Post GDC - Essential Tips For Indie Game Developers

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Frankfurt Kurnit Klein & Selz

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Frankfurt Kurnit provides high quality legal services to clients in many industries and disciplines worldwide. With leading practices in entertainment, advertising, IP, technology, litigation, corporate, estate planning, charitable organizations, professional responsibility and other areas — Frankfurt Kurnit helps clients face challenging legal issues and meet their goals with efficient solutions.
Last week, I had the pleasure of attending the 2024 Game Developer's Conference in San Francisco. It was an exciting experience, filled with reconnecting with familiar faces and making connections...
United States Media, Telecoms, IT, Entertainment
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TLDR: Aspiring game studio founders should engage competent counsel as soon as they start their venture to best position themselves for success, otherwise they risk falling into common pitfalls.

Last week, I had the pleasure of attending the 2024 Game Developer's Conference in San Francisco. It was an exciting experience, filled with reconnecting with familiar faces and making connections with new ones. One of the highlights of my time at GDC was the privilege of speaking on the Frankfurt Kurnit panel: "Building, Investing In, and Selling Your Game Company", alongside industry experts Scott Rupp (BITKRAFT Ventures), Justin Berenbaum (Joystick Ventures, Xsolla), and Kartik Prabhakara (Aream & Co.), where we delved into the issues developers must navigate when establishing, expanding, and ultimately selling a video game company.

Throughout the panel and my week at the conference, one question resonated above all others: "What are some of the most common legal issues developers need to be mindful of when starting their own indie studios?" It's a question that illustrates the thoughtful concerns of today's developers and their recognition of the critical role legal considerations play in the journey of indie game studio development.

Given how often this question came up, I want to share more widely three important legal considerations that developers should remain vigilant about when embarking on the journey of building their own studios.

1. Procrastinating on Incorporation

One of the biggest (and easiest to address) missteps aspiring developers make is delaying the establishment of a formal legal entity for their studio. Forming a corporate entity not only provides a solid framework for organizational structure but it also offers a number of other benefits that can profoundly impact the studio's trajectory.

By incorporating early on, developers can ensure that the Company owns all of the work product being created for the venture. Forming a legal entity also allows developers to properly document ownership stakes, including establishing who owns what and how decisions are made. In addition, doing business through a legal entity eliminates personal liability for most activity, shielding individual founders' personal assets from financial risk. Finally, incorporating facilitates capital raising efforts, as investors generally prefer to invest in entities rather than individuals, and investors can typically take advantage of special tax advantages by investing in startup corporations.

Delaying incorporation can lead to complications down the line, including ownership disputes and unfavorable tax consequences that could have been avoided with proper planning from the outset. Founders should engage counsel to assist with the formation of a legal entity at the beginning of their venture.

2. Failing to Secure Intellectual Property Rights

Ensuring clear documentation of intellectual property rights is critical. Consolidating intellectual property rights under the studio's umbrella enables the studio to safeguard the creations of the founders and other developers working on the project, and also provides for the most efficient path to exploiting the studio's IP.

By diligently vetting and documenting IP ownership, developers can fortify their legal standing and enhance their prospects for long-term success, while mitigating the impact that disputes could otherwise cause with respect to the studio's IP assets.

Failure to properly document ownership rights can spell disaster for a studio, jeopardizing its ability to commercialize its creations and navigate future partnerships. Disagreements can arise as to who contributed what to the game, and without proper agreements in place, these disputes can end up fracturing the team and clouding legal ownership of the studio's games and other assets. Founders should work with counsel to prepare appropriate agreements with all parties who contribute to the studio's IP.

3. Unusual Financial Arrangements

In their pursuit of obtaining financing (particularly when fundraising environments are tough), founders may find themselves tempted to agree to any terms presented to them by potential financiers. While such arrangements may offer temporary relief and opportunities, they sometimes include unconventional or onerous terms that can have long-term repercussions, including jeopardize the studio's stability and growth trajectory.

For example, arrangements with unusual or overly rich terms may deter subsequent investors, and may strain the studio's cash flow, leading to operational challenges and hindering its ability to grow beyond the stage supported by the initial financiers. Another area where founders sometimes run into trouble is establishing unconventional financial arrangements with employees and other contributors. For example, game profit sharing plans that are not designed with proper advice and structuring can result in obligations that undermine the studio's ongoing viability and/or fail to appropriately compensate the game's various contributors.

Whether through aggressive investment terms, unfavorable revenue-sharing models, or other complex financial mechanisms, unusual financial arrangements can erode a studio's profitability and impede its ability to thrive, and so founders should exercise caution and seek guidance when implementing such arrangements.

Conclusion

These are just some of the common issues that developers run into when starting a new studio. Aspiring developers should engage competent counsel to advise them from the earliest stages to help maximize their chances of success and avoid missteps.

www.fkks.com

This alert provides general coverage of its subject area. We provide it with the understanding that Frankfurt Kurnit Klein & Selz is not engaged herein in rendering legal advice, and shall not be liable for any damages resulting from any error, inaccuracy, or omission. Our attorneys practice law only in jurisdictions in which they are properly authorized to do so. We do not seek to represent clients in other jurisdictions.

Post GDC - Essential Tips For Indie Game Developers

United States Media, Telecoms, IT, Entertainment

Contributor

Frankfurt Kurnit provides high quality legal services to clients in many industries and disciplines worldwide. With leading practices in entertainment, advertising, IP, technology, litigation, corporate, estate planning, charitable organizations, professional responsibility and other areas — Frankfurt Kurnit helps clients face challenging legal issues and meet their goals with efficient solutions.
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