Common Contract Clauses – Term, Territory, and Scope

This series of blog posts aims to clear up confusion over some of the most common clauses found in the contracts that game developers often sign. These first three are often found in a publishing or distribution contract. They are extremely important in defining the scope of the agreement, for how long and in what places the agreement is enforceable. While there are many boilerplate clauses in agreements, these particular clauses should be drafted very specifically for each contract due to their fact-specific nature.

Scope, or Grant of Rights:

This clause will define what rights are being granted to the publisher or distributor. The rights can be either exclusive or non-exclusive, or a combination of both (with different exclusivity rights in different territories, for example). Generally, the grant will be a license, with the grantor retaining ownership of the intellectual property. Sometimes, however, an assignment will be taking place. Assignments will be covered in a future post.

It is extremely important to be very specific about what rights are being licensed, and to only license what is necessary for the publisher or distributor to do their job. Overbroad licensing could be denying the owner of the rights the opportunity to monetize their intellectual property for a potentially lengthy term of years. Possible licensing rights could include the right to make, copy, publish, create derivative works from, or sell the underlying intellectual property.

Another important piece of the grant of rights is the enumeration of any excluded or restricted rights. Rights may be implied in some cases, if they are not mentioned, so if a particular activity is not being allowed, it should be written into the contract.

Term:

This clause defines the period of time in which the rights are being licensed. This could be forever, usually written “in perpetuity,” or for a fixed period of time. There could be a termination provision, that ends the term upon some given event or if sales do not reach a certain amount. As before, this clause should be carefully drafted to reflect the understanding of the parties.

Territory:

A territory clause will define where in the world the rights are being licensed for. This could go hand in hand with the exclusivity mentioned above; for instance, there could be an exclusive license in the U.S., but throughout the rest of the world it could be made non-exclusive. This would allow the developer to contract with other publishers outside of the United States. Care must be taken that, when multiple distribution or publishing contracts are signed, the rights don’t overlap in a way that would make one or the other distributor an infringer. Usually, the agreement will include a warranty clause that states that the rights granted are actually available to grant. Clauses like this will be covered next week in the second segment of this series.

In the meantime, don’t contract blind. Contact your favorite game attorney for help in reviewing and drafting licensing and publishing agreements to protect your rights as the intellectual property owner.