Beating the Crunch
Maclay, Murray & Spens' Gillian Cordell offers ten pointers for keeping your business going in a tough economic environment
"In five years' time, the creative industries [in the UK] could be as powerful as the financial services industry has been for the last 10 or 15 years." That's according to a recent quote from the UK government's Communications Minister - but five years is a long time and, right now, many businesses are struggling with their day-to-day existence, dealing with the effects of the worst recession for decades.
So what can you do to keep afloat in difficult times and look after your business when the pressure is on? Here, Gillian Cordall, an IP & Technology partner in the London office of Maclay, Murray & Spens LLP - and a keen gamer - offers a few pointers in the second of our two-part series on business tips in the tough climate.
Do not give away your IP. Easy for me to say when you are desperate to do a publishing deal with MegaloCom and they insist on owning all the IP. Well, if they absolutely won't budge on this, let them have the 'content' but keep anything you want to re-use (platform, engine, tools, generic software, and so on) and license it to them.
This is standard and should come as no surprise to MegaloCom. Check every contract to make sure there is no assignment or transfer of your IP - I've lost count of the number of companies who have effectively given away their business in one agreement.
And don't hand over your source code - keep it safe, keep copies off-site and if MegaloCom wants it, put it into escrow so it can only be released in defined circumstances.
IP is the core of your business, so treat it with the care it deserves.
Employees, Part One
Make sure you have employment contracts and get them signed. Have security and IP policies and educate your staff about IP and confidentiality. Make sure that they do not keep copies of work at home - there is nothing worse than a disgruntled (ex-) employee at home with a hard drive full of yours (or worse, MegaloCom's) confidential information or IP and easy access to the Internet.
Make sure your network is secure.
Structure your Group for Risk Avoidance
Think about what would happen if your company lost a major contract or was sued. Are all your contracts and all your IP in one company? If so, think about holding the IP in a separate company to insulate it from the risks or setting up project specific companies. Spread the risk, so if one part fails, it doesn't bring the whole lot down with it.
Employees, Part Two
Beware the employee with a portfolio of art who has just joined you from NextCo. The art is almost certainly NextCo's, not theirs, and not yours. Use the art in your game, and you will probably be sued and you will lose - most likely after the game is released and you are on the hook to MegaloCom for IP warranties and indemnities. This is a big "not good", so don't go there. And if you think this is farfetched, look what happened to the Bratz doll.
Freelancers and Service Providers
Make sure you have written contracts and not just invoices. The chances are freelancers and service providers will be creating IP for your game - if you don't get them to assign (transfer) their IP to you in writing, they will own it. And this will cause you problems later... often with MegaloCom. Check your contracts with service providers - companies often get into trouble when their suppliers fail. Have a back-up plan in case of difficulties in your supply chain.
Employees, Part Three
Employees are expensive to keep and surprisingly expensive to let go. Don't over-extend yourself. Redundancy is expensive and you need to build in the costs of consultation periods and employee notice periods on top of redundancy pay. So if you need to ramp up, think about using freelancers instead.
Confidentiality. The best way to stop people pinching your ideas is not to disclose them. But you will need to disclose to MegaloCom before they will even think about a contract. You will need an NDA - never ever disclose anything without one.
Contracts with MegaloCom
A few pointers: Cashflow is king and vital to staying in business. Try and get a signing fee, watch how the milestone payments work and beware royalty calculations, particularly deductions. And if the contract includes the usual right for MegaloCom to cancel if they don't want to continue with the development (or you), negotiate a termination payment. Finally watch the tax - withholding tax in particular can be overlooked.
Eggs and Baskets
Try not to be dependent on just one contract or just MegaloCom. If that relationship fails, you might not have time to get a new contract before the unspeakable happens. Lead-times with publishers can be long: you will not get a replacement deal overnight
And if, despite your best efforts, it's all looking dicey, get advice and get it early. Businesses and jobs can be saved but the later you leave it, the less likely it becomes. And if you are a director, you need to be doubly careful - wrongful trading can lead to personal liability. And you really don't want to go there.
Gillian Cordell is IP & Technology partner in the London office of Maclay, Murray & Spens.