Game Creators: Legal and Practical Considerations

Legal Considerations for Gaming Studios 

When starting an indie game studio, the excitement and ambition of building a new world or experience can take priority over mundane administrative considerations. Therefore, many creators do not build legal protections into their studio at the early stages, which could leave them exposed to risk later on.

In this week’s newsletter, Dragon Argent covers some key legal and practical considerations for anyone looking to set up an indie game studio (with particular thanks to our new Corporate & Commercial Solicitor Jamie Thornton for providing the expert analysis).
 
Why should indie game creators set up a limited company?

With the advent of cheap, or sometimes free, game-development engines such as Unity and Unreal, it has become easier for individuals or small groups of developers and creatives to build, market and self-publish their own games. Games like Axiom Verge and Stardew Valley, that were each originally built by a single developer, prove that huge success can be achieved this way. The Video Game Insights 2021 Market Report  noted that over 95% of games released on Steam were indie games.

Creating and releasing a product to the public could leave the individual, or group of individuals, personally liable for any legal issues and claims relating to their project. A first step for any serious indie developer should be to consider setting up a registered business - the most common of which in the UK is a private limited company.

What are the benefits to registering and operating a limited company?

Just some of the many benefits are:

• the company is its own 'legal entity' with separate and distinct liability from its owners (shareholders);

• the shareholders' liability is limited (hence the name 'limited company') to the nominal (base) value of their shares held in the company (being their 'stake');

• additional tax benefits and reliefs may be available, such as The Video Games Tax Relief and Research and Development tax relief;

• grants the ability to entice investors by offering them shares or other incentives in the business;

• the initial founders of the business can build provisions into the company's constitutional documents (articles of association and/ or shareholders' agreement) that would give them further protection if there are disputes or issues with the other founders or any incoming investors;

• the company can hold or own assets such as intellectual property in the games created (more on this below);

• brand recognition can be built from the company's identity rather than just from an individual; and

• gives the option to set up corporate bank accounts and pay dividends.

 So what are the cons of using a limited company?

Setting up a company also attracts a number of responsibilities and compliance requirements that need to be considered:

• directors have a number of 'fiduciary duties' set out in common law and the Companies Act 2006 (such as needing to act in the best interests of the company for its shareholders);

• there are public filing requirements such as accounts, confirmation statements (showing details of beneficial ownership and any changes) which incur small filing fees;

• the company must keep and maintain statutory registers (details of its shareholders and any share transactions, directors etc.); and

• the company must have a registered office address and comply with certain disclosure requirements (e.g. Including its registered name, number, address and place of incorporation on business communications).

There are also other types of registered business that could be used for the indie studio, such as limited liability partnerships, which each come with their own pros and cons.  Generally limited companies are the go-to choice for game developers and publishers due to their flexibility, reputation and liability protections on offer.
 
Indie game creators need to protect their intellectual property

'Intellectual property' is a slightly nebulous term which refers to creative assets, such as artistic works, inventions, designs, symbols and other creations.

Whilst game sales will be a primary source of revenue for a new indie studio, the value of the intellectual property rights in those games should not be underestimated as it may be or become a source of significant value. As a game gains popularity and recognition, the studio's ability to build on and exploit that value (for example by creating sequels, merchandising and other cross-media opportunities) could be restricted if, for example, the founders have unwittingly assigned ownership rights in parts of the game to an individual contractor or third party.

Five ways indie game creators can protect their intellectual property:

1. ensuring that formal, written agreements are put in place between the studio and anybody who has involvement in the development of the game (including employees, contractors or anybody with access to or input on materials created), which contain robust wording to ensure that the business keeps ownership of all intellectual property created;

2. avoid infringing any third-party intellectual property rights, for example by using copyright-protected content such as music or in-game assets without permission - there are a number of free-to-use assets in the game engines available on the market;

3. even when using open-source or other seemingly 'free' software and content, take care to review any terms that could restrict their use - for example many forms of open-source software prohibit use for commercial purposes;

4. formally registering any intellectual property that is capable of being registered to gain additional protective rights, such as trade marks (a badge of origin representing a brand, such as a logo or phrase), patents and designs; and

5. including robust wording in any supplier or customer contracts to ensure that intellectual property is not unwittingly licensed, transferred or assigned to them either.

What are the real risks of failing to protect intellectual property ownership?

A recent high-profile example of the dangers of ambiguity around intellectual property ownership and licensing rights comes from the claim brought by former Halo co-composers Marty O'Donnell and Michael Salvatori against Microsoft in the US. As reported by Eurogamer, the pair alleged that they had not been paid full royalties due from Microsoft for its use of the Halo soundtrack over the years.

Mr O'Donnell stated that the music that he and Mr Salvatori created, whilst at then-independent Bungie (prior to its acquisition by Microsoft in the year 2000), was under a license deal to Bungie rather than as 'work-for-hire', so they were entitled to years of unpaid royalties from Microsoft.

Gamesindustry.biz  have since reported that the claim has been 'amicably settled', but the ambiguity around the original terms likely added complications that could have been avoided if robust, clear licence terms were put in place by the studio from the outset, or even better for Microsoft, if then-indie Bungie had ensured that they fully owned all rights to the music created by Mr O’Donnell and Mr Salvatori.

Other risks to be considered by indie game creators:

• making sure that their game and marketing does not include any illegal or harmful content (the PEGI Code of Conduct is a good place to start);

• compliance with data protection laws (such as the UK General Data Protection Regulation) when collecting or using any personal data from customers, employees or anyone else in the course of business;

• the legal status of your team members – e.g. could they be considered employees, workers or contractors? As well as the associated tax risks; and

• the risks involved in the crypto-market such as NFTs, given that the market is nascent and largely unregulated.

Conclusion
The examples given in this article are just a handful of the matters that may affect new indie game studios. If you would like additional advice on this topic, please schedule a discovery call with a member of our corporate law firms in London team today. 

Book a call with our Corporate & Commercial Law Solicitor today ↓

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