Many studios, especially early-stage studios, rely heavily on the services provided by independent contractors. Contractors may provide anything from commissioned art, to administrative services, to programming services for studios. No matter what services are being provided, there are some core ingredients any studio should want to see in written agreements with these service providers:

First Ingredient: Intellectual Property Ownership

The business of many video game studios revolves around creation, construction, distribution and publishing of novel works of authorship. Those works are intellectual property. And while the contributions of contracted artists, composers and programmers may be obvious, even analysts and advisors may contribute to that intellectual property in the form of feedback on pitches or advice incorporated into the work product. Accordingly, contractor agreements need to clearly define what intellectual property may be involved in the services and who owns it.

Most often, this comes in the form of “work made for hire” language that provides for the commissioning studio owning the work product. Finally, in some states or jurisdictions, the Company may need to forego “work made for hire” language and rely on an assignment of work product to avoid concerns regarding deemed employment relationships or because local laws do not recognize “work for hire” doctrine. Backstops may also be employed to allow the studio to perfect its interest in the work product in the event issues arise with the initial ownership conveyance mechanism.

Other times, the contractor may retain ownership of the work product they create and instead license it to the Company with a defined scope of use. This can create complexity though and is often best avoided.

Second Ingredient: Define the Business Arrangement

Perhaps the most obvious ingredient is clearly defining what services the contractor is providing and what compensation they are receiving for those services. The services may be structured as commissioned “milestones” or a generalized set of responsibilities to be more fully defined in practice by the studio. In exchange, the contractor may receive fees in a variety of forms, credit in the resulting product, or even vest in equity (or profit interests) in the studio as an entity.

Often, studios structure the arrangement with a “Master Agreement” that defines the generalized legal framework under which the relationship will operate, with shorter “Statements of Work”, or “SOWs”, that exist primarily just to define these services and compensation. That structure allows the contractor and studio to execute subsequent SOWs without having to revisit the full legal terms of the agreement.

Third Ingredient: Term and Termination

The Term, or duration, of a contractor agreement can vary depending on services being performed. The classic “Term” defines the contract with a concrete period of time, typically a few months to multiple years. Where there are SOWs, the SOWs can have shorter terms. Alternatively, the agreement may instead survive for however long it takes for the deliverables commissioned from the contractor to be created. Still other agreements may rely on a perpetual term that exists until the agreement is terminated.

Termination provisions can provide either party a right to terminate the agreement prior to its natural expiration. Most often these give a party the right to terminate the agreement in the event the other party breaches the agreement, potentially after a “cure period” where the breaching party has an opportunity to correct its deficiency. This right may also exist in the event the non-terminating party has entered bankruptcy proceedings. Finally, termination provisions “for convenience” may be present in more flexible agreements, providing a party with the right to terminate the agreement without specific breach justification. 

Liability Protections

When a studio commissions the creation of original work to incorporate into the studio’s game, it is important that the contractor provide representations and warranties that the work is original, it won’t infringe upon the rights of any third party, and no other party that contributed to its creation (such as an employee or subcontractor) holds any right in it. Otherwise, use of that work product may expose the studio to intellectual property infringement claims or demands for royalties.

Further, the studio and contractor may agree to cap one or both parties’ total liability under the agreement, agree to indemnify one another against claims derived from the indemnifying party’s fault, and waive rights to injunctive relief. Studios should be careful to ensure these caps do not undermine the representations or indemnity obligations of their contractors.

Approval Processes

No studio wants to pay a contractor for substandard work. Accordingly, some studios will include a formalized approval process for deliverables in their contracts, which may defer payment obligations until the delivered work product is satisfactory to the studio. These provisions typically describe a defined evaluation period where the studio may test and evaluate deliverables before providing the contractor with notice that the studio will or will not accept the deliverable. If the deliverable is rejected, the contractor may be provided with a defined time period to fix the identified deficiencies and resubmit the deliverable before receiving payment.

Final Thoughts

Contractors’ services often form a bedrock of work product, administrative assistance, and business advice critical to the success of new studios. These critical nature of these services means that each side should carefully consider the terms of the agreement that defines their relationship and ensure it covers the above topics. This is by no means an exhaustive list and a good video game lawyer can help craft these agreements in a way that works for the individual situation.