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TheArtifex

Two companies working on one project?

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Greetings- I and another project manager are looking into forming a development relationship that I hesitantly call a "merger", but that particular term is flawed in that the two companies do not wish to merge into one new company, but are simply working together to produce one product: in this case, a game. Both teams are registered Limited Liability Corporations, where each member of each team has signed an intellectual property assignment contract with their respective company. One team is primarily involved with artistic content development, the other with software development and system design. My question is this: what sort of contract needs to be drawn up between the two companies? I am currently envisioning something to the extent of: "Until this contract is cancelled by either company, each company is given rights-of-use to all intellectual property and assets produced by the other company." Additionally: what about the remote possibility of profit income? What sort of contract do we need to draw up for that? From what I can envision, it would need to deal with:
  • What costs are deducted from the gross income before profit is determined? (Server costs? Advertising?)
  • Who is responsible for the aforementioned costs? Who decides what server host we're going to pay? Who controls advertising?
  • How much of the profit does each company get? What happens when new content development teams are formed for expansions?
Are there any things I've missed? Any ugly "what ifs" that I should deal with? Anything I need to clarify? Thanks in advance. :)

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Quote:
Original post by TheArtifex
My question is this: what sort of contract needs to be drawn up between the two companies? I am currently envisioning something to the extent of:
You need a contract with defines...
1. Which team does what on the project and by when.
2. Who decides if the work in point 1 is of an acceptable standard.
3. An assignment of rights/license so that the work of one team can be used by the other in the final product
4. Termination clauses - what happens if either party fails to meet their obligations.
5. How any revenue and or profit is shared.

Quote:
"Until this contract is cancelled by either company, each company is given rights-of-use to all intellectual property and assets produced by the other company."
Not good. This just allows both companies to make/release the same game. Whichever team's game is getting made, they should have the right to use all the assets and the other company gets an agreed share of any revenue/profit.

Quote:
Additionally: what about the remote possibility of profit income? What sort of contract do we need to draw up for that? From what I can envision, it would need to deal with:

  • What costs are deducted from the gross income before profit is determined? (Server costs? Advertising?)
  • Who is responsible for the aforementioned costs? Who decides what server host we're going to pay? Who controls advertising?
  • How much of the profit does each company get? What happens when new content development teams are formed for expansions?

Who owns/controls the finished product and who owns/controls the IP and decides what future projects can be created.

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Having actually done this, I'd advice to prepare for serious amounts of pain. We struggled to combine two companies with 15-20 staff each, and widely different skillsets into one coherent whole. The result was quite similar to a hollywood marriage, starting with the glitzy and happy pre-nuptials, and ending in a messy divorce and the filing for a restraining order.

Some things to watch that can/will/did go wrong:

- Are both parties contributing equally?
++ What if A puts in 5 guys, and B only 3 guys?
++ What if A puts its senior guys on it, while B use the senior staff for another project, using the merged team as a dumping ground for junior staff?
++ Who handles up-front costs, how is that reinbursed (cashflow is King for small devcos)
++ Who's the official licensor of middleware, etc

- Who is responsible?
++ For submissions to external partners
++ For grant applications, publisher milestone payments, etc
++ Who's the primary contract?

- Control of production
++ Where does the senior producer sit? A or B?
+++ If the answer is 'both', run for the hills.
++ Who's got the vision of the game? Does the team buy into this?
++ How is the chain of command setup?
+++ For example: If A is the primary technical company, but B has a couple of engineers, how can B's engineers air grievances, and how can A's Leads maintain command&control?

- Control of assets
++ Who has the rights to publish the game?
++ Who's got the license to sub-license IP, or extend it?
++ Who has the rights to utilize content generated?
++ In most cases, the answer CANNOT be both..
+++ so how do you split revenue with the other party?
+++ can A block B from selling away the IP, if it find the deal unsatisfactory?

Primarily, go talk to a lawyer before you start this. Much like prenuptuial agreements, this is something that's often forgotten in the heady early days of love/co-development. Like pre-nuptiuals, skipping this part will be dearly regretted when company B does an Ivana Trumph on you down the road.


So when your company is lying broken and broke in a ditch, holding a company-sized quart of cheap whisky, don't say we didn't warn you.

Allan







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The way you describe your problem, a potential solution would be to set up separate company as a joint venture. That company 'contracts' out the work, IP, patent rights, etc from the owning companies and 3rd party companies (ex: middleware, tools). In the event of a dissolution, each party gets the rights to all IP and patents developped as part of the joint venture; all contracted out IP and patent rights return to their original owners. You can state what can cause dissolution: the company is no longer financially viable, one company has cause a non-remediable tort to the joint venture, etc. Profits can be re-invested or distributed via dividends (this has a tax impact, btw), etc.

The advantage is that it protects the investing companies from one another and external liabilities. The cons are that there are significant costs in setting up such a company, run it, and share in the mother lode. It's a tradeoff.

Your best next step is to have a discussion with a lawyer.

-cb

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