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10 aspects computer game developers should look for in a publishing contract

This post is also available in: Deutsch

A publishing contract can be the turning point in any game developer’s career, contributing to the growth and success of a game. It is important to note that while these contracts provide the financial support and infrastructure necessary to launch and distribute the game, they also come with certain conditions and responsibilities. A publisher usually provides the seed capital, handles the marketing and distribution of the game, and takes care of partnerships with platform operators. This allows the developer to focus on the creation of the game. However, this also comes with restrictions on intellectual property and profit sharing. In addition, dependencies arise and the developer relinquishes some control. The contract should balance this and preserve the rights of the developers. In this article I will explain ten important aspects that should be considered when signing a publishing contract for computer games. These include intellectual property, funding, commitments, milestones, support, term, territories, confidentiality, dispute resolution, and modification options. With the right knowledge, pitfalls can be avoided and a fair contract negotiated that is beneficial to both parties and supports the success of the game.

Intellectual Property (IP):

Intellectual property is one of the most important elements of a game development contract. This contract should clearly clarify who owns the intellectual property of the game. In some cases, the developer retains the IP, while in others, the publisher obtains the IP. It is essential to read the contract carefully and understand who holds the intellectual property and what rights and obligations are involved. Under German copyright law (UrhG), the author always remains the owner of the intellectual property unless he or she transfers the rights to the publisher by contract (§7 UrhG). According to §31 UrhG, the author may grant rights of use without relinquishing authorship. The contract should clearly regulate which usage rights are transferred and which remain with the developer. This applies in particular to exploitation rights such as reproduction, distribution and communication to the public (Section 15 UrhG). According to consistent BGH case law, the granting of rights of use is to be interpreted restrictively. Doubts in interpretation go in favor of the author. The developer should take care to transfer only the minimum necessary rights and to keep open possibilities for co-determination as well as for reassignment of rights.

Financing and profit sharing:

Another important aspect is the financial terms of the contract. These include the advances provided by the publisher, the repayment terms, and the distribution of profits between the developer and the publisher. You should make sure the terms are fair and fit your business model. Advance payments are generally used to cover development costs. The repayments are often linked to sales revenues or revenue shares. Profit sharing is usually split between the developer and publisher on a percentage basis. Make sure the split is reasonable and covers your investments. Determine when profit sharing kicks in and don’t make it dependent on financial success alone. According to §32 UrhG, the author has a claim to reasonable remuneration, whereby the saved own expenses of the contractual partner are to be taken into account. It follows from case law that the remuneration must be in a balanced relationship to the rights of use acquired. Agree on clear calculation models for profit sharing and regularly review the appropriateness.

Obligations of the Publisher:

Here is the extended paragraph with laws and case law:

The contract should clearly state what responsibilities the publisher has. This can include marketing, sales, customer service and more. Ensure that the publisher’s obligations are clearly defined and that there is a provision for action in the event that the publisher fails to meet its obligations. The publisher usually takes over tasks such as marketing, PR, sales and platform partnerships. Define exactly what counts as these areas, e.g. ad campaigns, trade show appearances, influencer marketing, etc. Set budgets and timelines. Sanction non-performance, e.g., by reducing revenue share or termination rights. According to §241 para. 2 BGB, contractual performance may be refused in the event of a breach of duty. According to the BGH, sanctions must be proportionate. Agree on reasonable grace periods for subsequent performance and gradual sanctions such as contractual penalties. Provisions for extraordinary termination are possible in accordance with §314 BGB for good cause. Specify the publisher’s obligations to cooperate in accordance with §242 BGB.

Development Milestones:

The contract should also specify the game development milestones and their timeframes. These milestones are important because they serve as a guide for development and a basis for evaluating performance. It is important to set realistic milestones and ensure that the contract provides flexibility for unforeseen changes or delays. Typical milestones are concept, prototype, alpha version, beta version and gold master. Set content, features, and deadlines for each milestone. Allow about 20% time buffer. Agree on how delays will be handled, such as deferred payments or extended contract terms. Build in opportunities to change milestones.

According to Section 361 of the German Civil Code, milestones are partial stages of the performance owed. They must be described in a sufficiently definite manner in accordance with § 133 BGB. § Section 313 of the German Civil Code (BGB) permits an adjustment of the time of performance. In the event of default, the creditor may withdraw from the contract in accordance with § 323 BGB. § Section 313 of the German Civil Code (BGB) provides for the setting of a reasonable deadline. According to § 314 BGB, extraordinary termination is possible in case of breach of contract. So milestones should be clearly defined, but flexible enough to respond to delays.

Post-release maintenance and support:

One aspect that is often overlooked is the commitment to maintain and support the game after release. The contract should clarify who is responsible for updates, bug fixes, and customer support and how these duties will be funded. Define a detailed post-launch support schedule, e.g. 12 months of basic support with weekly updates and bug fixes, and another 12 months of extended support with monthly updates. Define precise service levels, e.g. classification of bugs into critical/high/medium/low with corresponding response times from a few hours to several days. Agree on whether new content such as additional levels, characters, or items will be produced. Fund support through a percentage of net revenue, a flat revenue-based fee, or user support subscriptions.

For MMORPGs, you should agree on a support period of 2-5 years with continuous content updates. MMORPGs also require server maintenance, sufficient capacity for the user base and customer support around the clock. For mobile games, plan for support for new iOS and Android versions. Again, continuous updates with new content are important to maintain monetization.

For single-player titles, a limited number of updates and bug fixes are sufficient. However, expansions with new features should also be agreed here in order to generate further sales potential. Establish sanctions if agreed service levels are not met. Post-release support is essential for long-term success.

Contract duration and termination conditions:

The duration of the contract and the conditions for its termination should be clear and detailed. The initial term is usually 2-5 years, as this corresponds to the typical development and marketing phase of a game. Agree exactly when the contract begins and ends. Automatic renewals should be subject to conditions such as minimum sales or publication of new titles. The notice period should be set at 6-12 months.

Agree on the right to terminate for cause if milestones are repeatedly missed or payments are not made. Allow special terminations in the event of insolvency, change of control or sale of parts of the company. Set penalties if a party terminates without cause or without meeting the deadline. Agree rights reversion clauses so that rights revert to the developer upon termination.

Control the status of already published titles after the end of the contract. Set transition periods for selling off inventory. Arrange final settlement and disbursement of outstanding payments. Disputes can be avoided with a well thought-out termination concept.

Territorial rights:

The contract should detail in which geographic areas and territories the publisher will receive distribution rights for the game. Worldwide or continental rights are common, e.g. for North America or Europe. Consider separate contracts for China, Korea or Japan, as these markets require special expertise. Or reserve these territories for yourself.

Define territories using country lists or regions. Avoid overlap and regulatory gray areas. Agree on clear exclusivity arrangements within territories. Set exact time periods for the rights, e.g. 5 years for Europe, after which the rights revert to the developer.

Agree on minimum sales or marketing expenses per territory. Set minimum sales that the publisher must generate, otherwise the rights will expire. Reserve niche territories, such as Portugal or Scandinavia. Or define clauses that allow the developer to market territories themselves if the publisher does not release a localized version within XX months.

With a well thought-out territory model, international monetization can be optimized.

Confidentiality and data protection:

Detailed clauses on the protection of trade secrets, intellectual property and user data should be included in every contract. Agree on a general duty of confidentiality for all confidential information of a party. Clearly define confidential information, e.g., ideas, concepts, designs, code, algorithms, databases, customer data.

Establish appropriate confidentiality periods, typically at least 5 years after the end of the contract. Describe acceptable uses of confidential information. Require the publisher to comply with applicable data protection laws such as DSGVO, CCPA, etc. and industry standards such as ISO 27001.

Agree who has access to user data and for what purpose. Data may only be evaluated anonymously or pseudonymously. Regulate how confidential data must be returned or deleted at the end of the contract.

Define penalties and damages for privacy and confidentiality breaches. Confidentiality is essential to protect IP and customer data. Risks can be minimized with solid contractual clauses.

Dispute Resolution:

The contract should include a step-by-step dispute resolution process to avoid costly litigation. First, agree on binding negotiations between the parties to find an amicable solution. Set deadlines, e.g. 30 days.

If no agreement is reached, mediation is to follow. The mediator should be experienced in the industry and take into account the interests of both parties. The parties shall each bear half of the costs.

If mediation remains unsuccessful, arbitration is the next step. Determine the place, language of proceedings and number of arbitrators. Arbitration awards should be final and binding. If possible, agree on an arbitration location in a country that is a party to the New York Arbitration Convention to ensure international enforcement.

Due process at a party’s place of business should serve as the last option. Disputes can be resolved efficiently and cost-effectively using a graduated procedure. Clear rules create legal certainty.

Amendment of the contract:

Here is a more comprehensive version on the subject of contract amendments:

The contract should clearly regulate how changes and adjustments can be made during the term.

Fundamental changes require the consent of both parties in written form, e.g. as an addendum or supplementary agreement. Determine who initiates changes and whether silence is considered approval. Allow simple adjustments to milestones by unilateral notice unless the other party objects within 2 weeks.

Allow both parties the right to renegotiate profit sharing rates in the event of significant market changes. Allow the transfer of the contract in case of sale of the company, merger or legal succession. The purchaser should assume the contractual obligations in full.

Contract amendments should not be too bureaucratically designed so that the contract can be flexibly adapted to new circumstances. Excessive amendment hurdles risk rendering the contract obsolete. Intelligent amendment clauses can be used to design a future-proof contract that protects the interests of both parties.

And finally…

Finally, it is always advisable to seek professional legal advice when signing a publishing agreement. A good attorney can help identify potential pitfalls and ensure that the contract protects your interests. Have an industry expert review the contract before signing. Get feedback from other developers. Make sure your own attorneys proofread the draft contract. Insist on adequate time for legal review. Contract negotiations can be tedious, but are essential to a fair and balanced contract. With the right legal counsel, you can minimize risks and protect your rights.

Marian Härtel

Marian Härtel

Marian Härtel is a lawyer and entrepreneur specializing in copyright law, competition law and IT/IP law, with a focus on games, esports, media and blockchain.

Phone

03322 5078053

E‑mail

info@rahaertel.com

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