Tag Archives: video game law

Publishing Video Games in Germany

Germany has strict rules governing video game content that large studios and indies need to comply with before publishing or advertising a game in Germany.  Breaching these rules is costly as fines may total $550,000 USD in addition to (in some cases) constituting a criminal offence.  Often, the laws result in modified video game content just for the German market (see: Half-Life, Wolfenstein).

By factoring these rules into development you can facilitate a smooth release in Germany.

1. What Content is Unlawful in German Video Games?

It is unlawful to display violations of human dignity, propaganda material of unconstitutional organizations (especially Nazi symbols), glorify violence and war as well as certain pornographic content.  See Article 4 for the full list.

In addition, it is unlawful to provide content that has the potential to impair the social and emotional development of children if you don’t take precautions to shield children from the content. Depending on style and presentation, games that cover violence, sex or drug use can fall under this category.

2. Does my Video Game Violate German Law?

If you’re unsure whether your game violates German law, there are two ways for your game’s content to be reviewed:

A.  You can have it pre-assessed by the German certified self-regulation organization USK.  The organisation offers basic initial assessments at a flat rate equivalent to $330 USD. You can also apply for an official rating which will prevent your game from being put on the “index list” of restricted content allowing for legal certainty before launching. This assessment entails a test run of the game and costs up to an equivalent of $1,320 USD. For a yearly fee equivalent to $3,300 USD, you can also become a USK member, which includes customized child protection solutions and a certain degree of protection from fines and other administrative measures.

B.  If your game is sold through certain marketplaces (Google Play, Nintendo eShop and Windows Store), you can obtain classification via the International Age Rating Coalition. This system is free to developers and allows you to rate a game using a complex questionnaire.  As of October 2016, IARC will be recognized as an official age classification system by German authorities.

3.  Wont Somebody Please Think of the Children!

As mentioned above, for some games, child protection measures have to be taken.  Examples of such measures include:

A.  tagging your website with an age restriction label; and

B.  restricting game distribution to adults, for example by using an age verification system.

Content that is deemed specifically harmful to children may only be made available to adults in closed user groups.  In addition, if you act as a website provider, it might be necessary to appoint a “Youth Protection Representative” to ensure compliance.

While these requirements are not minimal, it’s important to take them into account if you plan on Germany constituting a portion of your game’s market.

Thanks to guest writer Dominika Wiesner, a German trainee lawyer  working in our office this summer, for her work on this blog post.

Top 5 Video Game Studio Legal Mistakes

We represent quite a few video game studios, many of which are indie.  Regardless of studio size, we are often called to fix legal mistakes that could easily have been avoided.  These legal mistakes frequently fall into one (or all) of the following five categories:

  1.  Don’t forget to incorporate or incorporate too close to the date of launch.  Often incorporation is left to the last minute and only happens when Steam or Apple asks for a company name.  This is a problem as game intellectual property (IP) must be transferred to the new company at its fair market value, which may be more than nominal (given that it is about to be sold) and could involve complex tax solutions.  By incorporating earlier in the development cycle, you can put in place proper agreements so that the company owns game IP from day one.
  2.  Don’t create complex corporate structures with no purpose.  If you don’t know why your company has a particular corporate structure, you likely don’t need it.  The more complexity, the more likely mistakes will be made in the future when you use a certain structure for a different purpose than originally intended.
  3. Don’t  forget to assign IP to the studio.  The company needs to own game IP as, without, it cannot sell the game since it does not own the game in the first place.  This can be remedied through employment, contractor or IP assignment agreements.
  4. Don’t use oral agreements with independent contractors.  Use independent contractor agreements to document the studio’s relationship with contractors and to ensure the company owns the contractor’s work.
  5. Don’t sign publishing agreements without review.  Have a lawyer review your publishing agreements as there is often a disconnect between the terms you negotiated and the publishing agreement terms (often unintentionally, given publisher reliance on agreement templates).

By keeping the above in mind, you should be able to structure your studio correctly and save the legal fees otherwise incurred to clean these sorts of mistakes up.  For our indie clients, we certainly understand that they would rather put money into development than into legal fees!

Share Structure: do you need so many classes?

I frequently encounter early-stage startups with too many share classes.  If you have read previous posts, you know that I advocate for a simple share structure for early-stage companies (usually common and, if needed, non-voting common).  If more complex structures are required in the future, they can be created then.

When you are considering your startup’s share structure, consider creating only those share classes that you know you need now or will need.  To that end, ask the following questions before creating any share class:

1.  What is the share class to be used for?  You need to understand the purpose served by each share class.  Don’t create share classes because a third party tells you to or because you see other companies with similar structures.  Each share class should have a reason for existing.

2.  When is the share class to be used?  If the share class is to be used at some point in the future, consider whether that class will 100% be suited to that hypothetical future event or will it need to be modified to suit that future event?  Further, what is the likelihood of the future event occurring?  If it seems unlikely the shares will be used in the future, consider not creating that class.  For example, I question the value in creating preferred shares to be used for future investors as you currently do not know what terms those hypothetical investors will want on the preferred share class.

3.  Will your share structure agitate investors?  Perhaps you do have a future use for 4 share classes but what is the impact of this share structure on your capital raising activities?  Will startup investors, used to seeing common share structures (and maybe a non-voting common), take issue with your complex share structure?  This especially could be the case where you can’t explain the reason for the structure.  Always consider how outsiders will view your share structure.

In sum: don’t create share classes without a reason – even if your lawyer says so!  A founder should know their company structure and why it was created that way.

Crowdfunding Campaign Standards

The U.S. Federal Trade Commission recently completed its first enforcement action against an undelivered Kickstarter project and resulting in an agreement to repay over $100,000 in campaign pledges.  The FTC alleged that the campaign deceived supporters and spent money on items unrelated to the campaign.   While not all undelivered crowdfunding campaigns will prompt FTC action, this first action lays out important rules to follow so as to avoid deceptive claims in your crowd funding campaign.

In the enforcement Action, the FTC implicitly set out four standards to comply with so as to not misrepresent a crowdfunding campaign to consumers:

1.  How will funds be used.  Don’t use campaign funds for purposes unrelated to the campaign, such as personal expenses or for other businesses or projects.  Where your project fails, don’t use campaign funds for a different project as backers never agreed to provide funding for a different project.

2.  Deliver your deliverables.  Don’t promise and not deliver the deliverables, including perks, you promised to each backer.  In order to avoid this issue, it is recommended that you research the exact cost of each deliverable to ensure that it is financially viable and can be manufactured on time and to the specifications promised to backers.

3. Don’t misrepresent the project.  Be honest as to the stage of development the project is at and the features that will be integrated into the project.  If a feature is not possible, don’t imply that it is part of the project or that it may be possible.  The FTC wants consumers to understand exactly what they are contributing to and not be mislead as to what the project delivers.

4.  Be honest about your skills.  You should set out the expertise/qualifications of any person associated with the crowdfunding campaign honestly.  Do not mislead backers as to team member expertise as the team is equally important as, and essential to the success of, the project.

Running through the above standards is a single rule:  don’t misrepresent, expressly or by implication, anything in your crowdfunding campaign.  Similar to a store selling goods, running a crowdfunding campaign requires you to clearly present to prospective purchasers what you are selling and who is involved in the item being sold.