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.
- Review is Inconsistent. Perhaps reflecting the absence of a published manual for Arcade Privacy Policies (we’ve yet to locate one), each review proceeds differently and what raises issues for one review may not for you. We have been surprised to discover that a clause accepted for one game will be rejected for a different game. Eventually Apple will develop constituent review standards but until then it’s important to work with legal counsel that has done Arcade deals in the past and can put that knowledge to work when negotiating with Apple.
With 2018 coming to a close we’ve decided to look back at our most popular blog posts of 2018. Interestingly, all of these posts are on the subject of capital raising/financing, which should be of no surprise to anyone who works in the technology sector! Now, onto our most popular posts from 2018:
In our most popular post we discussed the benefits to priced financing rounds, rather than convertible instruments, for early-stage financing rounds. We also cautioned that some investors prefer convertible instruments and others will reject a priced round valuation but accept the same valuation (or higher) as the cap on a convertible instrument. At the end of 2019, I still prefer priced rounds for early-stage investments but only if a Common share is on offer. I am not fond of preferred share priced rounds prior to a company’s Series A financing (I’ve seen this more than normal in 2018) as this is too early a point in a company’s life for such a complex financing structure and the additional restrictions that often follow.
In the runner-up post, we laid out four things every startup should know before embarking on its first financing: (1) know your investment structure; (2) have your investment documents ready; (3) don’t treat investor interest as commitment; and (4) be realistic in the timeline for closing the investment round. I’ll add a fifth: know all your outstanding equity obligations and clean them up before starting the round. Put another way – all those equity offers you wrote yourself can’t be ignored and need to be cleaned up before the first financing begins.
Finally, in third place, was our post detailing three common structures for video game studio profit sharing: (1) draft a profit sharing agreement; (2) create a separate company for each game; or (3) issue shares to profit share participants. While clients came to us with numerous structures for profit sharing in 2018, all went the profit sharing agreement route due to its flexibility.
That’s it for 2018. Stop by again in 2019 for more posts on the law of startups and video game studios, from a Canadian and US perspective.
Each week I meet with prospective clients that are excited to be launching a new startup or video game studio. Regardless of the differences between these clients, I inevitably end up asking two important questions at the start of every meeting:
1. Have you incorporated?
Many clients incorporate without legal counsel, which I have no problem with. However, by incorporating without a lawyer, prospective clients are often left with a few problems that I am attempting to unearth and that I know will need to be remedied:
A. The company’s paperwork is incomplete. While a company exists once the filings are made with the state/province/federal government (if a federal, Canadian company), there are a number of resolutions, registers, receipts and other documentation that a company requires in order to have a complete minute book. The preparation of the foregoing is the bulk of a lawyer’s work incorporating a company and will need to be prepared, especially if the company aims to raise capital as this documentation will be requested as part of standard due diligence.
B. Too few shares were issued. If you incorporated a company with 1, 10 or 100 shares, too few shares were issued and should be split or additional shares issued. This avoids fractional shareholding in the future (imagine offering someone .25% and 10 shares are issued to date) and also makes equity offers to prospective employees more appealing (10,000 shares appear more attractive than 1 share, even if the same percentage ownership results).
C. Too many share classes created or the wrong share classes created. I always ask clients their reasons for a particular share class as both client and lawyer should understand the reasons behind the company’s structure. Since most startups are incorporated with a single, common, share class, I push prospective clients to explain and even justify other classes. Additionally, if a preferred share class exists, what are the rights and restrictions associated with this class? Inevitably, no preferred rights and restrictions were specified,requiring the creation of these rights or restrictions or, more likely, deleting the preferred share class.
2. Have you Transferred IP to the Company?
Clients mistakenly assume that the company they incorporate automatically owns the intellectual property they create. While someone may be a shareholder (even the sole shareholder) or a director, this does not automatically transfer ownership of intellectual property created by such person(s) to the company. Indeed, without a contractor, employment or assignment agreement in place, each founder remains the owner of the intellectual property they create. As a result, the company may not own a core asset and cannot be in a position to license that asset to third parties. Additionally, by asking this question I am often told about contractors who created intellectual property for a founder or the company without an agreement in place, which will also need to be corrected.
Based on these two questions, I am often able to obtain a full picture of a company and its history and put in place the key documents required to address any issues unearthed. If you are embarking on a new venture be sure to keep these two questions in mind – doing so may prevent future legal headaches (and fees). Or, you could read my suggestions on corporate structure and IP assignments here and here.