES IN AGREEMENTS 192 11.1 Common Clauses in Agreements 192 11.1.1 Jurisdictional Issues 192 11.1.2 Waiver 193 11.1.3 No Joint Ventures 193 11.1.4 Severability 193 11.1.5 Assignment 194 11.1.6 Survival 194 11.1.7 Notices
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