Stephen S. Wu-- SL: Legal Writer,, (408) 573-5737, 50 W. San Fernando St., Ste. 750, San Jose, CA 95113

Five Key Goals in Video Game or Virtual World Contracts

Let’s say that your business is hiring an independent programmer to help create your video game or create virtual products in a virtual world. What are the five key things your contract should accomplish?
First, the contract should make it clear what business transaction it is covering. Sometimes contracts have explanatory sentences near the beginning that explain who the parties are and what deal they are trying to make. These sentences are sometimes referred to as “recitals.” After reading the recitals, any judge interpreting your contract should understand the basic idea of the business deal.

Second, the contract should make it clear what the parties must do to implement their business deal. If you need the programmer to do, say, ten things in the course of the relationship, you should spell out those ten things in detail. Here, it is most helpful to set measurable, verifiable targets, so that it will be clear in hindsight whether the programmer has performed or not. Thus, for instance, contracts with programmers may involve the creation of a specification showing the features that the program must have to be acceptable. When the work is done, it can be compared to the specification to see if the programmer created what the hiring party wanted.

Third, the contract should handle key ownership and confidentiality issues. For instance, after the programmer is done with the work, who walks away with ownership of the programmer’s work -- the hiring party, the programmer, or some other party? Remember that under copyright law, in the absence of an assignment, an independent contractor owns the copyright to the contractor’s works of authorship, even if he or she was paid by someone else to produce them. Likewise, contracts commonly require the programmer or both parties to protect confidential information exchanged by the parties. As the hiring party, confidentiality may be important while your products are in development, so that others don’t take advantage of your plans to develop their own products based on your plans, and reach the market first.

Fourth, the contract should have a clear duration and circumstances in which it can be terminated. How long should the contract last? Is this a master agreement that you anticipate will cover a number of projects? Or is it a one-time deal? How long should it take to finish the work? Can the contract be extended? Under what circumstances can the contract be terminated? Sometimes contracts contain clauses saying that a party can terminate if the other party breaches the contract. Sometimes, parties are able to terminate “for convenience” -- for any reason they want.

Finally, the contract should allocate liability. For instance, programmers often wish to limit their liability, since they don’t want to enter into a deal and then pay liabilities that exceed the amount they earned from the deal. They don’t want a money-losing deal. On the other hand, the hiring party may need protection from liability in case the programmer does something that causes the hiring party to incur liability. Clauses in the contract can assign liability to one party or the other, limit the kinds of liabilities the parties incur, place conditions on liabilities, or cap the dollar amounts for which they are liable.

It is always helpful to have an attorney help you draft contracts, including in the area of video game development or the production of virtual products. When seeking such help, you can keep in mind these key issues. Thinking them through will result in better, clearer contracts that help minimize liability, keep the business relationship on a good footing, and assist the parties in accomplishing their business objectives.