Augmented Reality: Gotta Protect That IP
The oft-discussed Pokémon GO app appears in countless headlines, and deservedly so. It has had impressive financial success; over $7 billion was grossed within the first 48 hours of its release and it had twice the industry average revenue per user (despite the server issues and the global rollout delay).
Of course, it is better if what goes up, stays up. The value of augmented reality (AR) apps can only be maintained if the underlying intellectual property is protected. Hence, whether one is working on a mass market app like Pokémon GO or simply developing an AR game for a more specific niche, there are a number of pertinent legal questions developers should take into account concerning the ways in which intellectual property registration and enforcement can enhance value.
That value resides not only in selling the app itself (and in Pokémon GO’s case in-app purchases), but also in the annuitization of its licensing revenue stream. As to the latter, such licensing may prove to be even be more lucrative than sales of the app itself.
Copyright, trademark, and patent
Accordingly, a developer needs to ensure that there is strong intellectual property protection that will convince licensees to take a chance on investing in the corresponding licensing opportunity. There are multiple aspects of intellectual property that can come into play for an AR game, but the basic two are copyright and trademark. (Sometimes, but not always, there can be patent rights, as well.)
- Copyright protects the expression of an idea (e.g., the text, images and art used within the game); and
- Trademark protects the marks that serve as brand designators (e.g., the name or logo associated with the good or service being offered)
It is important to keep in mind that none of these intellectual property rights protect the idea itself. To ensure that an idea can be protected and maintained as confidential, or simply not used by a third party, the developer would need to procure those rights through a contract. Normally, this would include either a confidentiality, non-disclosure and/or non-competition agreement.
Now that we have an overview, let’s switch gears to talk about how that legal structure can relate to a developer’s bottom line. If a game is popular and successful, no doubt other third parties will try to associate themselves with it. However, all too often, someone tries to unfairly leverage from another’s success and create a new product that latches onto, and uses, the intellectual property, goodwill and investment of the original game developer. In many cases, this can rise to the level of an intellectual property infringement.
Assuming that we are not dealing with an outright infringer, the third party might start by approaching the developer to request a license of the intellectual property. This could cover a wide variety of product ideas; everything from creating a cross-over, spin-off or sequel to the game to marketing books, t-shirts, toys and other items incorporating game references, characters and so forth. Depending upon the popularity of the game and the strength of the intellectual property, a license may be offered in exchange for a licensing fee. The amount of the fee will normally be commensurate with the strength of the intellectual property that is being licensed. In other words, a strong intellectual property portfolio can greatly enhance the ongoing revenue potential.
Five ways a developer can protect their rights when licensing intellectual property
So how does one ensure that the intellectual property maintains its vibrancy? Here is a non-exclusive list of five approaches that should be considered:
1. Ascertain whether the underlying rights are protectable.
The two major categories referred to above—copyright and trademark—both reside in the assumption that the intellectual property is new, original, or otherwise unique. If it is not, it may not be protectable. There are other requirements for intellectual property protection, e.g., a trademark cannot merely be generic or descriptive without any secondary meaning. But from a monetization perspective, the overarching point is that if it is not protectable, the owner cannot grant others rights in it, nor prevent others from using it. That will obviously impair its value.
2. Protect the licensing rights by registering the intellectual property.
Assuming that the name, characters, art, gameplay, and so forth are all protectable, the next step is to protect those elements. This means obtaining corresponding copyright and trademark registrations, and if applicable, patent protection. Presumably, prior to making an offer, a licensee will want assurances that the intellectual property it is seeking to license is not infringing on any others’ rights, and that the underlying intellectual property has been registered.
3. Use it or lose it.
Use is a critical component of intellectual property law. For example, even if one obtains a trademark registration, it may be lost if the mark is not continuously and substantially used in commerce.
4. Enforce your rights.
As referenced above, as soon as a developer enjoys a modicum of success from the game, there are likely to be copycats and third parties who will try to leverage that success. If they do this in a manner that improperly incorporates the copywritten work or improperly uses the trademarks, that would constitute actionable infringement. To maintain the strength of the intellectual property, the developer needs to continuously enforce their rights against third party infringers.
5. Have proper license agreements in place.
It is not enough to merely have a license agreement in place with a third party. The license must be robust. For example, it must contain protections to ensure quality control over the products and services being offered. This will serve to enhance the prestige and value of the brand (and the corresponding intellectual property).
Among others, five critical protections to include in a licensing agreement are:
- Quality assurance provisions
- Allowances for inspections
- A strenuous approval process
- Termination rights in the event that the licensee is not adhering to your standards
- A delineation of the breadth of the license, including the geographic territory, channels of distribution, and whether or not it is granted on an exclusive or non-exclusive basis
The fine balance in licensing intellectual property
There is a critical balance to strive for in negotiating a licensing arrangement. The broader the license, the greater financial compensation the licensee will normally provide in exchange. On the other hand, the more narrow the license, the greater the opportunities to exploit the remaining rights through multiple licensing arrangements.
It is understandable that one might have the misimpression that after completing the difficult process of creating an augmented reality (or other) app that works well; is entertaining and marketable; and develops a significant following, all the work is done. However, from a financial perspective, that is only half the job.
An integral part of the value of an augmented reality app is also its licensing potential. Strengthening the intellectual property rights is a critical part of maximizing that licensing value for the developer. In other words, you gotta protect that IP.