Start-up Special: A matter of ownership

The value of a games company is composed of a number of things including the knowledge, skills and know-howof its staff.

Typically in start-ups this is the founders – and the intellectual property rights which exist in its technology and games, whether this is its own engine, or elements such as characters or game design.

Start-ups should ensure that value is built in their business by protecting, as much as possible, their IP rights.

Typically, the risk to this would be entering into agreements with unfavourable IP terms. To avoid this it is useful for start-ups to understand IP and how to protect it.

IP rights are the rights which are created as a result of intellectual effort or creative endeavour, and exist to protect the expression of these efforts from being unfairly exploited by a third party without any permission.

There are a number of different rights relevant for games companies, but for most start-ups it is crucial to understand copyright and who owns it.

THE BIG IDEAS

As soon as an original idea is translated into a physical form, whether it be written down, coded or drawn, copyright will automatically exist in it.

The purpose of copyright is to enable a creator to gain value in the work they are producing by protecting it, namely from unauthorised copying.

For a games company the copyright in games predominantly exists in two forms; the source code to a game is protected as literary work as if it were a book, and the pictorial representation of the game on the screen is protected as an artistic work as if it were a picture.

The recent cloning cases have demonstrated that whilst it may not be the source code that is copied if there is copying of a substantial part of the artistic work – for example, the Tetris versus Xio case – there will be an infringement entitling the owner to take action. What is considered ‘substantial’ is qualitative not quantative.

The general rule is that the creator of a work is the first owner of the copyright in it. However, there are exceptions to this. For example, employees do not own the copyright of the work they create in the course of their employment, which is owned by their employer unless they have agreed in writing otherwise.

Conversely, the copyright in works created by a person who is not an employee of a company – for example, a sub-contractor – is owned by the sub-contractor unless there is an agreement otherwise.

Therefore, if a start-up uses sub-contractors it should ensure there is a proper written agreement in place, signed by the sub-contractor to ensure the start-up owns the copyright in what the sub-contractor creates, otherwise it will only have a licence to use it for the purpose that they made known when the work itself was commissioned.

ON THE FLIP SIDE

The flip side to this is that start-ups who undertake work for hire are themselves sub-contractors, and so will be the owner of the copyright unless there is a signed written agreement to the contrary.

Typically the commissioner will enter into an agreement for the start-up to assign all the IP in the work created by the start-up to them, but if the start-up wants to build their own IP by undertaking this work for hire they will need to ensure that they carve out the IP they want to retain from being assigned – along with any third-party tech they use which they do not own, socannot assign.

If the commissioner is not in the games industry the use of third-party tech and developer tech may also need explaining.

The best way of ensuring that the sub-contractor retains the IP they want to retain is by splitting the copyright in any work being created into distinct parts of third-party IP and developer IP, which will be licensed to the commissioner, and the IP, that will be assigned to the commissioner which is created bespoke for the project.

In this way the start-up will develop their own IP and the commissioner will get what they want.

From my experience working with a large number of start-ups, my advice would be that if you want to build value then you should take some time to understand IP and how it works so it can be identified, retained and protected.

It has huge benefits, and not just for building up intellectual property in a games developer. It builds value in a company, and furthermore it stops the efforts of you and your team’s hard work being dissipated or given away. It can have tax benefits and generally makes the huge effort involved much more worthwhile.

Alex Tutty is a lawyer at Sheridans. He advises a large number of developers including Fat Pebble, Introversion, Mode 7 and Mojang on the legal aspects of the games industry. Catch him on Twitter at @agtutty, or email atutty@sheridans.co.uk. www.sheridans.co.uk

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