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Legal Issues for Rookie Development Studios Part I: Initial Legal Issues

Business Models

Please don't be offended, but game development is a business. If you want to treat games as "art" then make them for their own sake and give them away. Maybe, in the tradition of great artists, your true genius will be recognized after you're dead! However, if you want to make and sell games then, whether you know it or not, you want to start a business. And you need to think of yourself, at least in some small part, as a businessman and act accordingly. Issues like legal entities (Corporations, Limited Liability Corporations and Partnerships) provide many useful advantages. Some regarding taxes and expensing of capital investment, others like health insurance and even retirement benefits. But the most important benefit to a corporate form is the ability to assign specific ownership interests in customized proportionate amounts.

Sure, in the beginning when everything is all work and no money, who cares? After all, game development is based on vision and passion. Great games leap from the imagination into being, often burning out the few talented enough to make them a reality. But waiting until there is a financial benefit to determine who gets what is a really bad idea. At that point, a falling out among team members can be potentially catastrophic. "Don't worry guys, we are all friends here and if this game gets sold we'll all get paid" may sound good at the beginning, but after some have worked months, while others have worked only weeks, an even split is inherently unfair and demoralizing to those who put in all the hours. Similarly, the key member(s) who maintains the vision and makes thing happen may deserve to own the whole company. But if they didn't bother to let the other members of the team know that they are not going to own part of the company they are at least inadvertently taking advantage of, or at worst intentionally misleading, their team members. After the project succeeds is not the time to tell your team that you own the company and that their hard front-end work only entitles them to a job there. Make this stuff clear from the beginning and you will avoid real problems later.

One of my first game related clients was an artist and itinerant game designer. He learned of me through my involvement with the online gaming community and came to me with this problem. He had accepted a position with a rookie studio and even relocated himself and his wife to a new city to work on their demo. The demo was a mod based on the Quake engine in a variation on the movie Starship Troopers, an FPS bug killing adventure. According to him he was a key team member and had spent months working on this project including doing the textures and skins for the models, also assisting in the development of the game concept and design. It was his understanding that, as a committed member of the team, he owned a part of the company. Unfortunately, the rest of the team, including the head of the company, thought otherwise. Did anyone intend to take advantage of the artist? I doubt it. Was he being unrealistic in his expectations - probably. But that is not the point, is it? The point is that the head of the studio, probably just because he did not focus on the issue, allowed the artist to operate under a serious misconception of their deal. And everyone was too busy working on the mod to get some sort of written agreement done showing who owned what part of the studio. Quite simply, everyone was much to busy to deal with these "mumbo jumbo legal" matters.

Well, as luck would have it this demo (based on "free" work, unlicensed code and an unlicensed subject matter) was good enough to win the developer a contract for an expansion pack for a soon to be released major FPS. Now, with the development contract in hand, the artist wanted to know what his share of the company was. The studio head was floored, since equity in the company was not something that he had ever offered. So the studio head explained that like all of the other employees, "You may be able to share in some of the back-end royalties." Obviously, this is not the deal that the artist believed he was operating under. But his understanding of the relationship between himself and the company was never fully discussed and certainly never put down in writing and all he had was a bad taste in his mouth. This was a bad situation for everyone and resulted in the artist leaving the team and seeking legal counsel.

Fortunately for the developer the expansion pack that they were successful in obtaining did not relate to any of the original work that the artist had done for the company. Because if it had, since none of this was "work for hire" (more on the "work for hire" concept in the next article) the artist would have had sufficient intellectual property rights to, at minimum, putt his work out of the project. The only thing that saved the developer's bacon was the fact that the publishing contract they acquired had absolutely nothing to do with the demo they had made.

So all's well that ends well. All the developer lost was one of the founding members of the team responsible for him getting that first development contract in the first place. This was certainly not an ideal way to launch a developer's first real deal. And it was an unfortunate end to the relationship for both the developer and the artist. And all because they did not treat the business they were in as a business from the beginning! By the way, the developer went on to complete the successful Expansion Pack and is now doing its own titles. Unfortunately, I haven't heard anything from the artist in several years.

So, remember, game development is the best business on earth. You get to do what you love and get paid for it -- a real blessing. But it is a business and needs to be treated as such. If you have to, learn this stuff and do it yourself. If you can, hire a professional. At the least, make sure everyone has the same understanding of the "deal" and memorialize it in a written document so no one can cry foul later!

Next time we'll take a look at the development company's assets. No, not the furniture and computers - the Intellectual Property that is the essence of the games we make.

© 2003 Thomas H. Buscaglia. All rights reserved.

Author's Bio

Tom Buscaglia - Lawyer, Game Industry Evangelist, Producer, and Hard-core Gamer.
Tom Buscaglia is an attorney practicing technology law in Miami, Florida. In addition to obtaining his Law degree from Georgetown University in 1985, he holds a B.A. degree in Philosophy from S.U.N.Y., Buffalo, with honors in Phenomenology and the Philosophy of Law. Tom is a principal in the law firm T.H. Buscaglia and Associates in Miami, Florida, where he practices law for a living and plays computer games and philosophizes on the side. Tom's firm's web site is www.gameattorney.com.

Tom is dedicated to the computer and video game industry, assisting developers in all aspects of their legal and business needs. Tom was the Keynote Luncheon Speaker at the 2003 Summer Simulation Multiconference in Montreal, Canada, sponsored by the Society for Modeling and Simulation speaking on The Game and Simulation Industries:Convergence or Collision. He wrote the chapter entitled "Effective Developer Contracts" for the recently released book, The Secrets of the Game Business. He is a contributor to numerous International Game Developers Association, Business and Legal Committee, publications including: the Publisher Contract Walkthrough white paper, on Game Documentation and Trade Show Demos and Termination Provisions; the Game Submission Guide  on Legal Issues and the soon to be released Intellectual Property white paper on IP Contracts Independent Developers Sign.  Tom published a series of online articles on www.GIGnews.com to assist "rookie" game developers on the legal issues they should consider when starting out in the game industry entitled Initial Legal Issues, What are these games made of…legally speaking and Completing your Contract Arsenal.  Tom was a presenter at the 2002 Game Developers Conference, in San Jose, California, on  the topic of "The Phenomenology of Game Design". Tom has been a guest lecturer at Full Sail in Orlando, Florida, giving a presentation to the Game Programming students on Intellectual Property and what to look for, and look out for, in their first employment agreement.

Tom is the Founder and Executive Director of Games-Florida, a non-profit committed to building the Computer and Video Game development industry in Florida by bringing Florida to the Game Development industry and bringing the Game Development industry to Florida. www.games-florida.org He also sits on the Advisory Board of the Digital Media Alliance of Florida www.dmaflorida.org recently participating in a DMAF Panel Discussion with Florida game industry leaders at Full Sail in Orlando on "The Future of the Game Industry in Florida."  Tom has been the Chapter Coordinator for the South Florida Chapter of the IGDA since its inception, and is a moderator for the Business and Legal forums on IGDA web site, www.igda.org.

As FaTe[F8S] Tom is the founder and Supreme Warlord of FaTe's Minions, an online gaming "clan" that has been competing in various online competitions since January, 1998. www.f8s.com As a "hard-core" gamer, Tom plays online on a regular basis and has a gamer's appreciation and understanding of the game industry.

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The Series
  Initial Legal Issues
  Just what are these games made of...legally speaking?
  Completing Your Contract Arsenal - NDAs, Employee and Consultant Agreements