What Every Game Studio or Hobbyist Needs to Know – Told Without Legalese

By Ryan Morrison

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From The Law Offices of Ryan P. Morrison, P.C.

ryan@ryanmorrisonlaw.com

212-858-9596

 

A Monthly Book Series to be Released as a Free E-Book Upon Completion

TABLE OF CONTENTS

Part 1: Don’t Let the Legal World Intimidate You

Part 2: Choosing a Lawyer

Part 3: Forming a Company

Part 4: Copyrights

Part 5: Trademarks

Part 6:  Parody, Fair Use, and “But I’m Not Charging for My Game!”

Part 7: Working with Freelancers vs. Employees

Part 8:  Musical Interlude (Music Rights for your Game)

Part 9: Terms of Service and Privacy Policies

Part 10: Nondisclosure Agreements

Part 11: Taxes

Part 13: Patents

 

 

 

 

Part 1: Don’t Let the Legal World Intimidate You

Only hack writers start stories with “imagine if you will.” Ignoring that fact, imagine if you will that you are a normal human being. You have a job, a family, friends, and everything else that gets most people from point A to point B. And yet, deep down, schlepping from paycheck to paycheck doesn’t satisfy you. So you do the unthinkable, and you follow your dream.

Months and maybe years pass as you work — no, not work — create a beautiful game that will make some people really happy, and maybe make you enough money to quit that hellish job you’ve been waking up at 7 a.m. for every day. You’ve tested it a billion times, you’ve polished it to a point of pure pride, and then it’s done – your game is in the marketplace.

But all of a sudden disaster strikes! You find out that your precious masterpiece, Dungeon Ninja Zombie, may be infringing on another title from six years ago that you’ve never even heard of, and, to make matters worse, you’ve just received a letter from their attorney saying you’re in serious trouble.

Fear not, newbie game devs. I’m here to help. Let’s Wayne’s World style flashback to the time before this tragic and typical legal encounter happened, when you had a chance to do things differently. In the present you’re reading this guide to better understand the very important legal framework that governs the fascinating world of game development. After reading this guide you will not only understand the basics, like the difference between a copyright and trademark, you will also understand what you need to do to protect yourself in an industry is too prone to overlooking the law. Take my hand, little one. We are about to embark on a journey…

 

Part 2: Choosing a Lawyer

Clearly I’ve scared you enough to keep reading – Success! The law is something you really should take seriously, and that probably means talking to an attorney at some point. But should you hire an attorney? Well, first and foremost, why not? Some lawyers *cough*me*cough* offer free consultations, and will be happy to help you figure out whether it’s worth it for you to spend money on legal fees or not.

Whichever of the above two answers it is, I can say with absolute certainty that the answer should never be to use a website like Legalzoom. Any legal issue too complicated to figure out on your own is also too complicated for an algorithm to determine, I promise. A lot of the horrible legal problems that clients come to me with started at these kinds of sites, and while they undoubtedly have plenty of success stories to brag about, I haven’t personally heard many.

There’s an old attorney saying that goes something like, “Sure, you could try to fix your own brakes, but you should really spend the money to have a mechanic do it right.” When you look at the substantially higher success rates of trademarks filed by an attorney, as opposed to those filed by the developer themselves, the saying speaks for itself. Your game studio is a business, and businesses have startup costs. The highest of those costs is usually legal fees, but man are they worth it. It’s not about spending money to have a lawyer throw it at a wall. It’s about spending money to make money. Paying for things upfront with a lawyer will usually mean keeping costs down throughout your growth, and having someone in your corner to help with that growth.

If you hire an attorney who is familiar with games, you will almost always get someone passionate about what you’re making. We were nerds before we became legal nerds, and we truly do enjoy the games industry and your product. So not only will you have someone making sure your legal needs are taken care of, you’ll gain another member of your team. And we won’t even ask for equity!

 

Part 3: Forming a Company

When you come to me or any another game attorney with your small team looking to get off the ground, our first advice will almost always be to go ahead and form an actual company. Now, of course, different situations will equate to different advice, and even more importantly the options in your state or country will have different pros and cons. However, some perks usually associated with corporate formation are:

  1. Unified ownership of all of the intellectual property (the art, code, etc., etc.) associated with your game. When you and your friends start working on a game together questions of “who owns what?” can get confusing fast. This simplifies things immensely, and will save you a lot of headaches (and potentially friendships) down the road.
  2. While it may seem ridiculous, investors, gamers, and publishers will take you more seriously when you are Fill-In-The-Blank Studios, LLC versus John Smith.
  3. In most cases, a “liability shield” that protects your personal assets from legal and financial pitfalls. While you may not own a house now, many judgments will last against you for 20 years. You may own a house then. Don’t mess around with your future, and get yourself protected the right way.

So now the question that always follows a determination that you want to incorporate: What kind of company should you form (in America)?

  1. Sole Proprietorship – This is a fancy word for doing basically nothing. Everyone who doesn’t formally incorporate, yet is conducting business to the public, is a sole proprietor. There is no legal distinction (and therefore no shield discussed in number 3 above) between you and your business. This is obviously not the one we usually recommend.
  2. Partnership – This is the same as number 1, but it’s when you’re working with other people. This is even more dangerous, however, because not only is there no liability shield, but you’ll also potentially be liable for what your partners do. While I will almost never say this is the right path for a client, if you do it please get a partnership agreement drafted that outlines the actual relationship between everyone. Don’t just make a game with your buddies and sell it. Those people probably won’t be your buddies when IP rights or money issues start to become real questions and there’s no agreement to answer things.
  3. Corporation – This is the old school way of doing things (and still appropriate in some situations) where you have shareholders, stocks, a board of directors, and everything else they show in movies with people slamming their fists on the table. There is a liability shield that exists with a corporation, so it’s a far step up from nothing, but a corporation also comes with a lot of headaches and red tape that an LLC (discussed below) does not. Now when it comes to investors or large growth where you want to incentivize people without paying them outright (offering stock, positions on the board, etc.) this becomes a bit more viable. However, I’m a fan of switching to this form when those things becomes issues. At the starting phases, I think the LLC will usually be a friendlier option.
  4. LLC – This is the “usual” nowadays in the indie game space, and the reason is that it’s a bit easier to operate than the others. There are no stocks, there is still a liability shield, and there is a level of flexibility in how you choose to structure your company that is not seen elsewhere. An operating agreement is drafted that will explain who owns what, what happens in disaster scenarios, and everything else that needs to be covered.

The real answer is there is no answer until we talk, but 9 times out of 10, with a new game studio, we will wind up leaning towards an LLC. The organizational flexibility and liability shield offer a really nice mix, plus you don’t have to have things like board meetings that a corporation requires (yes, even when it’s just you). No matter which option you choose, though, make sure to speak with an accountant or CPA (keeping in mind they usually prefer corporations in order to boost their billable hours).

Some things to remember before you form a company:

  1. Ask a lawyer – I’ll keep saying this (because my ethics board will karate chop me if I don’t), but always talk to an attorney before you do anything you read in this guide.
  2. If you are currently employed – Be careful! It’s very possible your company will claim ownership of everything this side venture creates if not handled properly. Make sure to be open and honest about your situation when speaking with your attorney.
  3. If you are a student – The same fears as number 2, except your school may claim ownership of everything you’ve made. If you are building off of a course project, as many do, make sure the school will grant you the rights to it! They will usually sign you a release, but not after you make your millions.
  4. Stop offering equity to everyone ya fool! – The quickest thing I see new studios or devs do is say, “I can’t pay this guy, so I’ll give him ten percent of my company in exchange for his art.” Stop it! First, the guy that’s taking ten percent probably doesn’t need the headache and doesn’t know what he’s signing up for, and more importantly you shouldn’t be so quick to chop up your company! Instead, offer revenue. It’s the same effect (they get a portion of profits) but you don’t have to give them something so important for so long. Get a revenue share agreement drafted instead of an equity share, and define the limits and terms of that share so you don’t wind up screwing yourself in the long run. This is beneficial for both of you and prevents a major problem a lot of my clients create for themselves!