Why we don’t Incorporate Federally

Prospective clients often ask to incorporate “federally” or that they want a “Canadian incorporated” company. In most cases we recommend a provincial incorporation instead – here’s why:

1. Federal Falsehoods

At the start, it’s critical to dispel federal incorporation falsehoods:

First, federal incorporation does not allow the company to operate Canada-wide. Like a provincially incorporated company, a federal company must register in each province in which it does business (see separate nexus test), which involves paying an extraprovincial registration fee to each province (except Ontario, which is free for federal companies). Similarly, provincial companies must pay an extraprovincial registration fee in each province.

Second, federal incorporation does not protect a company name across Canada. The federal government uses the “NUANS” name reservation system, which has been adopted by some but not all provinces (British Columbia, for example, does not use NUANS) such that a federal company name is only protected in NUANS provinces. If you’re looking to protect a company name Canada-wide, the correct approach is to file a trademark.

2.  Residency.  Federal corporations are required to have a board of directors containing 25% Canadian residents or, if four or fewer directors, 1 resident director.  Conversely, certain other provinces do not have director residency requirements, for example British Columbia, Alberta, Ontario and Nova Scotia. As most startups receive foreign (often U.S.) investment, federal residency requirements quickly become a problem.

3.  Extra Provincial Registration. Since federal corporations are effectively foreign in all provinces (except Ontario), a federal corporation must immediately pay an additional extraprovincial registration fee based on the first province in which it does business. For example, a federal corporation based in British Columbia must pay roughly $450 in extraprovincial registration fees immediately upon incorporation, which for a cash-strapped startup is an unnecessary expense.

For all the above reasons, consider incorporating in your home province rather than federally (with some exceptions). Before taking the step to incorporate, be sure to speak with your legal advisors to determine which jurisdiction fits your particular needs.

Does your Game need a ‘Fan-Content Policy?’

For most businesses, infringement of copyright is going to result in lost profits. But what about businesses where infringement of their IP could lead to more engagement and sales?

The video game industry has this issue. Developers and publishers want to benefit from the free marketing that comes with their users creating and sharing content of their Game, but they don’t necessarily want to permit users to do whatever they want with their intellectual property.

Meanwhile, streamers, video producers, let’s players, modders and other forms of video game content creators are having an increasingly difficult time navigating the complexities of copyright law in understanding what they are and are not allowed to do with Game developers IP when making their own content.

The Copyright Acts in both the US and Canada have not been updated to address this issue, thus creating a legal grey zone that results in game creators themselves having to address how users can use their IP in their own content policies.

What is a Fan-Content Policy?

We are seeing the growing use of Game companies implementing ‘Fan-Content Policies’ alongside their more standardized Terms of Service and Privacy Policy documentation. Fan-Content Policy terms could be a whole separate document or be implemented into the more standardized terms to form part of those larger policies.

Seemingly more Game companies are opting to have separate Fan-Content Policies so they can be displayed clearly and concisely to players. Common everyday language is also best to use in Content Policies to convey the information contained in a simple and easy to understand way with limited legalese.

Ultimately, Fan-Content Policies seek to address this legal grey area as best one can outside the context of statutory copyright protections, often detailing how a user can use the Game’s IP to create their own content, and the other rules and requirements surrounding its use.

Common Terms in Fan-Content Policies

Some terms that are often included in Fan-Content Policies include:

• General Rules: what you can and cannot do with the Game and its IP while creating your own content.
• Authorized Uses: detailing what uses are permitted or excluded. Like the General Rules, but this language is often much more legal and akin to a license grant. Often Commercial Uses are not accepted (but monetization via advertisements so long as videos follow the policy may be carved out and approved).
• Mods: whether modifications to the Game are permitted, and if so, how they are permitted and under what contexts (for example, overwhelmingly often they state Mods can never be commercialized or sold).
• Other Agreements: how the Fan-Content Policy works in tandem with other agreements the user is bound to, such as Terms of Service, Privacy Policies and End-User License Agreements.
• Company Property: how the User can use Company property outside just the Game, such as trademark or tradenames.
• Credit: how a User must credit the Game, Developer and/or Publisher in the making of their Game content
• Jurisdiction: what country’s laws govern the policy. Could be the jurisdiction of the user or another specified country.
• DMCA Takedowns: how the policy addresses takedowns on third-party platforms via DMCA.
• Enforcement of Rights: arguably the most influential provision, that states that despite the rules and regulations of the policy, the IP holders ultimately reserve the right to take legal action for misuse of IP as determined by the IP owner in its absolute discretion.

At the End of the Day, Enforcement of Rights Still Remains

In a way, the Enforcement of Rights provision could be the only provision of significant weight in the whole policy, as it signifies and clarifies that these Fan-Content Policies essentially operate in a copyright law legal vacuum and the decision to either withdraw or enforce certain rights as it relates to the intellectual property will always remain with the IP owner. Despite the rules and permission detailed within the policy, the IP owner still has all the power in the relationship regardless of whether content creators were following the rules of the policy or not.

Whatever proposed licensed granted by any policy as it relates to the use of the Game is always going to be (and should be) non-exclusive and revokable by the developer/publisher at any time. Selective enforcement of intellectual property can occur at any time, as is permitted by relevant copyright statutory provisions.

In summary, Fan-Content Policies seek to inform users on how they are permitted to use the Game and surrounding intellectual property for their own content creation. A well-drafted Content Policy seeks to foster a symbiotic relationship between game creators and content creators to create a healthy and more transparent community relationship.

However, developers and content creators alike should still remember that the rights owner still has ultimate power to revoke any permissions granted in a Content Policy unless otherwise stated.

For more information on Fan-Content Policies, or to get your own drafted, feel free to reach out to Voyer Law.

Video Game Studio Intellectual Property Strategy

Recently we’ve seen an uptick in interest among video game studios looking to protect their intellectual property, with a focus on protecting characters and game/studio names.

Here is a list of priorities that should be considered when determining or developing a video game studio’s intellectual property strategy (in common order of priority).

1. Trademark protection for the game name and/or logo

With a successful game comes the risk that a competitor may produce a similar game and brand it with similar game title and/or logo.  Obtaining trademark protection of a game title and/or logo ensures your right to stop competitors from using the goodwill and reputation associated with your game title and/or logo.

2. Copyright protection for game characters

Obtaining copyright registrations is best suited for protecting the main character or characters of a game and can be used to stop unauthorized or unlicensed use of the character(s) on things such as t-shirts, plush animals, bobble head toys, clothing, hats, cups and mugs, etc.

3. Trademark protection for a studio name and/or logo

Finally, the studio should protect the goodwill and reputation associated with a studio name and/or logo through trademark registrations.

While a studio may not have financial resources to pursue all of the above at the start of development, it’s critical for the studio to at least develop an intellectual property portfolio strategy and plan to execute over time as resources permit.

Intellectual Property Rights for Video Game Studios

For our video game clients, protecting intellectual property is an important part of their business.   Intellectual property protection for a video game commonly comes in the form of trademark and copyright but may also involve patents and trade secrets

Trademarks can protect the titles and logos associated with a game.  Without a registered trademark, another studio could register a trademark that is confusingly similar to your existing game, thereby creating confusion, negatively impacting your ability to enforce trademark rights and potentially the complete loss of all trademark rights.

Copyright can protect game code, artwork, music and characters.  A copyright registration could be obtained on a particular character used in a game to prevent third parties from creating and selling plush toys based on the character.  

Patents can protect new and innovative hardware, systems, technical solutions, innovative game play or design elements and technical innovations such as networking or database design.  

Trade secrets can protect customer mailing lists, pricing information, publisher contracts, developer contracts, in-house development tools, and terms and conditions of any agreement the studio enters into.  Note that the enforcement of a trade secrets requires that a confidentiality agreement be put in place.

The following chart provides a helpful overview of intellectual property protection options:

 

We recommend that studios become familiar with the range of intellectual property protections available and to prepare an intellectual property strategy for both the studio and its games.