The contract is one of the cornerstones of modern society. The idea of freedom of contract stems from the writings of John Locke, and is an idea that has been generally upheld in the United States. In fact, until 1937, the concept of a "minimum wage" was even seen as contrary to the ideal of freedom of contract. While the "socialism lite" attitude of the New Deal quashed much of the pure laissez-faire freedom of contract in the US, there is still a fairly general freedom in contracts in the marketplace today.
Given this freedom, so long as all of the elements of contract formation are met, then a contract is flexible enough to incorporate practically any term or terms the parties would like. (I won't bore you with all of the details of contract formation, but if you would like to read more, the Wikipedia article on the topic is fairly thorough.) So, take for instance a contract to purchase a home, which I hope most people are mildly familiar with as a concept. It's a good example of a contract with a high level of flexibility and relatively equal bargaining power among the parties. If you want the current owner to fix something, that can be added to the contract. If you want them to leave specific pieces of furniture, that can be negotiated into the agreement. If you insist the closing take place on a specific date at a specific time when the planets are properly aligned, that is fair game. If you insist that a cake be presented at closing, with a slice for everyone and the leftovers to the buyer, even that could go into the agreement. In short: a contract is as flexible as the parties want to make it.
Getting back to the topic at hand, a license agreement is a slightly more descriptive kind of contract. Specifically, it allows one party (the "Licensee") to use intellectual property owned by the other party (the "Licensor") for some kind of fee (the "Royalty"). These elements are pretty flexible in and of themselves. Say the Licensor only wants to allow the Licensee to use one character from their story in order to do a prequel about that character. In that case, the license could be limited to the elements discreetly necessary for that purpose and limited exclusively to that purpose. On the other hand, if the Licensor wants to allow a company to make as many games as they want based in their story's universe, using any and all characters, then the license could be that open ended, even providing for automatic renewals after the term of the initial agreement expires.
Royalties are flexible, too, and there's not even a "most common" approach among the alternatives. One way to tackle the issue is a flat fee, which could be for the whole contract or for each product that ends up using the license. The flat fee could be over the duration the product is sold. Another approach is to have the Licensee pay the Licensor a percentage of sales, which could be calculated from the gross or net sales. A third approach is a percentage of profits of the Licensee are paid to the Licensor. While these are typical, the compensation could be anything of value, from property to the use of other rights (where the Licensee also licenses the use of rights back to the Licensor, sometimes called a "cross-licensing agreement").
Most importantly, the contract can pretty freely include other clauses. Given this degree of flexibility, a question has long lingered with me, as well as with many other gamers: Why are so many crossovers so mediocre? It seems that, with some notable exceptions, most crossovers between games and movies are poorly executed. I doubt that the license agreements wholly lack quality control clauses, especially in an industry that should have learned from the E.T. 1982 video game debacle. One possibility is that the Licensor is not choosing to enforce the quality control issue. Another is that it is not cost effective to develop crossover games to the degree that stand alone titles are developed. A third possibility is that, in many instances, it is just difficult to translate the story from a movie to a game (or vice versa), especially given the disparity in length and approach to presenting the story.
As of late, one of the exceptions to the wave of mediocrity has been The Simpsons Game which, despite some control and camera issues, was quite enjoyable and genuinely humorous. Was this a function of quality control vis-à-vis the contract, or a team of developers who so enjoyed the source material that they put extra effort into the project? Since I doubt I will be reviewing that agreement anytime in the future, the answer will have to remain anyone's guess. However, if it is a function of better contracting, I certainly hope that the contracting methods employed spread to other companies and other contracts so that more crossover games will be improved.
Mark Methenitis is the Editor in Chief of the Law of the Game blog, which discusses legal issues in video games. Mr. Methenitis is also a licensed attorney in the state of Texas with The Vernon Law Group, PLLC and a member of the Texas Bar Assoc., American Bar Assoc., and the International Game Developers Assoc. Opinions expressed in this column are his own. Reach him at: lawofthegame [AAT] gmail [DAWT] com.
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