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.

Frequently, large technology companies face lawsuits in foreign courts over their failure to comply with foreign laws, primarily those concerning privacy, sales and consumer rights.  In Germany, WhatsApp’s Terms of Service violated consumer protection laws; in Canada, Facebook is challenging the application of Canadian privacy law; and in Australia, Valve’s no return policy allegedly violates consumer protection laws.  As your startup grows, users may come from major markets across the world and create a challenge – how to balance growth with legal compliance?

Governing law clauses (X law applies and X courts have jurisdiction) are frequently unable to prevent the application of foreign laws to your company – just ask WhatsApp, Facebook or Valve.  Therein, to comply with the laws of only one market naturally leaves your startup exposed to legal liability for non-compliance in other markets.  While I suggest considering compliance with the law of each market in which you gain traction, I also recognize that cost concerns and a startup’s focus on growth strategies means that compliance is always on the back burner.

When balancing growth with legal compliance, consider:

1.  Size of your company in each market:  the larger your company is in a market, the more likely the laws of that market will be asserted against you.

2.  General size of your company:  the larger (and wealthier) your company is, the more likely the laws of foreign markets will be asserted against you.

3.  Potential liability:  How large is your company’s exposure to liability for non-compliance in each market?  How comfortable is the company with this exposure?

4.  PR:  Does non-compliance create a substantial chance for bad PR in that market?

Small startups (and large technology companies) frequently focus on growth over legal compliance.  Indeed, at the start of your company, potential liability is low as the company is flying under the radar – here, focusing on growth makes sense.  Once you company grows, legal compliance should be weighed and constantly reevaluated as laws, and your company, change.

I often stress the need to keep your Privacy Policy up-to-date; case in point, Snapchat’s settlement with the U.S. Federal Trade Commission.  In the action, the FTC found that Snapchat deceived users with incorrect claims about privacy and misrepresented its data collection practices.  Ultimately, the FTC subjected Snapchat to 20 years of independent privacy monitoring.

A few key lessons:

1.  Don’t misrepresent.  All representations about your software must be accurate, especially those concerning privacy.  If you don’t secure the app using X methods, don’t say that it is secured that way!  As the FTC states, “Any company that makes misrepresentations to consumers about its privacy and security practices risks FTC action.”

2.  Keep the Privacy Policy up-to-date.  The development team should keep track of all information collected by the software and loop the legal team in whenever a new feature or element is added.  Often misrepresentations result from outdated privacy policies that do not keep pace with software development.  Further, if marketing wants to make claims about software privacy, make sure to run the claims by the legal team first – best not to make public claims that conflict with the privacy policy.

3.  If you have information, act!  If users point out securities flaws with your software, seriously consider them and document action taken in response.  In Snapchat’s case, numerous users pointed out security flaws that were disregarded and such conduct certainly factored into the FTC’s decision.

When your Terms of Service, End User License Agreement and Privacy Policy are first drafted they reflect how your software operates at a particular point in time.  However, as software and your business changes over time, these documents are often left behind and stop reflecting how the software operates.  The effectiveness of these documents is hindered when your software steps beyond their scope.

Not every change to your software requires an amendment to the ToS, EULA or PP.  Where the change is encompassed by the language of the documents, no amendment is required.  Conversely, if the change adds a new, or changes a current, feature, collects additional information or uses information differently and that is not reflected in these legal documents, then an amendment is likely required.

Ideally, your documents should constantly evolve, lockstep with your software’s evolution, and allow you to avoid the effort and cost involved in drafting new, or substantially amended, documents every few years.  Where you believe that a software change is not reflected in your ToS, EULA or PP, I recommend consulting with your legal counsel to determine whether an amendment to these documents is needed.