While many video games often feature original Intellectual Property (IP) owned by the game developers themselves, oftentimes new games are created using preexisting third party IP – think a video game based on a popular TV show like Stranger Things. The vehicle by which the game developer is granted the rights to use the preexisting IP is typically a license. In order for such a relationship to succeed, both IP owners and game developers must walk a tightrope: the licensor must preserve its brand and long-term rights, while the licensee must secure sufficient rights and flexibility to build, modify and monetize the game. In this alert, I’ll walk though some of the principal issues typically encountered in a video game IP license, from the grant of rights through termination and regulatory compliance.
How Game Licensing Differs from Traditional IP Licensing
A video game is not a static product. Its interactive nature, continued updates, community features and reliance on digital platforms make it far more complex than ordinary merchandise or media licensing. Unlike a T-shirt or a film tie-in, a game blends narrative, art, code and user data. As a result:
- Evolving Content: Games rarely launch and remain static. Post-launch expansions, seasonal events, patches and downloadable content must be anticipated. A static license rarely addresses evolving uses.
- Platform and Distribution Complexity: Games are distributed globally via digital storefronts and console platforms, each with certification rules, revenue sharing and content policies. Territorial licensing and platform compliance are core issues.
- Brand Exposure and Reputation Risk: Because players engage intimately with the IP, any bug, exploit or narrative misstep can reflect poorly on the entire franchise. Licensors must guard against misuse; licensees need freedom within reasonable boundaries.
Scoping the Grant of Rights
At the heart of any license is the question: which IP rights are being granted, for which uses and on what terms?
From the licensor’s perspective, the imperative is to grant enough rights to allow the licensee to build and sell the game, but to reserve rights you may wish to exploit later (e.g. film, virtual reality (VR), esports, blockchain, merchandising). For the licensee, the challenge is securing a sufficiently broad and stable grant that allows development, updates, ports and future content without renegotiation.
You should define:
- Licensed IP and Uses: Specify exactly which characters, storylines, trademarks, audiovisual materials and related elements are included. If the licensor intends to exclude sequel rights, streaming spin-offs or future media adaptations, do so explicitly rather than relying on silence.
- Platforms and Formats: List the platforms (console, personal computer (PC), mobile) and permit the licensee to port, remaster or expand the game if desired. Consider dealing with emergent formats as well, e.g., non-fungible tokens (NFTs) or augmented reality (AR) versions.
- Exclusivity: Licensors may grant exclusivity to achieve higher value, but they should couple it with performance metrics (e.g. sales minimums, release deadlines). Licensees, in contrast, will seek to reduce the burden of strict performance thresholds or elimination of rights for nonperformance.
- Territory and Term: A worldwide license is common, but licensors may need carve-outs (e.g. China, sanctioned countries). The term must allow for development and a reasonable sales window, yet include renewal or extension only if performance is met.
- Derivative Works & Ports: Clarify whether the licensee may create expansions, downloadable content (DLC), remasters or port to new platforms, and whether the resulting material belongs to the licensor, the licensee or is co-owned.
Financial Structure and Monetization
From the licensor side, ensure you obtain guaranteed returns (e.g. upfront licensing fees or minimum guarantees) plus upside through royalties. From the licensee side, the goal is to limit deductions, get clarity in definitions and minimize burdens that impede profitability.
Key considerations:
- Upfront Fees and Guarantees: An upfront payment or minimum guarantee ensures the licensor receives value even if sales underperform. Developers may resist high minimums, but moderate guarantees can align incentives.
- Royalties and Revenue Base: Decide whether royalties will apply to gross or net revenue, and define permissible deductions (returns, platform fees, taxes).
- Coverage of All Revenue Types: Explicitly include DLC, in-app purchases, subscriptions, advertising, cosmetic items or paid expansions. Without explicit coverage, some revenue may fall outside royalty scope.
- Escalators and Reopeners: Include clauses to adjust royalty terms upward in the event the game outperforms expectations, or to renegotiate for sequels or new platforms.
- Audit Rights: Require regular, comprehensive reports and the right to audit transaction-level data, digital logs or server analytics to validate payments.
Approvals, Quality Control and Brand Integrity
Because gaming is immersive, maintaining brand consistency is a shared concern — but each side has different risk-reward pressures.
Licensors should demand oversight to protect reputation. This would include approval rights over concept, storylines, character design, user interface (UI), marketing, packaging and major content updates. Developers need enough agility to iterate, so approval procedures should be time-limited (for instance, requiring responses within 15 to 30 business days) to avoid bottlenecks.
Quality requirements should reference comparable titles in the genre rather than vague phrases like “reasonable quality.” Licensors often prohibit content that conflicts with their brand identity (e.g. graphic violence, political themes). Developers benefit from a clear style guide upfront, so downstream development is aligned rather than renegotiated.
In online games with community features or user-generated content, licensors must insist on content moderation and robust mechanisms to prevent misuse of the IP by players (for example, modifications that degrade brand integrity). The license should obligate the developer to take down infringing content and maintain control over user interactions.
A core failure mode in game licenses arises when the developer does not deliver. Licensors need hard protections; developers want clear paths to cure or salvage the deal.
Set concrete development milestones — concept approval, alpha, beta, certification, launch — with dates. If a milestone fails, the licensor should have options: conversion of exclusivity to nonexclusive, suspension of further rights or termination.
A “failure to launch” clause (e.g. no release by a certain date) is often used. In practice, licensors have terminated racing and motorsport game deals citing missing releases and event commitments, invoking crafted termination triggers to protect the brand. (See, e.g., public license terminations in motorsport franchises.)
Developers should negotiate reasonable cure periods and transitional support obligations to avoid abrupt shutdowns, while licensors should preserve the right to exit if delays or breaches threaten brand value.
Ownership of New Material and Technology
Licensors should retain ownership of their original IP and require assignment (or at least royalty-free license-back) of any derivative expansions, new characters or narrative content created in the game. Developers, meanwhile, naturally want to retain their engine, middleware and general tools (their “background IP”). Each party should explicitly disclaim ownership of the other’s background assets. For developer-owned technology that becomes integral, a license-back or cross-license may be negotiated for continuity after termination.
User-generated content and mod ecosystems deserve special attention. If the game supports player creations, the developer should secure sufficient rights from users to host, display, moderate and monetize (if applicable).
Sub-Licensing, Outsourcing and Responsibility
Require any sub-license or contractor be approved by the licensor and bound by equivalent confidentiality, IP and quality obligations. In high-stakes projects, licensors sometimes retain the right to approve or replace key studios or creative leads if quality or reputation concerns arise. Developers should push to limit liability to the extent of subcontractor faults and avoid wholesale veto power.
Games generate telemetry, user behavior, crash logs and personal data. The license should assign responsibility for data compliance (with laws like General Data Protection Regulation (GDPR), California Consumer Privacy Act (CCPA) and Children's Online Privacy Protection Act (COPPA)) to the party that holds or processes it — usually the licensee. The licensor should seek access to analytics, dashboards and raw logs sufficient to verify royalty calculations and monitor player experience.
Platform relationships are another vector of complexity. Console or store operators impose certification rules, content policies, pricing floors or review oversight. The license should obligate the developer to comply with platform rules and notify the licensor of issues, especially delisting or revenue-share changes, so that both can react.
Regulatory Touchpoints
Consumer protection laws (refund rights, cooling-off periods, digital goods treatment), gambling laws (for randomized reward mechanics), content restrictions (age ratings, obscenity rules) and jurisdictional privacy regulation all must be addressed contractually. Licensors generally require the developer to assume responsibility and indemnify the licensor for regulatory noncompliance. For games distributed across borders, regional rules diverge significantly, and the agreement should carve responsibility for local compliance to the party distributing into each region.
Warranties, Indemnities, Limitations and Insurance
The licensor typically will warrant that it owns the licensed IP and has right to grant it; the developer typically will warrant that its code and third-party content are free from infringing claims and compliant with legal standards. The developer should indemnify the licensor for claims arising from the game’s content, operation or failure to clear rights. The licensor may indemnify for pre-existing IP defects or encumbrances.
Liability caps are customary, often tied to fees or royalties, but breaches involving IP rights, confidentiality or willful misconduct should be carved out from the cap. Consider requiring the developer to maintain errors-and-omissions, cyber liability or media-perils insurance with the licensor as additional insured.
Termination and Exit Paths
Grounds for termination commonly include nonpayment, breach of milestone obligations, misuse of the IP, insolvency or loss of reputation. Many licenses allow cure periods for nonmaterial breaches but except irreparable harm or brand damage from cure rights. After termination or expiry, all licensed rights revert to the licensor, and the developer must cease use, delist digital versions and unwind live operations. The developer should provide reasonable assistance for wind-down or transition if the game is still active.
If You Build Video Games In-House
Some IP owners elect to develop or publish games themselves, effectively absorbing the licensee role. In doing so, they must replicate many contract disciplines internally.
For example, the IP owner/developer may need to license in middleware and third-party content (music, tools, Software Development Kits (SDKs)), to ensure all assignments and licenses are clean. Employment and contractor agreements must include robust IP assignment, confidentiality and deliverable testing terms. As publisher, the IP owner will need to draft End-User License Agreements (EULAs), terms of service, privacy policies across multiple jurisdictions and negotiate directly with platform holders regarding certification, content rules, revenue share and compliance duties.
Final Thoughts
A video game license is a hybrid of IP, software and user-facing product deals. The best agreements give licensors protection over their brand, visibility into development and flexibility to reclaim rights, while giving developers the rights, clarity and incentives they need to build and operate a successful game.
