Loading Law and GameDevLaw Speak at EPXCon 2015

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Hello readers! This weekend I will be speaking at EPXCon 2015 alongside my esteemed colleague Suzanne Jackiw. The goal of EPXCon is to engage and enhance the animation and game design community at Iowa. Suzanne and I will be there lending our expertise in the area of video game law. We will be discussing copyright protections, as well as a contracts common in games and animation like: Works for Hire, Employment/Independent Contractor Agreements, End User License Agreements, Privacy Agreements, and General Assignments.

Hope to see you there!

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CVGLS Wrap Up

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The Chicago Video Game Law Summit was approximately one month ago. For the uninitiated, CVGLS was the first video game law event of its kind in Chicago. Organized by myself and my colleague Suzanne Jackiw, with help from the John Marshall Law School’s Video Game Law Society and the Chicago Bar Association, attendees experienced a full day of panels devoted to legal protections for video games. The following words are by no means an exhaustive summary of the full day’s events, but serve merely as a preservation of my experiences, impressions, and reflections for posterity. The official agenda of CVGLS, its speaker list, photos, and eventually video, are/will be available at www.cvgls.com

The day kicked off strong with opening remarks given by yours truly and then went straight for the jugular with a panel devoted to the Video Game Violence Debate. Our discussion focused on the history of legal regulations of violent media, public misconceptions of social science, and the public policy of media regulation and censorship. Professors Ford and Monahan tag teamed the history of game regulation, and Dr. Wright explained misconceptions of video game related social science. Doc Mac contributed his unique perspective of being an arcade owner to the mix, and we all speculated on how games are regulated for their content now, and how they should or shouldn’t be regulated in the future.

Continue reading at Loading Law

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Someone Owns That

Sam sprite forwardIn December, 2014, a game called “Meme Run” was put up in the Nintendo eShop.  The game incorporates a panoply of infamous icons from the Internet.  For example, the main character sports the well-known Internet “troll face” and runs and jumps while earning “swag points,” while psychedelic images of the Something Awful “Get Out Frog” flash in the background.  Then, last month, it was suddenly removed from the eShop.  No, not for reasons of taste or quality, but for copyright infringement.

You see, the trollface image is a copyrighted design.  That may come as a shock to some of you, but it’s true.  Trollface was originally drawn by one Carlos Ramirez.  According to a recent Kotaku article, Mr. Ramirez has earned over $100,000 from trollface.

In fact, pretty much everything that you find on the Internet is copyrighted.  Songs, videos, photographs, drawings, blog posts, and more can be copyrighted.  And as soon as you write it down, type it up, record it, etc., voilà, you have a copyright.  No need to register or anything.  (Of course, there are some things on the Internet that are in the public domain (for example, an early Buster Keaton film or a Beethoven symphony (but not someone’s recent sound recording of them playing a Beethoven symphony (have we nested enough parentheses yet? (Now we have.)))))

Those copyrights entitle the creator to several rights, including the right to make copies.  If you start making copies of something without getting permission from the copyright owner, then you are infringing.  But wait, you might say: Doesn’t trollface pop up all over the place?  Isn’t that image almost ubiquitous on the Internet?  We can get into fair use (but you shouldn’t), but it also isn’t a valid defense to say that other people are also copying.  First, a copyright owner does not need to sue everyone who is infringing his copyright, or need not do so right away. (For the record, this is entirely unlike trademarks.)  Copyright infringement has a 3-year statute of limitations per infringing act.  Second, your use is always going to be different from what someone else is doing, no matter how similar the two may seem.  The copyright owner might be fine with what someone else is doing, but vehemently object to your use of his work.  For example, you are making money off of his copyrighted work, while someone else is not.  Or, maybe that someone else is a friend of the copyright owner, but you aren’t.

And this brings me to the third point, and perhaps most important one to impress upon you: you don’t know what sort of deal has been worked out behind the scenes between the copyright owner and some third party.  Sure, maybe the third party is a dirty dirty infringer and the copyright owner just hasn’t gotten around to suing him yet.  Maybe the third party is a co-author of the work in question, and has unlimited rights to use it.  Or maybe he properly licensed the copyrighted work, and has made copies in a completely legal manner.  Unless you were a party to those negotiations, you might not know about them at all.  And, obviously, you can’t use someone else’s contract to defend yourself when problems arise.

The Internet may be a strange and magical place, but just about everything there is owned by someone. Be careful how you use its contents.

As always, this is just legal information, not legal advice, and (unless you hired me recently) I am not your lawyer.

© 2015 Sam Castree, III
NeonOrangeKnight [at] gmail [dot] com

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On the Trail to Parody

SuzanneThe video game industry is full of products that seek to imitate, or in some cases explicitly copy, nostalgic games from the past or the of-the-moment trend. Imitations and clones[1] inundate the market after any game that has achieved some degree of success. These range from those merely playing off the clever concept behind the game to the occasional humorous jab. The original creations are not left defenseless. A mix of legal challenges, with a heavy dose of copyright protection, allows developers to discourage, or at least challenge, most of these imitations; but some may be immune to these objections.

One game and its humorous corollary are Oregon Trail and Organ Trail. Oregon Trail was developed in 1971 by an eighth grade history teacher, and later acquired by MECC and The Learning Company, as an educational game to both teach students about the difficulties inherent in historical westward expansion and to encourage the development of resource management and planning skills. It presented a 2D traveling wagon superimposed over various backgrounds, intended to represent the various terrains of the westward journey. These scenes were interspersed with pop-up dialogues displaying choices or random events.

The game was a resounding success, popular in many schools, and remains in production today, with more modern graphics and interface. In addition to the original 2D scenes, players interacted with lists of goods, acting as shops, and top-down hunting games. As was typical for the time, due to the graphical limitations of early computers, the images were blocky and flat. Perhaps the most well-known features of the game were its general visual and audio style. These features included: the mechanics of selecting resources, such as food, ammunition, and water from a list of options presented to the player at the beginning of the game. Additionally, aspects like collecting additional resources throughout the scenario to ensure a positive outcome, and the inevitability of randomly generated negative events, such as attacks and diseases, resulting in the deaths of team members, were iconic.

Organ Trail was developed in 2010 by The Men Who Wear Many Hats (“The Hats”), a small indie development team out of Chicago, nostalgic about the game they had played as children. Organ Trail followed the formula of westward movement and resource allocation, but set the migration in a more modern United States overrun by zombies. With a disregard for the ability of modern computers to create fluid 3D animations, the team behind Organ Trail chose to pay homage to the flat, blocky animations found in its predecessor. It copied those most recognizable elements, using the same visual style and reproducing the audio effects by recording sounds from a vintage computer. Organ Trail let users select resources and skills at the beginning of, and throughout, their westward trek. The player’s goal of escaping the zombie hordes is often thwarted by randomly generated negative events, such as a blown tire or zombie bite.

Based on this overview, it would seem that Organ Trail is stepping on Oregon Trail’s intellectual property rights, at the very least, if not completely taking advantage of the situation; and they certainly aren’t the only ones doing so. Given the fame of Oregon Trail, it is inevitable that other game developers will be inspired by it. In 2011, The Learning Company, owners of the Oregon Trail intellectual property, sued Zynga, developers focused on creating online and mobile games, for their upcoming release of Frontierville’s Oregon Trail.  The suit was primarily about Trademark infringement, but also raised concerns about the overall similarities between the games, including the theme, look and feel, and use of randomly generated negative events. The suit was settled out of court, but clearly indicates the Learning Company’s proclivity toward protecting their intellectual property.

The Hats created Organ Trail to poke fun at an experience of childhood so many share by introducing aspects of a modern and popular genre. The Hats have created a parody of Oregon Trail. While no litigation has yet been filed nor cease and desists sent in this situation, the foregoing represents a common practice in the video game industry.  Without immediate action on the part of copyright holders, these parodies will continue being made, but such action could stifle the creative urge to repeat those experiences that brought game developers joy, and in some cases derision, in the past. Litigation looms over the heads of those looking to poke fun, and the parody defense for video games needs to be clarified before these cases reach the courtroom door.

Parodies are protected under copyright law. The court has differentiated parodies, which poke fun at the original work, from satires, which comment on something outside the work, and offered greater protection to parodies. In either case, a court ruling will rely heavily on the fair use factors: the purpose and character of your use, the nature of the copyrighted work, the amount and substantiality of the portion taken, and the effect of the use upon the potential market.

Campbell v. Acuff-Rose Music Inc[2] was a Supreme Court case that found a fair use protection for a profitable parody. The dispute was over a rap song which mocked Roy Orbison’s “Oh, Pretty Woman” through sampling and modified lyrics. The court found that the new lyrics offered a ridiculing commentary on the earlier work and that the rap group’s contributions were the product, rather than the sampled sections of the original. It was this analysis that distinguished parody from satire. Although the rap lyrics satirized culture, they did so through a parody intrinsically ridiculing a particular work’s concepts about women and romance. A satire can be expressed without reliance on a particular work, whereas a parody’s commentary is inextricably linked to the original work.

Without a parody game going before a judge, it is impossible to know exactly what factors will be most heavily considered when determining whether or not the creation is protected by fair use. Organ Trail is inextricably linked to the experience of Oregon Trail. The game has taken far more than mechanics or sounds, but enough to evoke the entire look and feel, and transported that expression to a modern game genre – modern survival. The game is a parody of the original while offering wider commentary. In this case, parody is a loving homage to a shared childhood experience.

[1] Direct copies of games aimed at siphoning some portion of the original game’s market

[2] 510 U.S. 569

 

You can play Organ Trail right now at: http://hatsproductions.com/organtrail.html

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Why Register a Trademark When You Just Offer Services And/Or You’re Just a Nobody?

front I was recently talking with a friend about a situation that is likely all too common: a small-time development company picked a name for themselves and received a cease & desist letter for the use of their company name once they started getting some publicity. This post explores a hypothetical situation and options you could have if you find yourself in this kind of position.

What if you just offer services?

If you’re offering a service, it’s exactly the same issue as if you’re offering a product for sale: trademarks. In this case, I’ll be talking about game development as a service, so you’d be filing for a service mark, if you were so inclined. If you offer any kind of service, be it web hosting, coding, art for hire, etc., you can likely register your brand name as a service mark. Ask a lawyer if you’re not sure.

What if you’re just a nobody right now?

Well, isn’t the point of your efforts to get into the big time? What, you think that no one would bother trying to get rich off your brand name in the event you rise to fame just because you’re a nobody right now? Remember those things called knock-offs? Clones? Fake-ity-fake-fakes? Yeah. Don’t let someone tarnish your name with sub par goods or services just because you didn’t think you were famous enough to bother with a trademark. Becoming famous isn’t exactly a cookie cutter endeavor–it usually happens when you’re not looking, and frequently before you’re set, legally speaking.

Situation:

  1. Developer A picks a name for themselves. They’re just a small-time development team that provides development services.
  2. Developer A Google’s their name and sees that another group (Developer B) has the same name, but Developer B is in a different state and only does personal projects for friends, like wedding invite games.
  3. Developer A asks Developer B, who has been around for 10+ years, if it’s okay that Developer A uses the name for their development company. Surprisingly (and this is why you should ALWAYS THINK ABOUT ASKING), Developer B is totally fine with it and gives their blessing. We’ll say that understanding was in writing for extra awesomeness. Woot!
  4. Developer A gets some publicity for games they’ve developed. Yay!
  5. Developer A immediately gets a cease & desist letter (telling them to stop using the name in conjunction with their game development services) from Developer C, who has been around only a couple of years more than Developer A, is in yet another state. Somehow, Developer C didn’t come up in the prior Google search.
  6. No one has a registered trademark on the Game Development Company Name.

Even though none of the developers in this situation were really big names, you should be able to see that doesn’t matter. It’s generally always a good idea to get registrations in early so that you don’t run into this exact problem (e.g. if you were Developer C). That way, you don’t have to waste money on lawyers trying to sort out this kind of problem after the fact, but rather just pay them to send cease and desist letters.

WHAT COULD YOU DO IF YOU’RE IN DEVELOPER A’S POSITION? 

Developer A has a couple of choices: (a) ignore the C&D (not generally a good choice–but talk to a lawyer), (b) race to the USPTO and file a trademark on the name, (c) negotiate with Developer C, or (d) change their name after all that marketing and press for the original company name.

(a) ignore the C&D

This will always depend on your situation, because C&Ds can be either  totally valid, totally baseless, or (often times) somewhere in between. Always talk to a lawyer if you’re ever concerned about what to do if you receive a C&D letter.

(b) race to the USPTO and file a trademark on the name

Because Developer A was the last one to use the Game Development Company Name as a source identifier for their game-making services (service mark), they are likely to be considered ‘junior users’, which means that anyone with prior use of the mark will have priority/seniority over them and could win in a trademark (it’s a service mark, but we’re going to say trademark from now on because it’s easier to understand) registration battle. This is why option ‘b’ wouldn’t necessarily work out in Developer A’s favor, without more, because while Developer B gave their blessing on the use (essentially a waiver), Developer C hasn’t, and Developer C was using it first in the same industry. Remember, trademarks and service marks are there to prevent consumer confusion between brands. The Government doesn’t want someone to hire Developer A’s services thinking it was Developer C, and vice versa.

If the game was being offered online, such as on the App Store, then it’s readily arguable that the geography of use would be per country (rather than city or state) that game reaches. This means that even if common law trademark law applied (basically you get trademark protection only in the places where you’ve sold goods or services), it would mean national protection despite not having a federal registration (which is usually the only way you can get national protection from other users of the mark).

As such, Developer A is in a tricky spot because if they tried to register the name, and either Developer C or the Trademark Office notices, either one could oppose the registration and make it really difficult for Developer A to get their application through.

On the other hand, if Developer C doesn’t oppose it, and if the USPTO doesn’t decline registration of the mark, then Developer A would be in a much stronger position to move forward with their use. This doesn’t mean they get a golden ticket, it just means that the evidence is far more in Developer A’s favor than Developer C’s.

(c) negotiate with Developer C

Good luck with that. Then again, it worked out with Developer B, so you should never rule out this option. You just never know how they’ll react.

(d) change their name after all that marketing and press for the original company name

Obviously this would be less than ideal, given that changing the name would mean losing all that press and identification listeners have with the company– do you see now how trademarks and service marks work? They are the method in which people identify goods or services with their creators!

WHAT COULD YOU DO IF YOU’RE IN DEVELOPER C’S POSITION? 

If you created a service you’re selling, or an app/game/etc., and you haven’t obtained a trademark registration for that service, not all is lost. As I mentioned above, there are some backup plans allowed in common law, and while they’re less than ideal compared to the level of protection you’re provided with a federal registration, it’s better than a poke in the eye with a sharp stick. That’s because even if someone registers your name after you’ve been using it in commerce (e.g. you’ve sold your services to legitimate customers at a legitimate price), you are at least protected in the states/locations where you’ve previously sold those goods or services, and if you’re online, then that potentially means nation-wide (not necessarily worldwide, as the rules for federal trademark registration is a bit different than US law).

Thus, if you were Developer C, and sent a C&D letter to Developer A, then you’re in a pretty good position to argue your case before the USPTO, at least if you can prove earlier use in commerce (e.g. sales receipts).

But what if Developer A raced in and filed that application for the service mark before you?

You could oppose it.

While the USPTO also does their own search when registration applications like that come in, it’s not foolproof. Trademark owners are responsible for policing their own mark (like you did with the C&D telling them to stop). But, you could watch for the registration (if you haven’t already filed your own) and when it’s published for opposition in the official Gazette, you send in your notice of opposition saying ‘hey, we had that first!’ (obviously not in that phrasing)

Summary

Always consider trademarks in the back of your mind when you create a product or service. Think like a grown-up business person and actually consider the marketability of your product and do at least a knock-out search (Google) of your chosen name to see if there will be any potential conflicts down the road.

But, just because another company is using your name, remember that Pandora is a trademark for both jewelry and internet radio–there are different classes of goods and services out there, and if there isn’t likely to be any confusion for consumers, you might be okay. Talk to a lawyer if you’re at all concerned, curious, or confused.

Strapped for cash? Check out my article on finding affordable legal assistance.

 

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Working with Others on Your Game – The Risky Business of Being in a Partnership vs a LLC

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Hope to see you at GDC!

If you are working (or worked) on a game with one or more people, with the intent to earn money from it (at some point), you might already be in a partnership, which can carry some serious financial risk to you if things go really well (or really poorly). Creating partnership agreements (documents outlining the goals, duties, structure, and exit strategies of the venture) can help reduce your risk, or incorporating to a limited liability company (LLC).

DISCLAIMER: THIS ARTICLE IS NOT A SUBSTITUTE FOR LEGAL ADVICE. It’s not all-inclusive, and every person’s situation is different, so you should really consider contacting an attorney if you have questions.

 

Short on cash? Check out my article on finding affordable legal assistance.

Quick & Dirty Summary:

Much of this article is about partnerships, with a summary of the benefits of LLCs at the end. This is so that you can fully understand the potential dangers of working in an unmodified partnership, and better understand the benefits a LLC brings to the table.

Joint Ventures/Partnerships

Joint creative efforts have created some fantastic works in the entertainment industry in particular, but joint ventures are not to be entered into lightly, nor without planning. There are common pitfalls that can be avoided if the proper steps are taken to ensure things are spelled out in how the partnership will work.

What is a Partnership? How do I know if I’m in one? Is it bad?

What it is: It’s a business entity. If 2 or more people go into business together for profit, you’re in a partnership. It doesn’t matter if you’ve sold anything yet, but if the ultimate goal is to make some sort of profit from your joint work, you’re in a partnership. This goes for making a game, writing a screenplay, or opening a lemonade stand.

How partnerships are formed: This is the most dangerous part of working with others on a project (without a partnership agreement/business plan), is that they’re so easily created. You can enter a partnership just by your actions, but also with a formal agreement. See above for the kind of action required to form a partnership.

Are partnerships bad?: Not at all, they just carry a potentially large amount of risk (financially, usually) if they’re not dealt with properly. And by ‘dealt with’, I mean either having a written partnership agreement or incorporating into a limited liability company (LLC), which would force you to write up your business structure anyway. I won’t go into C-Corporations here, because that typically takes a lot more startup money, which means you’ll already have a lawyer and won’t need the information on this blog.

What are the benefits and risks of a partnership?

Benefits of a Partnership:

Some benefits of a partnership are ones you’re likely already aware of, since you already gathered great creative people to work with you on your project. More people with differing backgrounds and expertise can really add to the final product, and you equally share the costs and profits of your project (assuming there’s no written agreement saying otherwise). Partnerships are also taxed the same way as an individual, and you have a lot of flexibility in how your business will run. It also requires 0 paperwork to form.

But, that’s also the problem, because getting out of a partnership once it’s formed can be difficult to prove, which is especially an issue for game devs who want to quit a friend’s project to pursue their own…and if that new game is remotely similar to the partnership’s game.

Risks of a Partnership

The risks of being in a partnership, however, can outweigh the benefits because of how quickly things can go cattywampus.

Personal Liability

You and all of the partners in the partnership are PERSONALLY LIABLE for what THE OTHER PARTNERS DO—this means that if someone acted on behalf of the partnership (e.g. rented office space for you all without telling anyone or ordering 1000 high-end computers), YOU are legally liable for their actions as if you did it yourself. Typically this means you’re equally financially responsible for their actions as they are, even if you had nothing to do with the deal they made on behalf of the partnership. But, if you’re the one who has money saved up and your partner is broke…guess who is going to foot the bill? Also, partnership liability isn’t just limited to financial actions…it also includes criminal activities, debts, etc. by the others in the partnership.

To be clear: being personally liable means that if you are sued for a debt created on behalf of the partnership, and the partnership doesn’t have the funds to satisfy it, the person/company suing you for payment can come after YOU PERSONALLY. This means they can get at the money in your checking and savings account, foreclose on your house, repo your car, etc. until the debt is paid. LLCs, another business entity discussed at the end of this article, can serve as a protective barrier to this kind of liability.

Also, without a proper contract or partnership agreement in place, you may not actually own all you think you do, because the default state of a partnership is equal shares of ownership, profits, and losses. Thus, if you’re the one who owns the game, and you brought in a a friend onto the project as a partner, they could get equal shares of profits and possibly intellectual property ownership, even if they didn’t do anything more than convert oxygen into carbon dioxide at your office.  So long as they HAD THE ABILITY to manage the business, if they wanted to, then a partnership could be found. There are some serious copyright ramifications as well in working on a project with more than one person, but I’m not going to cover that here. Look at my article on copyright law issues to better understand the issues and risks associated with working with others.

Length of a Partnership

Okay, say you’re in a partnership, how long are you in for? The duration varies wildly depending on the project type. It could be for the entire time you run your game business, or it could be for a single project (e.g. a joint venture).

Quick note on joint ventures: They require (1) the members must have joint control over the venture even if they delegate the work; (2) must share in the profits of the undertaking; (3) members must each have an ownership interest in the enterprise.

Why bring this up? If a disgruntled friend you worked with in the past wants to get at your profits, they could find a creative lawyer who could argue your work together was a SERIES of individual joint ventures, rather than an on-going partnership for which they were kicked out of, which means you have to share your past/future profits with them, even if they haven’t worked on the future projects.

Who constitutes a Partner?

Say you paid someone to do work on your project, and you paid them with money you earned from the project. Are they now a partner? It depends on why you paid them. Usually, if someone you work with receives a share of the profits of a business, then they’re presumed to be a partner in the business UNLESS you paid them to:

  1. pay a debt
  2. pay that person as an employee or independent contractor
  3. pay rent to that person
  4. repay part or all of a loan
  5. sell the goodwill of a business

Also, some relationships will NEVER create a partnership:

Simple loans – if someone advances money, and they expect that money to be repaid, regardless of your success, they are a creditor, not a partner.

Mere investments – if someone invests money or property into your business for a percent of the profits, but they don’t have any power to exercise management or control over how your business is conducted, they are an investor, not a partner.

Partnership Agreements

If you and your partners don’t spell out your rights and responsibilities in a written partnership agreement, you’ll be ill-equipped to settle conflicts when they arise, and minor misunderstandings may erupt into full-blown disputes. In addition, without a written agreement saying otherwise, your state’s laws will control many aspects of your business, rather than being able to control it yourself by having the rules spelled out in a formal document.

While it may seem awkward to ask whomever you’re working with—your best friend, spouse, or someone you don’t know—to sign a formal document when your working relationship is so new, it’s just good business sense to have everyone on the same page as to how things will run.

Remember, when everyone is broke, there’s rarely a problem but as soon as money/profits are involved (or a serious lack of money), relationships change. They may sour, emergencies may come up, and you will want to have these documents in place to preserve your—and their—interests.

How it helps: A partnership agreement allows you to structure your relationship with your partners in a way that suits your business. You and your partners can establish the shares of profits (or losses) each partner will take, the responsibilities of each partner, what will happen to the business (and the work you’ve completed) if the a partner leaves, and other important guidelines.

 What goes into a partnership agreement?

This list is not exhaustive, but merely illustrative as to some pertinent topics to discuss in a partnership agreement. A lawyer will honestly be the best way to get exactly what you want. AND I DON’T MEAN LEGAL ZOOM!!!! If you haven’t already read my article on the subject, think of going to legal zoom and getting a partnership agreement as if you’re walking into a tuxedo shop with a blindfold. There’s a chance you’ll get a tux that actually fits you (e.g. a contract that is tailored to exactly what your business needs), but it’s far more likely it won’t suit (pun intended). Lawyers…believe me, they’re there to help, and it’s always better to get their input early on rather than after the $%*# hits the fan.

  • Name of the partnership
  • Contributions to the partnership from each contributor
  • Allocation of profits, losses and withdrawals
  • Partners’ authority
  • Partnership decision-making rights
  • Management duties
  • Intellectual property ownership (and physical property, while you’re at it, like computers)
  • Exit plan (what happens when someone wants out, or you want to kick someone out?)

Caveat (warning/exception) to partnership agreements: Agency laws.

Oh, agency laws, thou can be a right b*tch. With regard to partnerships, agency has to do with who has the right to make decisions for your partnership. The agency authority is why partners are equally liable for everything the other partners do–every partner is an agent of the partnership, and thus can make decisions or contracts on behalf of the partnership. There are ways to limit that authority, but first you need to know what kinds of authority exist. There are 3 kinds of authority in which partners have the right to make contracts on behalf of the partnership (oh God, I’m having bar exam flash backs):

  1. Express Authority – there is a written agreement allowing for those kind of actions
  2. Implied authority – Implied authority is such authority that the partner reasonably believes they have as a result of their position within the corporation. For example if you formed a partnership and you’re an artist or programmer with no business background, and your partner is the business person—the business person is implied to be able to make business contracts just the same as you, even if it’s not written down.
  3. Apparent Authority – Apparent authority exists to protect innocent third parties who reasonably believe the individual with whom they are contracting has the power to enter into such contracts, or that the corporation is holding out that individual as having such power.

Imagine a representative of a small publisher hands you their business card which says “publishing director” or “licensing manager.” Wouldn’t you assume they have the ability to make a binding contract with you? Here, the law is interested in protecting the unaware third party—you, in this example—from having unenforceable contracts with people, and suffering a loss because of it.

On the flip side, you may want to limit what kinds of transactions your partners can enter into on behalf of your partnership, since you’ll be legally liable for anything they do, and any contracts they enter into. This whole article discusses the importance of putting your goals into an agreement, and this aspect is no different.

An agency limitation clause can include just about anything you want (and the other person is willing to sign). You make the choice of how the partnership will be run, who can make which kinds of decisions (i.e. licensing/contract/business, supply purchases, talent recruiting/signing, etc), and then you put that down in writing. Recording the exit strategies are incredibly important so that everyone is on the same page in the event someone wants to leave the partnership, or you want to kick someone out.

While it might be a pain in the beginning when relationships are still new and untried, in the long run, determining up front who has the power to make decisions and expenditures can avoid many problems.

Avoiding Inadvertent Partnerships

As for the discussion about partnerships, how easy they are to enter into, and how problematic they can be if they sour, remember that you can protect yourself by getting written agreements up front with the people you work with on major projects.

You should strive to write down the material terms of any project that you’re working on with someone who (A) you may get into a personal conflict with in the future or (B) is making a deal with you that involves a lot money or complicated conditions

Practically, small projects that won’t generate enough money to spark a legal battle or personal conflict may not be as important to get a written agreement for if it may be difficult or impractical to do so. Nevertheless, you should make sure that you and the person you’re working with are very clear on the terms of your deal before you begin.

These agreements don’t have to be typed, they can be completely informal. Signed agreements are much better, but even an email that lays out the terms of a deal and then asks the other party to “agree” is better than nothing.

LLCs – WHAT, WHY, & HOW MUCH?

Okay, you’ve waded through the risks of partnerships, now it’s time to briefly discuss LLCs (limited liability companies).

WHAT?

If you create a LLC, it acts a legal entity and barrier for debtors and creditors to go after. Once the funds and assets of the LLC are exhausted, if the debts of the LLC are not fully satisfied, then the creditors cannot come after your personal assets or money. There are exceptions to this, of course, and other means for which they can get money, but generally, this is the case.

That’s the main reason to form a LLC. Other benefits are a more formal structure (e.g. you HAVE to file articles of incorporation, which tend to prompt you to really think through your business plan), they have the tax advantage of partnerships (as opposed to corporations which are taxed twice), and they’re nearly as flexible in managing as a partnership (whereas a C-corporation has to have a board of directors, share holders, annual meetings, and quite a bit more money and government scrutiny).

S-Corp — have you heard of that term? It’s not actually a different TYPE of corporation, it’s a type of TAX STATUS for a corporation. It’s usually something  veteran investors and business people use when they need to offload some income, so ask a lawyer if it’s something you need or should consider doing.

Why?

If you scroll up, the first thing I stated as a risk of working in a partnership was the PERSONAL LIABILITY. They can get your money, your house, your car, etc. to satisfy the debt. NOT SO WITH A LLC. A LLC works like this:

 

llc protective barrier

 

This is a generalization, and assumes you aren’t naughty and break the laws allowing for piercing that protection (Google ‘piercing the corporate veil’ if you’re curious).

How Much?

Filing fees depend on your state and when you file. From what I’ve researched, it can range from under $100 to a couple hundred bucks. There are other costs associated with maintaining a LLC (taxes, insurance, etc.) to consider as well.

Terms to look up when deciding to form a LLC:

Articles of Organization – usually a fill-in-the-blank form provided by your Secretary of State; it’s the form you file to officially tell the state you’re making a limited liability company

Operating Agreement – Best to have a lawyer draft (or at least review) this, because it’s where all the planning goes for how you want to run your business, who gets what, who owns what, how people are added, and how people can leave the company (and what happens when they do).

If you’re wondering whether or not to incorporate in Delaware, whether because someone told you that’s the safest place or best place for businesses, read this article to just be aware that there are some downsides to filing in Delaware if you don’t currently live or operate out of the state.

If you’re starting a business to sell a game (or anything), you should also check out this site to determine what business licenses you might need.

Summary:

If you’re a game developer, working with one or more people on a game from which you ultimately plan to make some profit, you’re likely already in a partnership. It doesn’t matter what you call it, because it’s your behavior when working with others that legally defines whether or not you’re in a partnership. But, there are ways to manage the risk (partnership agreements or forming a LLC, which is effectively a much more professional version of a partnership agreement and offers less personal risk) and you should consult an attorney to take the next step in being a responsible (and potentially more profitable) business owner.

 

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This Week in Law: January 16

SuzanneHey all,

A while ago, I was on This Week in Law and talked about video game law. Now, it’s time for part 2. I’ll be on this Friday, January 16, with Mona Ibrahim and Patrick Sweeney from IE Law Group (where I’m currently an intern) to discuss legal issues in the video game industry from a transnational perspective.

twil1400

Tune in: http://twit.tv/show/this-week-in-law

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See Sam at the Music And Gaming Education Symposium

Sam sprite forwardI will be leading a presentation and discussion at MAGFest again this year, this time as part of MAGES: the Music And Gaming Education Symposium.  This one is entitled “Infringing the Right to Clone? Reflections on Recent Legal Decisions.”  They’ve slotted me for 4:30 p.m. on Sunday, January 25th.  I’ll be the penultimate presenter of the Symposium, which is a good excuse to use the word “penultimate” a lot.  Here’s the official description:

“Traditional doctrines in copyright law have protected artistic expression, but not underlying ideas or functional aspects of creative works.  This, in turn, gives competitors the right to draw from those works.  At best, this allows for new and better artistry; at worst, it promotes thinly-veiled rip-offs of existing creative works.  However, recent federal court cases (such as Tetris Holding v. Xio Interactive, and DaVinci Editrice v. Ziko Games) have begun to clamp down on cloned games, pushing the boundaries of copyright and allowing for protection of games in ways that seem to run counter to well-established precedent.  Come learn about these cases and more, and join in discussing whether such a shift in the law is a welcome blessing or an unwelcome burden (or both!) to game developers.”

I hope to see you there!

© 2014 Sam Castree, III

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