Does your game company need an annual checkup?
As humans, we realize that regular checkups with our doctor, dentist, and other professionals can keep our bodies running well. Often, these checkups can catch major problems before they become major problems.
A business is no different – there are any number of things that could have gone wrong over the last year (usually that fly under the radar). Those issues can easily blossom into big difficulties if they’re not taken care of early.
So, when was the last time you did a thorough checkup of your game company?
Analyzing your company’s intellectual property strategy
For most game companies, the majority of their value lies in their intellectual property. This could be the art assets and software code that goes into the games (protected by copyright), inventions and processes behind the games (patents), and valuable brand names for the company and its products (trademark).
Any healthy game company should, at the very least, have a three-tier intellectual property strategy:
- Making sure you own all of your content
- Taking steps to protect your content from infringement
- Avoiding infringement of others’ content
All three of these work together to create a cohesive intellectual property strategy for your company.
Own your content
Making sure that you’ve secured ownership of your game content involves double checking that comprehensive employment and work-for-hire agreements are in place with any employees or contractors that you’ve hired. Often, in the rush to get started on development, the paper trail is ignored or delayed.
However, without the proper documentation, you may not actually own the content in your game.
Another important aspect of your company’s IP strategy is protecting it from infringement. This involves regular searches for copying of your products and use of confusingly-similar brand names on competitors’ products and services. “Crowdsourcing” is also helpful – fans of your products can have eyes everywhere and alert you to possible infringements.
Failing to protect your trademarks and other IP could result in you losing those rights, so this pillar of your strategy is essential.
Protect your work
Lastly, it’s important to take proactive steps to protect your valuable intellectual property.
For your game, website, and other original creative works, this involves timely filing of a copyright registration. If you file your registration within 90 days of publication or prior to any infringement, you are able to take advantage of statutorily-defined damages and even collect attorneys’ fees in a lawsuit. This greatly eases the burden of proving damages and can make policing your copyright against infringers much easier.
Your company and game names, as well as any slogans and logos, should have federal trademark registrations filed in a timely manner. The best strategy is to file trademark applications prior to your actual use of the mark, as an “intent to use” application. This allows you to reserve the name, preventing others from starting to use it in the meantime.
This strategy is particularly helpful when you’ve decided on a game name and begin to advertise or crowdfund it. At that point, you haven’t actually accrued any trademark rights, and nothing is stopping another company from swooping in and taking a great name. The federal registration establishes your date of priority against others, and is a powerful tool for controlling your brand.
Additionally, if you’ve got any original inventions worth protecting, a patent filing might be in order. While these are less common than the less-expensive trademark and copyright filings, they can often be an equally-important part of your overall IP portfolio.
Reviewing and updating your company’s contracts
Game companies thrive on relationships, whether with their employees and contractors, publishers, platform holders, or users. Aside from the above-mentioned intellectual property ownership, there are a number of additional issues that should be dealt with in the various agreements your game company signs.
Employment and Contractor Agreements
All of a game company’s employees and contractors should sign written agreements, in order to ensure that all terms of their employment are clear. Whether it’s payment terms, intellectual property ownership, or the length of the employment terms, it should all be in writing.
As stated above, the contracts should be clear that anything the employee or contractor creates for your company is owned by your company. If there is a deal where the content is just licensed to you (and the contractor retains ownership), the license terms need to be broad enough to protect your usage of the content. You don’t want there to be a situation where you have to stop selling your game, due to an expired license or narrowly-defined terms.
Another key point to have in your contracts with employees and contractors (as well as anyone else granting you rights) is to exclude something called “injunctive relief.” Injunctive relief is a type of legal maneuver that allows a court to stop the sale or your game, in the event of a dispute.
In your agreements, there should be a section that disallows any kind of injunctive relief, and allows for only monetary damages in a dispute. This protects your ability to continue selling your game, even if one of your contractors or employees sues you over it.
Getting your game published by a company with a great track record can make things much easier on you, particularly on the advertising and marketing side of things. The scope of possible issues in publishing agreements is too much for this article, but you should be aware of a few important terms.
- Ownership of IP – The publishing agreement should be very clear who owns what intellectual property. Depending on the nature of the deal, this could involve your company retaining all rights, or the publisher owning them. However, you should always include terms related to your ownership of proprietary tools and technology that you bring to the table.
- Approval process – there needs to be a well defined approval process in the contract, with specific time periods for approvals and terms related to the publisher’s failure to either approve or disapprove.
- Your escape hatch – every contract needs a way out. If the publisher isn’t pulling their weight and the game isn’t selling, you should be able to either take over or find a new publisher.
If you don’t pay attention to these and other important publishing issues, you could end up in a very bad situation down the line.
Terms of Service
The Terms of Service is a more substantive document than the old End User License Agreement that used to accompany software, as they generally cover the game, website, and accompanying apps. These documents deal with a range of issues pertaining to your game and related materials.
Some things to watch out for are:
- The main license terms (what used to be the EULA), which should be clear that the software is licensed, not sold, and that you have the power to revoke that license and terminate any accounts at your sole discretion.
- Rules governing a user’s behavior on forums, comments, in-game, etc., in order to be clear that certain content is not allowed. Additionally, prohibitions on cheats, impersonating someone from your company, and other behaviors should be included.
- Virtual currency, and other in-game “virtual” content should be licensed, and the terms should be clear that they may not be sold outside of the game. This is important in avoiding liability for creating an illegal gambling or lottery situation.
- Dispute resolution terms should be clear – the Terms of Service should make arbitration the sole method of resolving disputes, and have the user agree not to institute a class action against you. As arbitration generally seems to weigh in favor of the developer, and class actions can be enormously expensive, these terms are vital in order to protect your game company legally.
One other issue comes up if you are taking PII from users in the EU and transferring that info to the US. This invokes EU privacy rules, which are stricter than those in the US. However, if you adhere to the principles of the EU-US Privacy Shield and self-certify, you can take advantage of a safe harbor for the transfer of this information.
There are a number of other contracts that a game company regularly signs – composer/music agreements, voice actor agreements, advertising/marketing agreements, sponsorship agreements, and more.
All of these should be reviewed on at least an annual basis to make sure they reflect your current business situation and aims.
Checking on your company’s internal health – corporate documents
The last pillar of a game company audit deals with the company itself. Depending on the type of business entity and the ownership structure, this could involve any number of issues.
The company ownership documents should all be in writing and signed, and the terms should reflect what the company and the owners have agreed upon. Do some owners/members have voting rights, and others don’t? That should be clear in the company documents.
There should be a proper chain of title on all share ownership, with stock purchase documents or membership transfer agreements, as well as the appropriate board or manager resolutions authorizing any of those purchases.
Careful attention should be paid to any transfer in ownership or any investment into the company, to be sure that any required securities filings are made with the SEC and state securities agencies. Failure to do that could allow a shareholder to sue you if their shares lose value, or could open you up to liability from those government securities agencies.
If you have offered shares or stock options to your employees verbally, it’s important that you structure the employee stock plan correctly. Various types of offerings have different tax implications, and often require that a valuation of the company is obtained. This can help to avoid some potentially serious tax consequences for the company and the employees.
Another possible scenario that comes up in maturing companies is the need to change the character of the business entity itself. Maybe you started as an LLC or a partnership, but want to transition into a more structured entity like a c-corporation. Perhaps you formed in one state, but have since moved and want to bring the company with you. All of these scenarios and more have legal options to achieve those goals.
Getting the audit done
A good audit will comb through these all of these documents and issues, and come up with a plan of action to put your business goals into practice. This often requires editing existing agreement templates, drafting new documents, filing new intellectual property registrations, and even amending previously-signed contracts.
I recommend working with both a tax advisor and an attorney in order to make it happen efficiently (both tax-wise and time-wise).