Game Development Agreements 101
Video game development agreements are contracts that outline the terms and conditions of the creation and implementation of a video game. Given the rapidly growing market for video games, it is of no surprise that development agreements are more a common necessity rather than an exception. From independent developers to large gaming groups, video game development agreements are a fundamental aspect of the gaming industry.
Game development agreements allow publishers and developers alike to outline the components for the creation of a video game, timing, pricing, intellectual property ownership and compensation . For instance, by way of development agreements, a developer may grant a publisher the implicit right to market, sale and distribute the video games. Similarly, publishers are able to craft provisions allowing for auditing rights in the event that there is a dispute with respect to its revenue share.
As a new video game often requires various skilled developers to flesh out the vision of the publisher, development agreements are a prudent way to scope out all potential obstacles that could arise during the development process.
What Goes into a Game Development Agreement?
There are several core elements that are essential to the game development agreement and should be accounted for in any well-written contract. Sometimes these elements are referred to (somewhat misleadingly) as "traditional" pro-gamer provisions. These will usually include, at a minimum:
Scope of Work. The scope of work (frequently referred to as the "SOW") is a description of the tasks the developer will undertake, whether it is simply working on a precariously tight deadline to address a global gaming bug that takes your favorite PS4 game off-line or a years-long process of developing a game from scratch, the SOW is a critical element of the development agreement that must be clear and unambiguous to manage the expectations of both parties.
Payment Terms. Whether you are a billion-dollar company with a six-month budget or a small two-person studio working on garage-turned-office revenue, the payment terms of your development agreement must be specific about what payment will be made, when it is due, and the exact dollar amount promised to each party. If you are a commission-based individual or small studio, only to be paid by your publisher or main contractor, remember to specify the conditions under which you will be paid following completion of the project in your development agreement. With a typical cycle dependent on the end of a fiscal year or quarter, this critical point may make the difference between having a house or an apartment. Make sure you are clear on how payment will work.
Ownership of Intellectual Property. It goes without saying that when it comes to video games, intellectual property is all-important. From characters to in-game currency to item classes, there is virtually no aspect of a video game that is not intellectual property. Thus, ownership of this intellectual property is of critical importance to any development agreement between individuals and businesses involved in the creation, coding, writing, and execution of a video game. Typically, if employees are at the heart of the game development process, there is little question as to who owns the resulting intellectual property at the end of the project. When it is independent contractors who work on the video game product, however, there is more room for disagreement over who retains the rights and ownership of the product. There are many different types of agreements that can be put in place to remedy this situation for videogame game developers, including: work-for-hire agreements, paid assignment of services agreements, and similar contracts.
Non-Compete and Non-Solicitation Clauses. A non-compete clause in a video game development contract is designed to protect both the business and the individual or small studio entering into the agreement. A solid non-compete clause will allow the video game developer or business to ensure that the terms of their development agreement will continue to be met both during the contractual relationship and after it ends. This clause can help your company avoid losing its intellectual property or having your freelance developer cut ties with you and go to work for a rival.
A non-solicitation clause is somewhat similar to a non-compete clause but focuses specifically on the protection of your workforce and other business interests. It is a clause that can be used to make sure that neither employees hired under the development agreement nor any customers of the gaming product will be "poached" by the contractor or business partner following the end of the gaming development contract. As with any issues related to competition clauses, it is important to have a qualified legal professional review and advise on the language used in these clauses of your videogame company’s development contract before using them.
Ownership of Intellectual Property
One of the most critical aspects of a game development agreement is the resolution of intellectual property (IP) and ownership rights. It is vital that the parties define who will own the game and the underlying IP. While developers may believe that they are creating something for the publisher, their employee status, or the terms of their contract may render this assumption incorrect. The terms of your agreement should be clear on who will own the game and related IP so there are no disputes later on. In addition, since video games incorporate many different media forms, it is important for both parties to clarify the extent any pre-existing or third party assets will be incorporated into the game by the developer. The level of ownership and control that the parties retain over the final product will be largely dependent upon the decision made with respect to any IP created, or incorporated, during the execution of the contract.
Milestone Payments and Other Deliverables
The timing and quality of the completion of specified deliverables is of great interest to the publisher as it sets the primary timeline for the game project and drives its payment schedule. There may be one or more milestones in the agreement. Each milestone may have a number of phases which must be separately validated. If a validated milestone does not meet the requirements defined in the agreement, the publisher may choose to either withhold all or a portion of contractual payments or terminate the contract. As a result, developers are often cautious as to what milestones and deliverables they agree to, so they can have as much control over the schedule and cashflow as possible.
A game development agreement’s milestones, deliverables and implementation schedule typically include:
Milestones and Deliverables. While most video game development agreements describe milestones and deliverables, they do not explicitly state when they are to be completed. A project schedule solutions helps the parties set dates for when they anticipate the milestones and deliverables. The project schedule also provides the basis for the payment schedule, based on the percentages of the total agreement’s compensation that correspond to each milestone. Each percentage of the compensation is typically combined with other milestones towards a percentage of completion such that developers know with greater certainty when certain payments will be made.
Confidentiality and Non-Disclosure Provisions
Confidentiality and Non-Disclosure clauses are a critical component of any video game development agreement. Their intent is to protect both the developer’s and publisher’s sensitive information from being disclosed in a way that could be harmful to them or to the other party. Because video games often contain significant amounts of innovative technology, new world building techniques, unique gameplay mechanics, intricate storylines, and other development practices that a game developer wants to keep secret to ensure their competitive edge, the confidentiality and non-disclosure clauses in the video game development agreement can become one of the most important provisions in the contract .
Contracts today are largely silent on the practicalities surrounding how, when, where, and under what circumstances the exchange will occur. Usually, the only industry guidance is the "one size fits all" language in California Civil Code section 3426 that incorporates a single, generally acceptable "standard" for trade secret protection.
The best practice, of course, is to provide a definition section and a proprietary information provision, which details the components of the information and the providing or receiving formats, the types of devices upon which it can be stored, and the types of people to whom and locations to which it can be sent, as well as mandatory procedures for securely erasing the information after its use.
Termination and Dispute Resolution
Many software development agreements feature termination provisions, and a video game development agreement is no exception. For example, a developer may have the right to terminate the agreement because an advance milestone payment is not paid in a timely manner by the publisher. In addition, a video game development agreement might include termination rights under a variety of circumstances that are not necessarily tied to an advance milestone payment. For example, provisions might be included in the agreement that enable a party to effect a termination in the event of default that, if uncured within a certain period of time, results in termination automatically by provision of the agreement absent a written waiver, the bankruptcy or insolvency of a party, or the failure or inability of a party to obtain a necessary regulatory approval for the development and/or exploitation of the game.
Sometimes, a video game development agreement may also require the parties to agree to arbitrate disputes. Disputes arising out of the development, distribution, marketing and sale of video games may be likely candidates for arbitration instead of litigation in court. Some typical arbitration provisions in this context specify the following: (i) the arbitration must be conducted by an independent third-party arbitrator in New York City (or some other agreed-upon location); (ii) the parties are to appoint three arbitrators — the developer selects one, the publisher selects one, and the third is to be selected by the two we have already selected; (iii) the cost of the arbitration is to be borne jointly by the parties; and (iv) the decision of the arbitrators are to be final, binding and conclusive on the parties.
It is important to understand the termination and dispute resolution provisions of any video game development agreement.
Video Game Development Agreement Traps to Watch For
Game Development Agreements can contain a number of pitfalls that developers should be wary of, particularly if they are not represented by counsel experienced in reviewing licensing and distribution deals. One common mistake that developers make is to provide too detailed of a description of the game. Not only can the game evolve during its development, which can cause problems if the game is not properly described, but a overly detailed description will give the publisher a road map to avoid infringement. Because of this, a one page general description of the game is usually sufficient. I would also encourage developers not to waste a detailed description on describing characters or other works that will be licensed by the publisher back to the developer. If the publisher wants to provide the developer with a license for these elements, it would be wise to exclude these elements from the description or to add a clause indicating that the description does not limit or rely on the license granted.
Another common mistake is a failure to address the issue of delays or the inability to complete the game as contemplated by the agreement. This usually occurs where the agreement requires milestones and specific approvals, yet does not expressly address what happens if a milestone is missed for the approval process is delayed. At best, this oversight will foster unproductive negotiations when all the parties should be focused on completing the game.
Because budgets on AAA Games can be in the tens of millions of dollars, another common problem occurs when the developer enters a budget estimated on prior games, yet does not make sure that the contract pays for any work performed that exceeds the budget. This can cause a lot of friction between the publisher and developer. It’s important for the developer to be cognizant of the needs of the budget during the development process, and for the publisher and developer to establish a process for bringing any issues it may have to the attention of the developer on a timely basis.
Finally, and similar to the previous issue, payment events should be tied to the milestones and deliverables associated with the creative process, rather than to the business process. For example, the publisher should usually not limit itself to providing weekly cash flow reports. Similarly, the amount to be paid for any milestone should not be a flat fee, but should be the remaining value other than the approved budget for that milestone.
Wrap Up: Building an Effective Game Development Agreement
Video game development agreements can be complex, encompassing many different rights and obligations between the parties. The importance of a well-drafted agreement cannot be overstated – a project is less likely to have issues if the parties have agreed on the important matters at the beginning of the project. The following considerations can help shape a strong agreement: These are some of the many issues that a video game development agreement should address. Given the potential complexity of the commercial issues , technology, and law in this field, it is advisable to go through the steps necessary to ensure that the video game development agreement meets the specific goals of each party, and adequately protects their interests in the resulting video game.