When planning to form a development studio there are a number of important legal agreements you should invest in. The reason these agreements are so important is that they protect your company’s future value. They control what happens if Directors or Shareholders want to sever links to the company and they govern ownership of the company’s single most important asset – its Intellectual Property (IP).
Assignment of Intellectual Property rights
This is without a doubt the most important legal document for a game developer. This document covers the transfer of IP rights from the creator to the party that commissions the work (the Developer). Intellectual Property rights in a successful game can have immense value to a developer. Its no surprise that most of the top ten game developers are those who previously developed successful titles and managed to keep ownership of the IP (id, 3D Realms, Valve, Lionhead.)
People often confuse ownership and management. A shareholder owns a stake in the company but that does not necessarily mean that they are a director/manager of the company. They might be an outside investor, a company director or a key employee. As shareholders all of these people will have certain rights and responsibilities. Many of these are standard legal points that will be covered by company law and included in a company’s Articles of Association.
Where a shareholder’s agreement is most useful is in defining the rights and obligations of the company’s shareholders especially in regard to how the company is run. For example, a founder of the company may (for whatever reason) be a shareholder and an employee but not a director of the company. However the company founders may agree that this individual has certain rights in regard to voting on management issues.
Another key issue that would be covered in the shareholder’s agreement is that of the disposition/ownership of shares when a party leaves the company. Say a founding director quits before the company secures a contract. Should they be entitled to a share of the company’s future success? Do they keep their shares or must they be given/sold back to the company? If they depart after the company has secured a contract should they then be entitled to keep their shares and if not should the surrender terms be different?
Directors employment agreement
A Company Director is someone appointed to the board of directors to help manage the company. This is a senior role with specific legal responsibilities. As such directors should have a specific contract of employment over and above that of normal employees. It will most likely include clauses relating to remuneration, specific management responsibilities, confidentiality and the assignment/ownership of intellectual property rights (IPR). Given that they have access to both the company’s confidential information and its clients/customers, the agreement may also contain specific termination clauses such as non-compete and severance packages.
This would be similar to the Director’s agreement but usually on different terms.
The law varies from country to country so the terms of any agreement will too. The USA has the concept of “work for hire” which provides for ownership/copyright of work to automatically be assigned to the party that commissions the work. However, other countries don’t have “work for hire” and so ownership of IP is not automatically assigned. Whatever your country of business it is important to have a contract for all self-employed/contract workers which governs what work they will perform, what remuneration they receive and secures ownership (or at least a suitable license) for the company.
A non-disclosure agreement (NDA) is a confidentiality agreement that companies/individuals sign prior to divulging confidential information. It is basically a contract which states that the party being given the confidential information belonging to the other party will keep in confidential. An NDA is the agreement you would ask a company (or prospective employee) to sign before you discuss your top secret project.
Note: If you are a developer approaching a large publisher you will most likely find that they decline to sign your NDA and instead want to use their own, which has already been approved by their in-house legal department.
There are also a number of other important legal issues to consider, such as registration of copyright trademarks and/or Patents.
All the above are important documents which may cover issues relating to IP. For that reason they should be dealt with by an experienced game industry/IP lawyer (see our directory of legal firms that specialise in game industry IP law). The following are the more mundane legal issues that may need to be addressed. These can be dealt with by a normal business lawyer:
- Office lease,
- Company registration (can often be handled by an accountant or you may do this yourself) and
- Issuing shares to shareholders.