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Dealing with delays, contracts and confidentiality during lockdown

Harbottle & Lewis' Kostya Lobov offers advice on how to adapt to the pandemic without causing legal problems

As we settle into lockdown life for the foreseeable future, businesses in the games ecosystem have had to react to changes in the market and adapt to new ways of working, which can create new challenges.

Here are three situations which studios might encounter, and some tips on how to deal with them:

Delaying a launch

The pandemic has caused a number of cancellations and delays, and the unfortunate reality is that we are likely to see more before this is over. There are a few things to be mindful of if you are considering delaying a launch or any associated marketing, events or promotions.

kostya

Kostya Lobov, Harbottle & Lewis

First, consider whether changing the launch date could put you in breach of the terms of any existing agreements with any suppliers, retailers, platforms, publishers, investors or other stakeholders. This means checking each contract to see what, if anything, it says about the launch date.

The terms of a contract can, in most cases, be changed if all of the parties consent. If you successfully negotiate a change, it should be recorded in writing, preferably in the form of a short variation agreement. If that is not possible, an exchange of emails between all the parties to the contract confirming their agreement, whilst not ideal, is better than nothing.

If the terms cannot be changed, check whether the contract has a Force Majeure clause. This is a provision commonly found in contracts which typically allows a party to suspend performance of its obligations if it is unable to do so because of an event outside of its control. A word of caution: the wording of such clauses varies considerably, so the fact that a Force Majeure clause exists does not necessarily mean that it will be helpful. It is important to look at it carefully to see what events are and are not covered, and what steps need to be followed.

If it looks like the Covid-19 pandemic could fall within the scope of the clause, check to see if any exclusions apply -- the contract may, for example, exclude events which were reasonably foreseeable, and require you to take steps to mitigate the consequences of delaying the launch. Some contracts also have specific notification and dispute resolution procedures which must be followed in the event of a breach.

As a last resort, you may be able to rely on the English law concept of frustration. This can occur where it becomes impossible for a party to perform a fundamental obligation of a contract because of an unforeseen event, or makes a fundamental obligation radically different. When a contract is frustrated, neither party has to comply with future obligations. Determining whether a contract has been frustrated is not always straightforward and requires a careful analysis of the obligations. If it comes down to this, it would be prudent to obtain input from a lawyer.

If the launch date is pushed back, you may have to offer refunds to consumers who purchased pre-orders. This will depend in part on how the pre-order was advertised at the point of sale, whether or not the date was a term which incorporated into the contract with the consumer, whether the studio has an express or implied a contractual right to change the launch date and, if so, whether such a term is fair.

"Where there is some confidential information present, having it clearly labelled as such can be useful if things go wrong."

Putting the legal arguments to one side, the PR implications of denying refunds of pre-orders should also be considered, and weighed against their realistic commercial impact. Other, more creative, solutions may also exist, such as offering consumers an incentive (be it free subscription time, some in-game currency or a cosmetic item) should they decide not to cancel the pre-order, while making it clear that they can.

If copies of the game have already been shipped to the press and influencers, they will need to be informed of the new launch date and corresponding embargo date. Where there are NDAs or written agreements in place, these will usually have been drafted by the studio or its lawyers and their terms should (hopefully) be forgiving when it comes to making last minute changes. If not, now is a good time to review them.

If any adverts for the game mention the launch date, these may need to be updated to avoid misleading consumers and falling foul of the CAP Code, which is enforced by the Advertising Standards Authority. The launch delay could have a knock-on effect on the timing of promotional marketing.

Note that the CAP Code specifies that the end dates of promotions must not be changed unless unavoidable circumstances beyond the control of the promoter make it necessary (which may be the case, depending on the studio's circumstances) and either (i) not to change the date would be unfair to those who sought to participate within the original terms, or (ii) those who sought to participate within the original terms will not be disadvantaged by the change.

The Last of Us: Part 2 is one of the games that has been delayed due to the COVID-19 pandemic

The Last of Us: Part 2 is one of the games that has been delayed due to the COVID-19 pandemic

Maintaining confidentiality

Online communication and collaboration tools were already popular, but their use has skyrocketed in recent weeks. With their ease of use and fast, informal nature, it's important to be aware of how confidential information is treated.

Confidential information can come in many forms. Lists of contacts and suppliers, launch schedules, price lists, information about employees, videos and screenshots prior to launch, and code, could all be protected by confidentiality.

A written agreement is not essential for confidentiality to arise, although it is common to have a contractual obligation (either as a clause in a commercial contract, or as a standalone non-disclosure agreement) in the context of a commercial deal. Confidentiality, at least in the UK, is something which can arise automatically when all of the ingredients are present and does not require a written agreement. Broadly speaking, if the information is (i) confidential in nature (i.e. not already known to the public), and (ii) is communicated in circumstances which import an obligation of confidence, then it could be protected.

"The pandemic has caused a number of cancellations and delays, and the unfortunate reality is that we are likely to see more before this is over"

If, for whatever reason, confidential information is leaked, its owner -- typically the studio -- will have the option of bringing a breach of confidence claim and seeking an injunction to prevent further breaches. Though the studio may not always decide to do that, having that option can be very useful.

As part of its claim, the studio would have to show that the information in question meets the requirements of confidentiality. If there was an agreement which expressly says so, then that is relatively easy. But if there isn't, or it's not clear if the agreement covers it, how that information was treated on a day-to-day basis before it was leaked is highly relevant. If it was treated with the precautions that you would expect to apply to something which is confidential, that can be a helpful factor. If it was not, it suggest that the information was not intended to be confidential.

What this means in practice is that it is a good idea to keep confidential and non-confidential communications and workstreams separate whenever possible. It is also a good idea to label confidential documents, email chains, chat groups, discussion topics (etc) as confidential. To be clear, calling something confidential, when it clearly is not, will not change its status. But where there is some confidential information present, having it clearly labelled as such can be useful if things go wrong.

Following normal organisational security protocols, such as not using personal devices for work (unless they are managed by the organisation), is also important. Not only does this help to reduce the chances of a leak happening in the first place, it demonstrates that the studio is taking precautions to protect its confidential information -- a factor which a court may take into account.

Digital execution of documents

For documents which are subject to English law, the law is tolerant when it comes to digital execution. Digital signatures -- which can include a variety of methods, from proprietary tools like DocuSign, to applying any kind of digital mark to the document in the appropriate place -- are effective, which means they will work in most day-to-day situations. The person signing the document needs to have authority to do so on behalf of the company, and all other normal rules of contract formation will apply.

There are a few situations where digital signatures will not work. For documents which have to be signed in the presence of a witness, that witness must be physically present in the same location as the person signing -- using a video call is not an acceptable alternative.

This is sometimes the case with documents which have to be executed as a deed, for example powers of attorney and transfers of real estate. If this comes up, consider if it's possible to execute the deed differently -- for example, with two directors signing, instead of one director and a witness. Some companies have particular rules or restrictions in their Articles about how documents should be signed, so it is worth checking this first.

Documents which need to be notarised and/or legalised are likely to run into the same hurdle, because the notary has to be physically present. This is rarely required in the UK, but is still sometimes needed in other jurisdictions, for example some overseas intellectual property registries. The best practice is to check with a local attorney before signing. As many countries are still under lockdown or have social distancing policies in place, it may be possible to forego some of the normal formalities.

Kostya Lobov is a lawyer at Harbottle & Lewis, whose Video Games Group has been advising the games industry since days of the 8-bit console. Find out more at their website.

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