11 September 2014 | 50 Comments
For a while now I’ve subscribed to a blog called the Board Game Lawyer. The author, a lawyer named Zachary Strebeck, writes consistently insightful posts about the legalities of publishing board games.
I recently reached out to Zachary for some help on a contract, and we got to talking about Kickstarter. Zachary follows Kickstarter and has noticed some patterns emerge over time that every KS creator needs to know more about. I asked him to share those insights on the blog here, and he graciously agreed to write the guest post below. Thanks Zachary!
For most creators, the legal side of starting a Kickstarter campaign is the last thing on their mind as they are scrambling to get a project intro video created and planning out reward tiers. However, paying attention to these four legal areas may help to save you a ton of trouble down the line.
Issue #1 – Forming a business:
If you’re advertising and selling a product on Kickstarter, you’re in business. However, by default you are a sole proprietor (or a partnership, if you’re working with others). This type of business offers almost no benefits, since you are usually personally liable when things go wrong and the business gets sued.
Most businesspeople form a separate business entity, such as an LLC or a corporation under which to do their business. This has a few advantages:
- It limits the liability of the people running the business to their contributions to that business (for the most part, anyway)
- It gives a professional appearance, rather than the look of a person running a game dev business out of their basement (even if they are)
- It makes it easier to sell or transfer the business, or raise money in other ways
In many states, forming a business entity isn’t expensive. However, the benefits to forming one can be pretty great. I would also recommend consulting with an accountant or tax lawyer to better understand how taxes will be dealt with, particularly when raising a lot of money on Kickstarter.
Issue #2 – Get it in writing:
We’ve all done “handshake deals” at some point in our lives. However, when you’re forming a team of artists, designers and other folks to develop a game, these deals may not be sufficient. This is for a few reasons:
- You may think you have the same understanding of your deal, but until it’s distilled into a written contract, you can’t really be sure (you’d be surprised at the results)
- There may be a ton of things that you haven’t even thought of
- You probably haven’t given any thought to what happens when things go wrong, but the best time to do this is when you’re still on good terms (believe me, it can get pretty tough later on)
It’s easy to be so excited that you start working on the project right away. As above, though, taking some time to get everything in writing can save a ton of hassle later on.
Issue #3 – Make sure you own everything in your game, or have a good reason not to:
When you’re developing a game, there are usually many different hands working together to get it done (see Issue #2). Absent some kind of written agreement or an employer-employee relationship (which requires all kinds of insurance and other things), those other people may own the rights to the things that they’ve created.
This may seem fine before any money has come in, but when you’re looking to expand the brand with a sequel, an expansion or some other derivative work, those owners may come knocking. They’ll be looking for their piece of the pie, particularly when something is very successful.
It’s very simple to add a clause into a contract that grants or licenses these rights to the company or developer. As usual, getting these things squared away in the beginning puts you in a better place as far as negotiations go and can save you a huge amount of hassle.
Issue #4 – Make sure you’ve planned everything out before launching the campaign:
The attitude of getting a cool project page together and dealing with the logistics of it later can be extremely dangerous, from both a business and personal perspective. There are numerous examples of this in the various highly-publicized Kickstarter failures:
As you can see in these various cases, a failure to plan out how much things will really cost and set up the funding goals and reward levels to reflect that can lead to serious trouble. Is anyone going to take any of these companies seriously after this? Even if they do get backers to support them in the future, I can’t imagine that they will get the same amount of money unless they do a lot more work to repair their damaged reputations.
Then there’s the legal implications. Look at the Asylum Playing Cards Kickstarter, for instance. Washington State is suing the developer (both individually and as the business entity he formed) for failing to deliver on the promised rewards under the state’s consumer protection laws.
The creator of the Hanfree device faced a small claims lawsuit by one spurned backer (who happened to be an attorney), but certainly could have been sued by all of the other backers as well. When you take money as part of a Kickstarter project, you are creating a contract with those backers. Failure to deliver on that contract could open oneself up to liability.
Most of these things are relatively simple to do and part of being a responsible Kickstarter project creator. A lot of the information is right here on the Stonemaier Games Kickstarter Lessons and my own blog! The added benefit is that the project has a better chance of successfully shipping products within the estimated timeframe and avoiding serious legal issues.
Hey, Jamey here again. If you have any questions for Zachary, feel free to post them in the comments below. If I notice some trends in the comments, I might ask Zachary to return to the blog later to delve deeper into those topics.