Startup and video game law, from a Canadian and U.S. perspective
8 Important (and Dangerous) Clauses in Video Game Publishing Agreements
While video game publishing is moving from third-party to self-publishing, third-party publishing agreements still come across my desk for review. Regardless of your reasons for inking a publishing deal, you should understand the importance of finely reviewing the agreement – otherwise, your business may be severely impacted in the future.
Here are 8 common clauses in publishing agreements, questions to ask and approaches to take:
1. License Grant/Ownership: Is the license limited to one platform? Is the license exclusive and how long is this exclusivity? What does the license apply to?
The license clause is the most important as it deals with what rights the publisher has to the game, characters or even the game’s universe and what rights you are giving up. A broadly written license clause may take more from you than you agreed to orally with the publisher. I have seen license clauses granting an exclusive license to all the characters and the game universe. In this case, while you may have intended to license just the game, a license to the characters and universe may limit your ability to produce any sequels in the future! In reviewing a license clause, focus on exactly what rights are given up and consider how the loss of these rights could impact your business in the future.
2. Payment of Royalties/License Fee: How are, and how often, are you paid? How are payment amounts calculated and can you audit the numbers? What happens if you are not paid?
Payment is key for any studio and it is important to make sure that the payment section of the agreement is clear on how the amount you are paid is calculated (minus publisher expenses?) and what happens if you are not paid. If possible, insert language providing for termination of the license if you are not paid timely. If you receive payment based on sales, consider requesting audit rights to make sure you are receiving the correct amount from the publisher.
3. Term: How long does the agreement last and what happens when it ends?
You want to know how long the publishing agreement lasts and how it ends. Ideally, all rights are returned to you when the agreement ends or the publisher goes bankrupt/stops selling the game. If you receive payment based on sales, you don’t want a publisher to stop selling your game and leave you with no rights to it.
4. Non-Compete: Is it even enforceable? What is the non-compete scope?
While the enforceability of non-compete clauses varies between jurisdictions, I frequently see unenforceable non-complete clauses in publishing agreements. Where there is a non-compete, look into whether it is enforceable! Additionally, look at the scope of the non-compete and whether it could impact future games. For example, if the non-compete says “no WW2 RTS games,” and this is your bread and butter, you have a problem.
5. Bundling/Discounts: Are there limits to sale pricing? Can the publisher bundle your game with other titles? How soon after launch can the game be bundled?
While you often do not have much control over bundling/discounts, consider pushing for restrictions on when and how much the game can be discounted. For example, 2 months fixed price, discount from launch price (up to X percent) after a certain date and bundling not to occur until 6 months after launch.
6. Right of First Refusal on Future Games: Do you want the publisher involved with future games?
Publishers often request a right of first refusal on future games in the series. These clauses can be problematic if the relationship with the publisher breaks down as you are still forced to offer sequels to the publisher. Be sure to include a final date by which a publisher must tell you whether they want to publish the sequel under a ROFR. Without a final date, you may be faced with ambiguity as to the distribution of future games.
7. Promo: Are there limits on how the game is marketed?
If possible, set a lower and (possibly) upper limit on publisher promotion expenses. If you have been promised exposure at major industry events (ex. a place at the publisher’s booth) be sure that this is included in the agreement. Too often I meet studios promised certain levels of exposure that was not delivered and never included in any written agreement.
8. Governing Law: What law governs the agreement?
If possible, push for a governing law clause (X law and X courts govern the agreement) from a jurisdiction that is reasonable for BOTH you and the publisher. If you are a U.S. studio, a Swedish governing law clause would not be cost-effective or reasonable for you and could be reason for you never to contest any issue with the publishing agreement. A possible solution is to suggest a neutral jurisdiction.
I tried to cover the major clauses I see in publishing agreements and to lay out concerns I often encounter in these clauses. As always, the above list is not exhaustive and I recommend that you review all publishing agreement clauses with a sharp eye – remember, the agreement has the potential to impact your business and games for years to come.