Six legal mistakes app developers make – part 1

[Dan Rogers has worked with leading video game companies for 20 years. As an attorney, he has advised and negotiated with interactive game publishers, independent developers, and technology companies around the world on matters of intellectual property, licensing, and contractual law.]

Until recently, video game developers generally focused on the creative and technical aspects of developing an interactive game, while their publishers handled issues of sales, marketing, and legal. But in the world of direct-to-consumer digital distribution, indies do both.

They build apps, and then manage sales and marketing through Apple’s App Store and Google Play, and inside environments like Steam and Xbox Live. While all this has created significant opportunities for thousands of emerging game developers, few realise the legal hazards they undertake when launching a game – risks that their former publishing partners often assumed on their behalf.

In this two-part series, we’ll discuss what I consider the top six legal mistakes app developers make when launching a new game in the digital marketplace.

Mistake #1 – Unintentionally Infringing Another’s IP Rights

Several years ago, an independent developer created a mid-priced racing game for a top publisher. The automobiles used in the game were appropriately licenced, including a well-recognised American sports car brand. The mistake made, however, was in recreating a unique building found along Route 66, the iconic highway stretching from Chicago to Los Angeles, filled with kitschy gas stations, motels, and unique Americana rest stops.

The developer’s artists discovered the building while searching the Internet, and they thought it visually representative of the look they were trying to achieve. They didn’t intend to steal the image. Instead, they created their own digital rendering of it, and then placed that asset in the game. Unbeknownst to them, the building is protected by an architectural copyright, as many are these days. After the game launched, their publisher received notice from the copyright owner, and promptly settled the dispute on behalf of everyone.

In today’s world of direct-to-consumer distribution, where traditional publishers are often out of the picture, things might not have gone as smoothly. Independent developers seldom have the expertise necessary to navigate delicate copyright infringement issues on their own, and unfortunately, infringing another’s copyright can result in either actual damages or statutory damages of $750 – $150,000 per copyrighted work, plus attorney fees, if the infringement is willful. Regardless, using a photograph or song or even a copyrighted architectural design in a video game without permission can land you in hot water fast.

Mobile and social game developers are often so busy building and launching their games that they don’t take time to perform a proper due-diligence of the assets their artists and programmers use. But even innocent infringement is copyright infringement nonetheless, and developers should carefully clear all the assets and software tools used in their games prior to launch. More often than not, it’s not conflicts they see that will get them, but the ones they don’t.

Mistake #2 – Failing to secure copyrights and trademarks before an infringement is discovered

In January 2013, Apple proudly announced that 775,000 apps were available in its hugely successful App Store, and in 2012 alone, nearly 20 billion iOS apps were downloaded by consumers around the world. Google’s success is similar on the Android platform, and many believe their Google Play store will be the first to offer over one million apps this year.

With more than 641 mobile apps being launched every day, copyright and trademark infringements are bound to occur. With the odds of a conflict only going up, prudent developers should secure their copyrights and trademarks before they discover an infringement. Delay doesn’t necessarily mean they can’t protect their intellectual property rights, but there are distinct advantages in registering early.

For one, the statutory damages for the copyright infringement are not available for non-registered works. As a practical matter, it means that a significant leverage in settling a dispute out of court (which most do, by the way) evaporates. The reality is that actual damages are difficult and expensive to prove, and opposing counsel probably knows this. On the other hand, when faced with a properly registered work, infringers are more likely to settle, recognising that if they lose they could end up paying both statutory damages and attorney fees as well.

Similarly, registering a trademark with the United States Patent and Trademark Office offers powerful advantages:

1. It allows the trademark owner to bring suit in federal court without having to show minimum damages, which today is $75,000. For most small app developers, this could be a significant hurdle.

2. Registering a mark enables the owner, in some cases, to receive triple (called “treble”) damages, plus attorney fees. Faced with the prospect of paying three times actual damages, an offender is more likely to comply with a trademark owner’s demands.

3. Registering gives others nationwide notice of your mark, which could discourage potential infringers. It also may enable you oust cyber-squatters sitting on your Internet URL.

Copyright and trademark registration isn’t rocket science, but there is an art to it. Retaining a knowledgeable attorney – especially where trademarks are concerned – offers the protections mentioned above, and provides valuable advice regarding the overall strength of a mark and potential conflicts you might have.

Mistake #3 – Failing to use properly drafted contracts with contractors

A digital entrepreneur I know recently used a design team to create a series of artistic layouts that the entrepreneur planned to use in the launch of an on-line social media product. Unfortunately, after paying their designers a substantial amount of money, it became clear that things weren’t working out. The entrepreneur fired the designers, and shortly thereafter received a letter from them demanding a buy-out of the work they created. The entrepreneur was surprised to learn that the money they paid didn’t secure the rights they assumed they owned.

The mistake was in not signing a properly drafted contractor agreement, but what’s surprising is that many app developers don’t use contracts at all, relying on email messages and phone conversations to finalise the terms of their contractor agreements. That’s living dangerously.

Under US copyright law, the creator of a work – whether that work is computer code, digital art, music or a game design – owns that work from the moment of creation, unless an agreement or other circumstances (an employee, for example) provide otherwise. Commonly, these rights are secured through an IP transfer or stipulation in a work-for-hire agreement. The added benefit of a well-built contractor agreement, by the way, is that it sets the expectations of everyone at the beginning, when it’s easiest to manage, often saving everyone a rollercoaster ride later on.

In the case of the entrepreneur, the agreement failed to properly articulate IP ownership rights, so, at most, they had purchased a non-exclusive licence to use the developers’ work. That wasn’t what they were looking for, and after an expensive bout of legal wrangling, they were finally able to secure the exclusive, worldwide, unfettered rights they thought they had purchased in the first place.

Treat your legal work as you do your development.

There are far too many legal landmines in the app marketplace to navigate these digital waters without knowing what you might encounter. Apps are a significant growth business worldwide, and sophisticated publishers, entrepreneurs, and legal eagles troll it closely. Regardless of your size, take care of your app’s legal business early on; it could save you major headaches later.

In the final installment of this two-part series, we’ll discuss three other legal mistakes app developers make: failing to properly incorporate, failing to create bulletproof partnership agreements, and failing to understand the legal implications of third-party investments.

For more advice on avoiding the courtroom, you can find part two of this article here.