Financing your indie game development
One topic that doesn’t come up often in discussions of game development is the various ways that funding can be found. While most developers these days seem to opt for crowdfunding through Kickstarter, there are a number of methods to get money to develop your product.
Here’s a brief overview of a few of these fundraising opportunities and the legal implications.
“Bootstrapping” refers to paying for the business yourself, whether it’s through savings or credit card debt. This is certainly a viable way to fund game development, but it’s usually a better idea to use other people’s money instead.
This takes a good amount of risk off the developer’s shoulders and allows them to concentrate more on delivering an amazing product. How do you do this? Try one of these other methods...
Friends and family loans
One of your best initial funding sources is your friends and family - the people who are most likely to believe in you (hopefully). As a loan, there is no expectation of profit apart from interest, so you can avoid any securities law issues. We’ll get to those below.
An additional benefit to having friends and family invest in your project is that they may be more understanding if the project fails. Banks and crowdfunding backers certainly won’t be, so if you need a jumpstart of cash, this may be the best option.
Another type of loan to get you started is a standard business loan. If you’ve formed an LLC or Corporation, you may be able to get the loan in the company’s name. However, unless your company has a track record, you will probably end up having to personally guarantee the loan and use your personal credit worthiness to get it.
In the absence of other sources, though, this may be the way to go, at least for that initial capital.
Front money investment
A financing method common to many creative industries is called Front Money, or Seed Money. This means that you get investors to front the new project some money in return for equity or royalties later on. This seed money is meant to start development of the project until further funding for the entire venture can be found later. This type of investment does, however, invoke securities laws, so the counsel of an attorney is strongly recommended.
For more info on this type of fundraising, check out this great article from theatre attorney Gordon Firemark.
Donation-based crowdfunding is probably the most popular with game developers these days. You and I know it as using Kickstarter, IndieGoGo or some similar type of crowdfunding platform. This type of fundraising is not considered an investment and avoids any securities law issues.
This does not mean that there is no legal liability, though. You are entering into a contractual agreement with your backers to deliver the promised rewards. Because of this, you need to get your project planning together before entering into this type of relationship.
One way of financing a new business that isn’t very popular in the game development industry, but is very common in the startup world, is equity fundraising. Basically, you are selling equity in the company in exchange for capital.
This type of fundraising DOES implicate both state and federal securities laws. When a company does an IPO, offering shares to the public, this is a form of equity fundraising. This is a long and expensive process which generally requires lots of lawyers and disclosure documents about the financial health of the company. This type of fundraising has the potential to raise a lot of money.
However, there are a number of exceptions to the legal requirements of a public offering. An offering to a smaller number of investors or to a larger pool of certain qualified investors can avoid the need for expensive registration procedures with the SEC. For those that have raised seed money and are looking to take the next step, this may be a good option.
Since the passage of the JOBS Act in April 2012, the crowdfunding industry has been waiting for final rules on the so-called “equity crowdfunding” process. This would allow companies to use the power of crowdfunding to sell shares in their company. It would be like using Kickstarter to sell pieces of your company, rather than just the game. There would be certain crowdfunding portals that could be used for this (not Kickstarter).
Years have gone by, though, and the rules still aren’t finalized. I’m not entirely sure this is a method that game developers will opt for, as the Kickstarter route brings with it a lot less red tape. For those that want to grow beyond their first couple of games, though, this kind of crowdfunding could be just what they’re looking for.
I hope this was helpful for all of the developers out there. If you have any questions or are looking to explore one of these fundraising methods, feel free to contact a game lawyer. Also, check out my two FREE eBooks on game development legal issues, including Fair Use. Lastly, I’ve launched a site called indieGenerator, that allows indie developers to create important game contracts for much less than the cost of hiring a lawyer. Check it out!
Informational posts about legal issues that pertain to board game development, intellectual property and other topics related to the legal side of game design.
10 Aug 2015
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There is a huge library of non-copyrighted content out there that largely remains untapped. This content, known as “public domain” content, is made up of works that have had their copyright term expire. However, there are serious issues with using content that’s in the public domain that you may not anticipate. Here are just a few.
When does something go into the public domain and lose copyright protection?
Just because something is found on the Internet does not mean that it’s in the public domain. Even memes like Nyan Cat and Keyboard Cat have copyright protection belonging to their creator – you’re just getting a license to use them freely (see the case where WB and 5th Cell were sued over their usage in Scribblenauts).
Certain works will always be in the public domain. These include:
Works created prior to 1923
Works that are not copyrightable in the first place, such as facts, ideas and government and judicial works
Works that have a clear message of disclaiming copyright
Works with a copyright term that has lapsed, either due to time or a failure to renew or register
Figuring out the actual term for copyright can be quite complicated, depending on when the work was created. Here’s a great chart that should help sort things out a bit.
When things are a bit messy, one way to get to the bottom of it is to contact the author of the work or whoever currently owns the copyright. You can inquire into the copyright status and get copies of the appropriate documents that show current ownership and protection status. You could also ask about getting a license to use the works, if they are indeed still protected by copyright.
What about a longer series that is half-in, half-out of copyright?
For a series of books or other works that spans a long period of time, such as the Sherlock Holmes novels, the copyright status is trickier. Lucky for us, the courts have answered just this question in a recent case about the venerable detective.
It turns out that the copyright on all but 10 Sherlock Holmes books has expired. That means that Sherlock Holmes as a character and the events of many of the books are in the public domain. However, the events and stories in those 10 copyrighted books are still protected. This is important, since it means that certain things cannot be used if you are making derivative works based on Holmes.
So if something’s in the public domain, I can use it freely?
Not necessarily. Even if something does not have copyright protection, it may be protected by trademark. Take Tarzan, for instance. The first nine Tarzan novels were published prior to 1923, which puts them in the public domain.
Wait just a minute, though. If you search the USPTO’s TESS search engine, you’ll see that the Edgar Rice Bourroughs estate holds multiple trademark registrations in the Tarzan brand.
What does that mean? Essentially, while you can use the story ideas and specifics in those public domain Tarzan stories, you can’t use the Tarzan brand name as a trademark if it would be likely to confuse consumers as to the source of those goods. This can be confusing, for sure.
Basically, if you were to release your own series of Tarzan books, you would most likely be infringing on the Tarzan trademarks. However, if you wrote your own story about Nazrat, the ape man, using ideas and other non-trademarked names from those public domain stories, you’d probably be okay. Or, if you used the Tarzan name in a non-trademark way (not identifying the source of goods or services), then you would probably be okay.
Of course, you would probably be opening yourself up to a trademark infringement lawsuit one way or the other, meritless or not.
Don’t go it alone
If you’re looking to leverage some of the public domain content, why not check with a lawyer first? The lawyer may be able to do a more thorough copyright and trademark review on the use of that content and inform you of the risks in using that content. Also, check out my two FREE game development legal eBooks, including my book about Fair Use.
Thanks to Elon Musk and SpaceX for making their launch photos public domain! Check out more of them on Flickr!
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01 Feb 2015
It’s easy to neglect ownership of your game content:
For independent game developers, it is relatively common to work “off the cuff” and without contracts. In situations where the main developer is a programmer, their art, music and graphic design may be done by someone else. Given the dubious financial situation of many indie developers before a first product is released, they often don’t have the money to pay someone like me to make sure everything is legally up to snuff.
However, if all of the legal pieces are not in place, that developer may not actually own the rights to the content inside of their game.
Let’s see why.
Three roads to copyright ownership:
There are, essentially, three ways to own the copyright in your game assets, including the art, the source code and the text within the game.
1) Create the content yourself;
2) Get the copyrights assigned to you; or
3) Have the content created as a “work made for hire.”
The first is easy enough; all you have to do is do all the work by yourself. But what if you don’t have the expertise in every field to create compelling content on your own?
That’s where copyright assignments would come in. However, this has to be in writing, which means you should have an attorney draft, at the very least, a form copyright assignment that you can use for each person working for you.
A better method is to have the work done as a “work-made-for-hire,” as the copyright law calls it.
“Works made for hire” explained:
When content is considered a “work made for hire,” it basically replaces the actual author of the work with the person commissioning the work, at least for copyright purposes. You’re free to give credit for the art to the artist, but you, as the commissioner, would be the legal “author” and have ownership of the copyright.
There’s two ways that a work can be considered a “work made for hire.”
1) It is created in the scope of an employer-employee relationship; and
2) It is specially commissioned from an independent contractor, has to be one of nine specific work types AND there has to be a written agreement saying that it is a work made for hire.
In the first instance, content created by an employee during work hours would qualify. However, even work done outside of work hours may qualify if it is done on employer equipment or at the direction of the employer. Sometimes this is a fact-specific inquiry, so it’s best (as always) to have an attorney analyze the situation.
In the second instance, just having a specially commissioned piece of work isn’t enough. It must fall within this list of nine content types laid out in the copyright law:
a contribution to a collective work;
a part of a motion picture or other audiovisual work;
a supplementary work (a work prepared for the purpose of introducing, explaining, revising, etc., a work by another author);
an instructional text;
answer material for a test; or
Luckily for game developers, most work done for the game by another person would fall under the first two (for copyright purposes, a board game would be seen as a “collective work”).
Then there must be a written agreement that specifies that the particular work should be categorized as a work made for hire.
These agreements usually have a backup clause that says that, in the event it isn’t seen as work made for hire, the creator assigns the rights in it to the developer.
The point is, if you want to continue exploiting your game in any way you want, it is vital that you get these agreements in writing. For assistance with this, feel free to contact a game lawyer for a free consultation. If you’d like more information about the various game development legal issues that devs face, why not check out my two free eBooks, as well?
photo credit: abbeyman2002 and Swiss James via photopin cc
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- The title sounds like an oxymoron, but I have seen this question pop up numerous times. Someone wants to make their own version of another game, or some part of that game, for strictly home use. Is it legal under copyright law, though?Read more »
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Developer threatens legal action against allegedly “cloned” Kickstarter game, "Moriarty's Machinations"
20 Oct 2014
- I was alerted by a reader on Board Game Geek to a situation involving a newly-funded Kickstarter project and a threat of legal action by the creator of an existing game. This threat of legal action may be an extension (though not inspired by) the recent litigation of clone games that I’ve discussed recently.Read more »
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- I don’t know how I missed this a few weeks ago, but the creator of the popular card game Bang!, DaVinci Editrice S.R.L., has filed a lawsuit against the creator and Western distributor of a similar card game, Legends of the Three Kingdoms. There has been a court ruling on a motion that contains lots of interesting info on how the court sees the issue before them.Read more »
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You only get one chance to make a first impression. While it is possible (and sometimes preferable) to cancel a Kickstarter that doesn’t look like it will fund, wouldn’t it be better to get it right the first time?
Running a successful campaign involves a ton of work, from designing a compelling product to leveraging social media and other channels to get the word out. I’ve collected a few resources that everyone who is venturing into crowdfunding should check out first.Read more »
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28 Aug 2014
- There are a lot of ways that things can go wrong during game development that can open the developer up to liability, either to a customer, a contractor or a publisher. Beyond just using methods to limit liability for these actions, it is instructive to know just where in the country a U.S.-based developer can be sued. I’m not going to touch on foreign entities in this post; maybe we’ll get to that in the future.Read more »
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- A few weeks ago, I wrote about the potential legal implications of the much-publicized failure of the “YogVentures!” Kickstarter from the perspective of the backer. This week, I’d like to touch on some of the lessons that can be learned by developers who are using Kickstarter to fund their projects. Hopefully, these three lessons will help others avoid a similar fate in the future.Read more »
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- In my experience, there are a few terrible mistakes that some people make in their game development contracts that can lead to serious trouble down the road. I’ve written about a few that have to do with a website or mobile app’s Terms of Service before. Today I want to talk about a few deadly mistakes that crop up in licensing or independent contractor agreements.Read more »
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