Tag Archives: indie game lawyer

You Need a Streaming License

Streamers are increasingly important to the success of indie video games and our clients often encourage streaming as a way to increase exposure without substantial expense.  However, recent streamer controversies illustrate the need for developers to include an explicit streaming license and code of conduct within the game’s End User License Agreement (EULA) with broad grounds for termination.

What is a streaming license?  A streaming license expressly grants users a license to stream the video game but makes it clear that this license can be revoked at any time, without notice or compensation.  Without this language, substantial ambiguity remains concerning the scope of the license and impact of termination.  Consider the following example:

DEVELOPER grants you a license to publicly display the Game on online video streaming websites, such as youtube.com and twitch.com, and social media, such as tweeting a GIF. DEVELOPER may terminate or modify the scope of this license at any time without notice or compensation and will not be liable to you or any third party for any loss incurred relating thereto.

You can also draft the license to fit your company’s particular needs.  For example, the streaming license could prohibit monetization of the stream.

Do you have a Code of Conduct?  In addition to a streaming license, we recommend that the EULA contain a user code of conduct that prohibits certain conduct, such as profanity, nudity etc.  Breach of this code could provide a basis for terminating a user’s streaming license, although not the only basis.

Can’t I just use the DMCA?  Yes, a Digital Millennium Copyright Act (DMCA) claim is the quickest way to secure removal of a stream and  a clear streaming license (with termination language) provides a clear basis for making the DMCA claim.  Without a streaming license, unnecessary ambiguity remains concerning the impact of termination (for example, could liability follow if you terminate a lucrative stream that was previously permitted?).

In sum:  It benefits your streaming community to receive a clear streaming license and to understand the basis upon which the license can be used and revoked.  While you can remove an offensive stream without such a clause (under the DMCA), ambiguity does little to benefit your company or streaming community.

Avoid Absolute Anti-Dilution Protection

Anti-dilution protections are frequently granted to investors and forgotten by founders until their friendly lawyer brings it up.  In many cases, anti-dilution protections are reasonable but in other cases can impose a substantial burden on the company, even impacting the appeal of the company to future investors.

Generally, anti-dilution protections protect an investor from the dilution of the investor’s interest.  When VC’s speak about anti-dilution they are usually referring to price-based anti-dilution protections, which protect from a decrease in share price in a future financing (known as a “down-round”) by, ultimately, increasing the number of shares issued to previous round investors.  This down-round protection is seen in Series A financings and Brad Feld has a great post covering the details.

What is FAR less common, and almost universally viewed as inappropriate, is an absolute anti-dilution clause.  This type of dilution protection guarantees the investor a certain percentage of the company, usually for a fixed time.  For example:

Startup hereby agrees to issue additional shares of Common Stock (for no additional consideration) to maintain Investor’s ownership interest at 10% of the total capital stock (calculated on a fully-diluted basis, including all options, warrants, convertible securities and other rights to acquire capital stock).

In the above case, the investor maintains a 10% interest in the company without a need to make additional payments.  What if the company sells shares to a new investor?  New shares are issued to the previous investor.  What if the company issues options to employees?  New shares are issued to the previous investor.  The absolute anti-dilution clause is viewed as inappropriate as it protects the investor against ALL dilutive events, including those every investor expects to occur, rather than a limited set of dilutive events, such as a down-round.

The absolute anti-dilution clause also runs the risk of rendering your company less appealing to investors.  An investor may reconsider an investment knowing that they will be immediately diluted by the previous investor’s absolute anti-dilution clause.  This is especially the case if the new investor is increasing the company share price and, in turn, the value of the previous investor’s shares.

I usually encounter these absolute anti-dilution clauses in connection with an accelerator program investment.  In this scenario, clients tend to accept the terms as acceptance to the program is viewed as worth the cost (which is a reasonable position to take).  Nonetheless, it’s important for companies to understand the impact of absolute anti-dilution clauses and to weigh the pros and cons of any investment in light of an absolute anti-dilution clause before proceeding further.

Your DMCA Registration is Expiring

The US DMCA (Digital Millennium Copyright Act) contains very useful provisions that provide a company with a safe harbour (in the U.S.) from copyright infringement committed by users of the company’s website or other online service.  For technology companies, especially those that permit users to contribute content, this safe harbour is invaluable as, without, liability for copyright infringement committed by users could be a financial disaster – imagine the liability a video upload site could incur.

To be granted the safe harbour, your company must comply with a number of legal requirements, including:

  1.  The posting of certain information concerning a notice-and-take-down process for alleged copyright infringing content, counter-notice to challenge an allegation and compliance with this process; and
  2. Registering your online service with the US copyright office and registering a DMCA agent, who acts as the point of contact for DMCA/copyright infringement claims.

Previously, DMCA agent registration did not expire.  Due to changes in the regulations governing DMCA agent registration, all current DMCA registrations expire on December 31, 2017.  Going forward, companies may register DMCA agent information electronically, each registration being valid for 3 years.  A failure to re-register a DMCA agent will result in the loss of the DMCA safe harbour, even if you previously registered and no change occurred with respect to that agent.

The benefits to the DMCA safe harbour greatly outweigh the minor costs involved in registering a DMCA agent.  Accordingly, we recommend registration to our Canadian clients, even if they do not have a presence in the U.S.  If your company has already registered, be sure to contact your legal counsel to timely begin re-registering your DMCA agent.

Startup Employment Agreements

Working with early-stage startups and game studios, we are often involved in key company decisions, such as a first hire.  Lately, with many of our clients growing their teams, we’ve been fielding questions concerning the scope of employment agreements.  Below are a few recommendations:

  1.  Consider a less strict intellectual property ownership clause.  From the outset, I must stress that the company needs to own employee work product.  However, there are different ways to define what constitutes “work product”.  The most contentious IP clauses grant the company ownership of everything created during employment, at home or at work.  These broad clauses are often at odds with the creative nature of the industry, where employees work on personal projects outside the office, which do not relate to the employer’s business.  For example, making indie games outside of working at a AAA studio.  Further, such broad clauses can drive away prospective employees.  While each company’s needs are different, a carefully crafted IP clause can ensure company ownership of work product while encouraging employee creativity in a manner that does not jeopardize such ownership.
  2. Non-compete clauses are useless (in many jurisdictions).  There seems to be an infatuation with non-compete clauses among early-stage founders, perhaps because there is a presumption that the clause will protect the company’s interests.  It won’t.  In many states (California, for example) non-compete clauses are unenforceable against employees (excluding senior management).   If you’re asking a junior dev. to sign a non-compete, it’s probably unenforceable.  If non-competes are enforceable in your jurisdiction, the clause must be carefully crafted – as a broad clause will be found unenforceable.   In my opinion, I always exclude non-compete clauses unless there is truly a reason for the clause and I believe there is a reasonable chance it will be enforceable.  In most cases, a standard confidentiality clause will provide the company sufficient protection.
  3. Law overrides employment terms.  Employees may be entitled to overtime, paid vacation etc., the terms of which are set by the laws of your jurisdiction.  As a result you, can’t force an employee to waive the rights to which they are legally entitled.  For example, an employee agreeing to be paid a flat wage when the employee is also entitled to overtime is not legal.  When hiring an employee, be sure that the employment terms are consistent with applicable laws.  When you start introducing startup employment trends (unlimited paid vacation, for example), further caution is needed to ensure that the trend reconciles with the legal requirements of your jurisdiction.  Tip:  speak with your legal counsel.

In addition to the above considerations, we recommend that you have your lawyer draft an employment agreement template that reflects your legal needs.  In doing so, you can address the above concerns and create an agreement that will serve your company needs as the team begins to grow.