This article has been written by Amruta Patil pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution course from LawSikho.

This article has been edited and published by Shashwat Kaushik.

Introduction

In the last four decades, the video game industry has undergone a huge transformation. Atari’s Pong, which had its commercial success in 1972, has laid the groundwork for the gaming industry, and it has been evolving since then. 

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The developers are constantly on the lookout for new concepts to keep gamers engaged.

Introducing characters from various franchise units has allowed the game developers to tap into the existing fanbase. Even popular games are now being turned into full-scale movies and a prime example of that is the release of the movie Super Mario Bros. under the popular game character Mario, developed by Japanese gaming giant Nintendo.

With this evolution, video games have become more than entertainment; they now involve a blend of technology and artistic creativity, which requires a mechanism to bring them together without having to compromise on the gaming experience, which is where licensing of various intellectual properties comes into being.

This article explains the role of intellectual property licensing in video game development.

What is video game development

In simple words, video game development involves creating games, which can be done either by an individual or a unit like a gaming company. Much like the traditional game, which involves field engagement, video games can be very easily played within the comfort of our homes while offering a more immersive experience. Video game development requires an all-encompassing approach wherein there is an involvement of skills that include programming, designing the character, storyline VFX, and animations, to name a few. In addition to programming, character design, and storyline, video game development also involves a number of other important aspects, such as:

  • Level design: The process of creating the game world, including the layout of the levels, the placement of objects, and the design of the enemies and obstacles.
  • Art direction: The overall look and feel of the game, including the design of the characters, environments, and user interface.
  • Audio production: The creation of the game’s sound effects and music.
  • QA testing: The process of testing the game to ensure that it is free of bugs and that it meets the desired quality standards.
  • Marketing and distribution: The process of promoting the game and making it available to players.

Each of these aspects is essential to the development of a successful video game. By working together, a team of talented developers can create a game that is both fun to play and visually appealing.

With that being said, one can understand that developing video games is not exactly a one-man army task, although it is not impossible, but generally involves a set of people and huge financial investments, which is where licensing acts as a boon to the developers.

The following paragraph discusses further details regarding video game licensing and how IP licensing aids in the process.

What is video game licensing

Licensing is an agreement that is entered into between two parties, one being the owner/creator (licensor) and the other being the licensee, permitting the licensee to use the owner’s creation, which includes aspects such as characters for merchandising, music, and gaming related purposes, thus making use of the creator’s intellectual property.

Licensing plays an important role for the parties, the creator of the concept, and the party who is entering the licensing agreement. This can be a valuable option for creators who want to retain control of their work but still need to make money from it.

For the party who is entering the licensing agreement, licensing can provide access to valuable intellectual property that they would not otherwise be able to afford or develop on their own. This can be a great way for businesses to expand their offerings and reach new customers.

Licensing can also be a way for both parties to share risks and responsibilities. For example, the creator of the concept may be responsible for developing and marketing the product, while the party entering the licensing agreement may be responsible for manufacturing and distributing the product. This can help to ensure that both parties are invested in the success of the product and that everyone is fairly compensated for their contributions.

Overall, licensing can be a win-win situation for both parties involved. It can provide a way for creators to generate revenue from their work, and it can provide businesses with access to valuable intellectual property.

Elements that are licensed in video game development

As mentioned above, a video game has several elements that, when pieced together, make it a perfect game. To enhance the appeal of the game, it is often seen that few elements are frequently licensed when developing a video game.

The following are some common elements that can be licensed in the process of creating a successful video game.

Music

The right kind of music makes the game more interesting and has a significant role in meeting the gamers’ expectations. There are two kinds of licenses when it comes to music for video games, the are- Synchronization License and Master User License. While the former allows the licensee to use the copyrighted music in the game, the latter kind of license would require the licensee to seek permission from the artist owning the song.

Characters

Many games have introduced popular characters into their games, which allows them to increase the reach of their games to more people. This process requires permission from franchises, copyright holders, and even books to incorporate them into the game. This includes franchises, such as Star Wars or Marvel, as well as books, movies, and other works. The copyright holder may require the game developer to pay a licensing fee, or they may simply require that the developer obtain written permission to use the content. In some cases, the copyright holder may also require that the developer make changes to the content, such as altering the appearance of characters or removing certain elements. The process of obtaining permission to use external content can be complex and time-consuming, but it is essential to ensure that the game developer does not infringe on the copyrights of others.

Gaming engines

Licensing a gaming engine allows the developer to bypass the chain of extensive testing, allowing them to launch the game faster on the market. A licensed gaming engine also comes with the certainty that it has all the capabilities that will allow the game to run lag-free. It helps to meet the industry standard and players’ experiences as well. The updates on the licensed engines are maintained by the licensor and allow the licensee to potentially save on the cost of developing one from scratch.

Cross-platform integration

Many a time, some developers aim to introduce games that can be played on various platforms, such as PCs and mobile phones, which require them to obtain technological assistance to establish the game across various platforms where licensing software or technology helps in integrating the games seamlessly.

Logos

It helps users identify with the brands, giving them a unique identity to relate to. They are key tools used for marketing purposes. The licensing of logos also helps foster deeper fan engagement with the game. When fans see their favourite teams and players represented in a game, they feel more connected to the experience. This can lead to increased loyalty and spending, as fans are more likely to buy merchandise and other items related to the game. Additionally, the licensing of logos can help to promote the game to a wider audience, as fans of the teams and players who are represented in the game may be more likely to try it out. Overall, the licensing of logos is a valuable tool for game developers looking to increase fan engagement and reach.

Why does one need to license their intellectual property

The gaming industry is one of the most booming sectors in the entertainment segment. The video game development process involves multiple units such as design, software, coding, concept, and more. This would mean that there is a significant amount of financial investment that goes into the whole process of game development.

An average video game from concept to launching the game on the market can easily take somewhere between a few months and 3-5 years. The time and resources are also dependent on how easily or complexly the game is developed. 

The following explains the mutual benefits of licensing intellectual property in game development:

Technology and artistic amalgamation

Every component involved in the making of the game has some element of artistic creativity involved in the process, along with the technological aspect of the game, which falls under the ambit of intellectual property. While the artistic part of the game is covered under copyrights, the licensing of the software, which is the backbone of the game, is often overlooked. 

The technology used to run every game is unique in its format; licensing allows access to these technologies for other companies and upcoming game developers, providing them with a cost and time-effective approach. And since it’s already well tested, the possibility of failure or even building the whole thing from scratch can be skipped.

Similarly, the licensor can benefit by agreeing to new gaming concepts, which in turn keep the existing technology running. At the same time, the licensor does not have to further invest in developing a new concept for the game.

Audience presence

Launching a game under a popular franchise allows the developers to exploit the existing fan base while allowing them to gain more profits by partnering with various existing franchises. The existing audience presence helps them assess market demand better. This allows the developers to benefit from the fan base and the popularity that is gained along with the association with the popular brand name.

While the licensee scores on popularity and technology, the licensor benefits from an additional stream of income along with solidifying its market presence.

Utilisation of resources

With licensing agreements, the owner of the license, who already has a specific kind of technology, music, or storyline in which the characters have a backstory around them, can easily lease it to the developer in need, who can capitalize on the resources instead of working on getting a new one. The production and cost of marketing the newly developed concept can then be shared between the parties, making better use of the existing resources.

Collaborative venture

Each party in the licensing agreement brings their own set of strengths and areas of expertise, which help in building more successful gaming ventures. Many times, the game needs a new character or an upgrade in level in order to keep the game interesting for the audience. A collaboration with the popular franchises helps to keep the game going.

Better risk exposure and expansion of business

Launching a new game in a market where the audience is new and has backing from an existing franchise helps to navigate the risk better. The brand name helps to establish pre-established trust and experience among the existing users, which would help the licensee enter the new market without having to test the waters first.

That being said, this comes with a caveat, which is that if there is a chance of the game not meeting the expectations of the existing and new players, it can result in a huge financial deficit for both parties, but the opposite is true of the success of the collaboration can bring in more financial benefits to both parties entering the agreement.

The above-mentioned are just a few advantages that licensing the IP offers in the video game development arena. With effective utilisation of intellectual property, the parties can benefit by dividing the cost of the components, reducing the potential risk, and using the resources more judiciously while achieving their goals.

Drawbacks of licensing intellectual property in video game development

While licensing intellectual property certainly offers numerous benefits, it comes with its own set of limitations that must be considered when entering into an agreement for the same.  The following are a few drawbacks of licensing the IP in video game development:

Control over the IP

A key challenge faced by many game developers often revolves around control over the IP. This is because the game development process often involves multiple parties, each of which may have a stake in the IP. For example, the game developer may own the copyright to the game’s code, while the publisher may own the trademark to the game’s title. In such cases, it is important to have a clear understanding of who owns what rights to the IP and to ensure that all parties are in agreement on how the IP will be used. Oftentimes, it happens that the owner of the IP, i.e., the licensor, has major control over how the IP is to be utilised by the licensee, which results in restricting the creative freedom of the licensee and often hindering their vision from fully materialising.

Disputes for IP

Bethesda vs. Mojang (2011), where the dispute was filed for the use of the name “Scrolls.” Mojang was infringing the trademark by using the term Scrolls, which was owned by the parent company of Bethesda, namely Zenimax for their game series known as “Elder Scrolls V: Skyrim.” The dispute was not settled, as the court denied the request for an injunction filed by the parent company. The issue was settled with an agreement that Mojang would never become a competitor to the game owned by Bethesda, i.e., the Elder Scrolls.

Competition

With the licensing of the IP in the existing market, there is a high chance of the market becoming overcrowded with games of similar concepts floating around. This would eventually lead to the popularity of the originally held intellectual property being reduced in the market. This is because, as more and more people become aware of the new, more convenient alternative, they will be less likely to purchase the original product. This can lead to a decline in sales and profits for the original intellectual property holder, as well as a loss of brand recognition and customer loyalty. In some cases, it can even lead to the intellectual property being abandoned altogether.

There are a number of factors that can contribute to the decline in popularity of an originally held intellectual property. These include:

  • The introduction of a new, more convenient alternative
  • A decline in the quality of the original product
  • A change in consumer preferences
  • The emergence of new technologies

In some cases, the decline in popularity of an originally held intellectual property can be reversed. However, this is often difficult and expensive to do. It is therefore important for intellectual property holders to be aware of the potential risks and to take steps to mitigate them.

Expenditure and royalty payments

In the licensing agreement, the licensee pays an initial cost for using the IP to the licensor, which adds an increased financial burden on the licensee. It is highly imperative to evaluate the financial dealings before entering into the agreement.

Along with the initial cost, the licensee also ends up paying the royalties for the sale made through the video game, which is a way the licensor generates his profit for the IP licensed. All of this ends up adding more financial responsibility to the licensee; these factors are to be considered when entering into a licensing agreement.

Monopoly of the IP owner

Since the IP is owned by the licensor, the licensee is heavily dependent on the former party for continuous support and updates to the IP for the game to successfully function. The critical aspect here becomes the commitment of the licensor towards the licensee to maintain the support. In any event of uncertainty wherein the licensor decides to no longer pursue the said agreement, it could land the licensee in jeopardy, affecting the performance of the game in the market.

It is imperative to keep in mind, when entering an agreement, the challenges that can arise with the licensing of the IP. To overcome any such challenges, it’s important to structure the agreement with clear terms and conditions so that it does not hamper the video game development process.

Conclusion

While the developer benefits from access to cutting-edge well-established technology and not having to worry about the cost of developing a new technology to run the game, the key here is that in order to create a successful video game, one must strike a balance by entering into a mutually beneficial partnership where the collaboration addresses the challenges while sharing the benefits to create a win-win collaboration. On the one hand, it is important to partner with others who have the skills and experience necessary to bring a game to life. This can include developers, artists, and marketers. By working together, these partners can pool their resources and expertise to create a game that is more likely to be successful.

On the other hand, it is also important to be aware of the challenges that come with creating a video game. These challenges can include technical hurdles, creative roadblocks, and financial constraints. By addressing these challenges head-on, partners can increase the chances of creating a game that is both fun and profitable.

References

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