Lisa Desjardins, LD: You're listening to Canadian IP voices, a podcast where we talk intellectual property with a range of professionals and stakeholders across Canada and abroad. Whether you are an entrepreneur, artist, inventor or just curious, you will learn about some of the real problems and get real solutions for how trademarks, patents, copyrights, industrial designs and trade secrets work in real life.
I'm Lisa Desjardins and I'm your host.
The views and opinions expressed in this podcast are those of the individual podcasters and do not necessarily reflect the official policy or position of the Canadian Intellectual Property Office.
If you're Canadian, you need to know that our gaming industry is one of Canada's biggest drivers in our economy, and it's growing. Much of last year and, well, we're halfway through 2021 and we're still stuck at home. So what do people do? You guessed it, play games, online games or download games, or upload games, or upgrade games. New worlds, versions, characters, avatars, apps and scenes are released.
The business model for video game companies has changed rapidly. Gone are the game-specific consoles and other hardware that you carried home in the box. Today games can be played on our smartphones, computers. From an intellectual property perspective, it doesn't really matter: videogames are valuable assets that should be protected. We're talking code. Clever, popular, continuously growing, evolving code that is packed, wrapped and sold virtually.
Michael Shortt is a lawyer and trademark agent at law firm Fasken in Montreal. Michael specializes on the video game industry, helping video game development studios and publishers protect their games from copycats, and he also drafts contracts for publishing and licensing video games. In short, someone who knows the ins and outs of IP and video games in Canada. Michael it is a pleasure to have you in our podcast today. Welcome.
Michael Shortt, MS: Thank you, I'm really happy to be here.
LD: Michael, tell me a little bit about yourself and what has brought about your interest in the video games industry.
MS: Sure, so I've been a lawyer for a little over half a decade now and pretty early in my career I got involved with a local development studio Hibernum, which was about 100 person studio here in Montreal, and I would review all of their publishing contracts that they had with various major publishers in the United States, Japan, Europe, which was really my entryway into the industry. So, that was eye opening to see. They worked on all aspects of gaming. From, as you said, smartphone games to traditional games on PC and then obviously there's consoles and a number of other game models. We can all remember when Facebook games were a big thing, and I think that was about 2011-ish, and they're not quite as big as they used to be. But online games on a website or social media platform are still a big deal, and we see a lot of interesting IP angles there. We can all remember Words with Friends, had a brief dustup with Scrabble and it's back on Facebook, but with a slightly different board. And so that that was really my bird's eye view of the industry and these days Hibernum unfortunately closed its doors, but I still work for a number of other local studios plus developers and publishers around the world.
LD: That's quite fascinating… as you explained: the evolution of the games… I think it's time we could perhaps walk through some of the main components of the parts that video games have, but we'll do it from the lens of intellectual property. Starting off with copyright. What's a copyright?
MS: Sure, so copyright is by far the most common intellectual property right in the gaming industry, and by far, in my view the most important. Copyright is something that protects artistic, literary or creative work, and in the context of a game, it's going to protect virtually every component of the game; it will protect the code that's been written to run the game, it will protect the music that appears in the game, it will protect the art assets, animations, videos: virtually everything that goes into a game is going to be protected by copyright.
And so for video game developers and publishers, copyright is always top of mind and it's a right that unlike some of the other intellectual property rights we'll talk about, it doesn't have to be registered. You can register it and there's advantages to doing so, but copyright comes into existence automatically and so not only does that save you on any registration fees or delays, but it also means you're protected virtually worldwide. Almost every country in the world has committed to recognizing the copyrights of other countries. And so once you have a Canadian copyright very quickly, you will find that that also applies in the United States, in Europe, in Japan, in China… I would say 95 to 99% of the world will give you copyright protection automatically and instantaneously, which is why copyright has to be the first right you think about as a video game developer or publisher.
LD: So that's the core value and core creation of it. But when I'm playing games, that's not really what I see. I see the brand, so can you shed some light as to what is a trademark in this view?
MS: Sure, so when you're playing a video game often the first thing you'll see when you boot it up is a series of logos and names of the studios and developers and publishers splashed onto the screen one after another, and those are all trademarks. A trademark is essentially a branding symbol of some kind. It can be typically we're most used to seeing names and logos, but it can be something else. We've all watched movies that opened with a roaring lion. MGM has actually trademarked the sound of a lion roaring in the context of a movie, so you can have sound trademarks. I think we can all think of some iconic video game sounds. I don't believe anyone's filed any applications for those in Canada yet, but a trademark, it can be anything that allows you to connect a product or service to a source. So a lion's roar in the context of a movie may be a trademark, but if you hear a lion roaring at a zoo, that means absolutely nothing.
And another good example would be colour. In some cases the colour of a product can tell you something about who made it. We're all familiar with Louboutin shoes which have red soles or John Deere tractors which are green and yellow. And so depending on the industry you may be able to say the colour is a trademark. There have been some even more exotic trademarks based on motion or holograms or smells or tastes. Those are very, very new, so there's not a very large example number of them that I can I can point to in Canada, but they do exist as well.
There's also the packaging of a product or the packaging for service. Apple has trademarked the look and feel of the Apple I store in Canada because sometimes it's not so much the product or the name of the product, but actually how it's presented to you. That can tell you that you're dealing with a real and legitimate product. And Apple had trouble in China actually with sort of imitation Apple I stores that were built to look exactly the same in terms of the Scandinavian design and the clean look and feel. And so you can see how people can be misled, not just by what you call your product, but how you present it to them. And so a trademark is anything that allows a consumer to figure out who made this or who's offering this. And so it doesn't protect the product itself, but it protects the branding around the product.
LD: And as we can see, that's a value that can build up immensely over time.
MS: Oh, especially in app stores these days. When you think about discoverability challenges, where being at a certain rank in the App Store is almost more important than how good your game is, just because if you're a really good game, but at the bottom of the rankings, no one will ever find you. So having a unique name and logo can be incredibly advantageous for video games today because we're no longer in an era where the majority of sales are made by going to a local store and sort of looking at what's on the shelf. Typically now it's based on people either using word of mouth via social media and YouTube reviews or it involves searching through online stores that have long tails with 10s of thousands to hundreds of thousands of games, at which point your branding is even more important to standing out.
LD: And there are also other parts, when you've created a game, a lot of it that can't be seen to anyone. So now we're talking about trade secrets. How did they apply to games?
MS: So trade secrets are a great example of sort of concurrent IP protection because sometimes the same item can be protected by multiple types of IP. So in the case of trade secrets, the source code for a game will be protected by copyright because it's code that was created by a programmer and that code took skill, judgment and effort to create. But it may also be a trade secret because you never show your source code to anyone. I mean, open source is a special case and that's why we call it open source for open source code. But in almost all commercial software cases you're going to keep that source code confidential because you don't want to release it to the public for a couple of reasons.
One is: as soon as your source code's out there, it's very easy for people to copy it and gaming, much like music and the film industry, has had to cope with a lot of piracy, so you're always going to keep your source code confidential. But then you also don't want your competitors taking a look at how you accomplish certain programming tricks and trying to inspire themselves from your work.
And you also don't want hackers to be able to find security flaws in your program, or ways to cheat in the program online. Cheating has been a huge issue for competitive multiplayer games, and so you're always going to keep your source code secret, which means if your source code leaks, it's not just a violation of your copyrights, but it's probably also a violation of your trade secrets as well.
And if I can give another example of concurrent IP application, we just talked about copyright and trademarks, and in the case of logos, a logo, may be both a trademark and it's protected by copyright because of all the work that went into creating that unique logo. So when you think about IP, you need to think about not only the separate types, but also when those different types can overlap because if you have multiple sets of rights that you can invoke in your favour, that can only help by improving your position.
LD: Yeah, and if I could just extend to that when we say overlapping IP rights, in Canada, design patterns are called industrial designs and that's also something that the consumer sees. How do they apply to games?
MS: Sure, so industrial designs are a little less common in the gaming industry because you have to take the time and effort to register them before you put whatever you're trying to protect out on the market.
Just because they have a requirement that whatever you're registering has to be new and not otherwise available to the public. But industrial design protects the aesthetics of a mass produced product, so we could think of a Harley-Davidson motorcycle: the styling on that. Or sort of an artistic chair or a very well sculpted pitcher for water. Things like that that they're artistic but not in the same way that a book or music or film might be artistic. The same idea that we're appealing to the aesthetic senses, but it's still sort of a mass-produced product and those were all physical examples, but industrial designs can also be registered to protect the user interface of the program, and so if you go onto the Canadian Intellectual Property Office website, you can search through the industrial designs that have been filed by companies like Uber and you'll see the different parts of their application have been protected by industrial designs that they've taken parts of the user interface and carved that out and filed to protect it.
And that sometimes can give you advantages compared to a copyright. Because copyright, as the name suggests, requires copying. If someone didn't actually copy from you, and for example, they just independently came up with something very close to what you created, you can't sue them.
Copyright is only there to prevent deliberate copying, whereas for an industrial design, if someone has imitated your design, you are allowed to put an end to that regardless of whether or not they did it intentionally, so you don't have to worry about independent creation. You now know that by having an industrial design, no one can imitate what you've done. And so that applies in the video game context, largely to user interfaces is one aspect, but any kind of graphical aspect to the program, something that's sort of fixed is something that's changing is hard to protect by an industrial design because it's not there to protect say an entire movie, it's there protect sort of a definable element of the program that has a visual appeal.
LD: So we've covered a lot of the creations that make up the video games industry, what the consumers can see and what they can do. I guess in some perspective there's also some inventiveness, and I guess that's what many people think about when they first hear about intellectual property. So I wanted to talk about patents and how they apply to video games? What are your comments there?
MS: Certainly. Patents have a bit of a bad rap in the industry, not so much because of what's happened in Canada, but because of a lot of the patent trolling that has occurred in the United States where a lot of smaller Internet-based businesses were targeted by abusive demand letters from U.S patent trolls, especially in the early 2000s through to about 2015-ish. The U.S. has substantially reformed its patent system to make those that kind of behavior less attractive, and so patent trolling is on the outs which means that a lot of companies have not had those bad experiences and may be wondering. You know what? What are patents for? What can I do with them in the context of my business rather than just seeing it as a threat?
And the answer to that is that patents exist to protect, as you said, inventive activity sort of people who have come up with unique and non-obvious solutions to practical problems. And in the context of video game industry, that typically tends to be something that's some kind of engine or back end piece of software. So an example might be having an algorithm that is going to lip sync the characters lips to recorded audio on an automatic basis. So instead of having to hire an animator who will animate the mouth by hand, you have a program that's going to do that for you automatically. So a lot of back end and engines, and engine in the video game industry has sort of a specific meaning: it means effectively the software that allows… that runs in the background of the game to do things like physics or graphics or all of the sort of background work that needs to be done to output a game and the engine for a game can be shared across many different games, so games that look different have different plots, may all share the same engine. Engines have been sort of the typical target for that kind of patent protection, an engine or an algorithm, as I say with the lip syncing or anything else that sort of runs in the background and solves technical problems. Like you can't patent a song or something that's purely aesthetic, purely exists for creative purposes, but what you can patent are the software mechanics in the background. And people have also tried to patent game mechanics and those have been subject to a lot of ridicule online… like there's there was a patent for having an arrow that would point a video game character to the next objective. Is that patent valid? Maybe, maybe not. I tend to lean against that, but you know, there were some very strange patents issued in the 1990s when computers were still relatively new. Almost all of those have expired by now, but patents can protect an oddly wide variety of things, but in the context of the video game industry, sort of the legitimate patents are mostly around engines and solving technical challenges of how to run video games, graphics and characters.
LD: OK, so we're really talking about the creations and that seems to be the major part of what makes games so popular. Games can be realistic, they can contain well-rendered characters, and avatars may look like real people, movie stars, athletes or other well-known people. What does a video game creator need to keep in mind when they're creating fictitious characters or depicting real people, places and things?
MS: So that is an interesting question because it really depends on whether you're depicting a person, a place, or a thing. Most of the case law I'm going to talk about or refer to in the next minute or two comes from the United States because there haven't been that many cases in Canada about these kinds of issues. But in the U.S., there have been all kinds of lawsuits, ranging from lawsuits by the makers of military hardware who sue people who represent their say weapons or vehicles in games, to class actions by college athletes against the people who make sports video games.
And the outcomes have not always been the same, it's often depended on what exactly you're trying to sue over. For example, in general, when it's come to realistic depictions of things and places: that's generally been allowed. The courts have effectively said: when you're doing the military video game you're going to want to use realistic military hardware like firearms or vehicles, and the makers of those weapons or vehicles don't really have any legitimate claim to copyright infringement or trademark infringement, because it's really just something that's in the game. It's not no one going to think that they have endorsed this video game or that they made this video game, so there's no trademark branding angle. And then on the other hand, copyright doesn't protect mass produced items for the most part, so it's not going to protect a car or a firearm, and it's going to be generally allowed under U.S. law, and I think most Canadian courts would probably come to the same conclusion that for the most part, if what you've got before you is a realistic representation of a real world, object or place, that's perfectly legitimate and that we should generally encourage that kind of thing.
Problems tend to crop up more along the lines of representing people, and whether you've done that in a way that makes them recognizable and whether you've done it in a way that would require their consent. And that's something where you get an interesting intersection between IP law and privacy law. Because different jurisdictions in Canada have enacted different kinds of privacy laws that give people control over their own image and whether they are public figures or not, may determine whether you're allowed to use their image in the same way that newspapers are allowed to publish photos of politicians and celebrities and other public figures, but cannot necessarily publish photos of private people in their backyards. And so that's where I think trying to carry over what's happened in the United States is a lot more difficult to predict here, because your IP angle runs into privacy laws that exist for purposes that have nothing to do with the video game industry or intellectual property, but which can prevent you from doing some of the things you might otherwise want to do.
So my recommendation is when it's people, you should be seeking the consent of those people. When it's places or things you have much less of an issue. Subject to things, things that are more background issues. Like making sure that if you do portray people, you do it in a fair way, in a way that's not to expose them to hatred or ridicule. Basically doing it in a common sense way that doesn't get you into trouble from a non-IP perspective.
LD: I know that you're working with licensing and contracts. Once a video game studio has completed its development, how do they get to the market? Can you tell me about how intellectual property is handled in the video game publishing deals?
MS: Certainly! So that's where the video game industry is really quite unique compared to many other industries, and it depends a little bit on what size studio you're dealing with and what size publisher.
But gaming has a unique dynamic in terms of which marketplaces exist, and in many ways it's a little bit like the mining industry where you have junior and senior miners: the junior miners have some sort of promising claim out in the wilderness, but they need a senior miner to come in and provide the funds to make that claim into an actual exploitable mine.
And that's very analogous to the video game industry, where you have developers with great ideas, talented staff, and all of the IP. They're done, or in the process of being completed, but they need sort of someone with marketing muscle, that get their game out there in a crowded market to perhaps finance the completion of the game. And that's where it's a little bit like the junior-senior miner dynamic: you have the development studios who come up with the games, who complete the games and have all the resources to create the product, and then you have the publishers who come in and provide the marketing, who have the connections to get games onto storefronts to secure promotion by the owners of those storefronts, and also may finance the game in whole or in part. And in exchange you'll have some kind of revenue sharing deal between the publisher and the developer and the exact details of that deal are going to vary depending on how good the game is, how close to completion, how much risk is the publisher taking on, et cetera, et cetera?
But typically what will happen is, the publisher gets either an exclusive license or ownership of the IP, and in exchange pays royalties to the developer. And typically we'll say, before I pay you anything, I want to recoup the investment that I've made in your game, so I'm going to take either all of the money or a very high percentage like 80 or 90%, until I've made back my initial investment, and then after that we'll split the remaining revenues in some sort of agreed upon proportion. Is it 50-50, 60-40 or 40-60, or whatever, tends to be heavily negotiated. And then from there on, either you keep with that split, or the split tends to move increasingly in the favour of the developer in the sense that if you do have some amazing mega hit, at a certain point, the developer should be earning the lion's share of that, because the publisher is made back their investment many times over.
And so that's the structure of a typical deal, it's really money from the publisher in exchange for IP from the developer, and then once the game hits the market, you have a way of splitting the incoming revenue between the two parties and then the exact split will tend to depend on how much money the game has made back.
LD: So it's important for everyone involved in the creation to understand what they've created and how you can sort of weave that into these contracts…
MS: Oh, 100% because what the publisher is paying for is largely a license to IP because in video gaming IP doesn't just protect the product; it basically is the product.
What you're selling is a license to install software on someone machine, and so if you don't have your IP all lined up, you really don't have anything to sell, you're giving a license to something you don't actually own. And that's why in the video game industry, it's quite a bit more complex than a lot of other creative industries, such as, say, music, where you have a limited number of rights holders who have contributed to a song. You have obviously the songwriter, you have the performing artists, and you know that can be a large group of people, but it's nowhere near as large as the typical team on a video game where for large blockbuster games you have hundreds of people who've worked on that.
And in music you have sort of a single sort of output item at the end, which is a track, maybe a music video, but it's one thing. Whereas a video game is composed of many things: there's the code, the music, the animations, the art, the videos… and all of those things may have different owners may be protected by different sets of rights, so the developer has to make sure that they are the nexus for all of those copyrights and other IP rights, that they all feed into the developer and the developer owns the rights over all of the content that has gone into the game so the developer can then pass that on to the publisher without any problem.
And it's a lot harder to keep track of that, given how much more there is that's coming in than in the case of a song where you can count the people who are in a room when the track has been recorded, and you can be pretty sure who wrote a song, whereas a video game where you may have a couple dozen people and contents coming in from different places; maybe you're purchasing you know pre-made trees from an asset store, maybe you're getting tracks from a recording artist, maybe you're hiring a couple of freelancers to help, plus you have your employees. You have to keep track of all these moving pieces and make sure that when the music stops, you know who created what, and you have something in writing from each of them saying that the developer owns what's been created.
LD: Very interesting to hear about all the kinds of contributions and I can imagine that this can quite quickly get complicated. I wanted to move on to a topic which we may just touch upon, however, so briefly, but there is some potential thunder at the horizon. Games are very captivating. We have kids, adults, people are playing games… and some people say that these loot boxes, which is the kind of surprise box in the video games, are similar to slot machines in gambling. And gambling is very controlled in Canada. So if I'm a video game creator, do I need to stay informed with what's happening in our court systems at the moment?
MS: You're right to raise those thunderclouds, because at the moment, what we don't know is whether that's going to result in a torrential torrent of liability on the industry or the storm clouds will drift off over the horizon with no torrent insight. And the reason for that is that Canada has very strict anti-gambling laws.
Some gambling is just flat out prohibited by the Criminal Code. Other gambling is allowed, but only if it's licensed and regulated by the provinces. And in particular, when it comes to any form of online or computer or Internet-based gambling, that is very strictly regulated and can only be carried out by the provinces, they're not even allowed to license third parties to do it.
So for the moment, if loot boxes would be a form of gambling, then obviously they're happening on a computer, and only the provinces would be able to do that. Which then raises the question of, well, are they gambling? Because when you look at the Criminal Code, it was never designed to answer questions about what loot boxes are or how they should be regulated; it was designed to prohibit gambling in general. And so the arguments about whether loot boxes aren't a form of gambling have right now in Canada been placed before the courts in a couple of class actions where enterprising lawyers are trying to recover money spent on loot boxes by consumers.
And one of the really interesting questions is: if we think that a loot box is a form of gambling, what does that do to things like buying packs of hockey cards, or packs of Pokémon cards, or buying a Kinder Surprise? All of those are examples of an analog item that you can buy in the real world where you don't know what you're getting.
And if a loot box, which is a digital random item that you buy in the context of a video game, is a form of gambling, does that mean that we've effectively outlawed hockey cards in Canada?
It's a tricky question because at the moment no laws have been passed, either federally or provincially, and so our courts are being asked to decide these questions based on general laws that were not written to regulate the video game industry or loot boxes in any way. And it's really a difficult position for an industry to be in: that you don't know whether your business model is legal or not, until the judge renders the decision in a class action that can be appealed in a process that can last years. And so, it's a very hot issue in the industry, and it's an issue everyone should be paying attention to, but it's unfortunately not an issue we're likely to get clarity on anytime soon.
LD: Very interesting. I know you feature as a speaker at events where new lawyers and video game developers are learning about video games and an IP. If you were to meet with someone who has an idea of a video game, what would you tell that person?
MS: I'd say probably the most important thing is to remember that everything that goes into your game is going to be protected by copyright, virtually everything. And copyright belongs to the person who created it, unless they've signed away their rights in writing, or unless they're the employee of someone else and they created it for their employment.
Most small video game companies aren't going to have employees; they're going to have a bunch of freelancers, or maybe the founders of the company will be working there, so you really need to depend on a written agreement by which copyright is transferred from the creator to you.
And so from the very beginning, always get it in writing. If you know what content is going into your game, track that, track who created it and make sure that you have something in writing from them that is signed by them that says that you own copyright in the content that they created.
That is, I think a very simple piece of advice, but it's one of the most important single things you can do to make sure that at the end of the day, you own what you say you own: namely the video game and everything it contains.
LD: Michael, it's been great to hear your stories and your insights and your tips and tricks for video game developers. Thank you so much for sharing it with us.
MS: My pleasure, thank you for having me.
LD: Thank you.
You've listened to Canadian IP voices where we explore intellectual property. In this episode, we've met with Michael Shortt, a lawyer and trademark agent at Fasken law firm in Montreal. Michael helps video game creators and publishers with intellectual property and contracts, and explain some of the key considerations for how video game creators and publishers use intellectual property to bring their video games to the market.