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Licenses with restrictions on licensee's financial status

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I was going to ask this anyway, but it came up a little in this other thread (search for jdx to find the post). However to focus on the specific point... Unity3D's free license has a clause which stipulates:
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Companies or incorporated entities that had a turnover in excess of US$100,000 in their last fiscal year must use Unity Pro.
I find such clauses troubling. The idea I should have to be prepared to disclose my financial records to license something seems a little odd to me. If I start using a free license are they therefore able to demand I prove my turnover? It's also a poorly worded clause - you don't have to incorporate in many countries to be self-employed, whereas in the UK many freelancers/contractors set up companies due to the way tax works here. Any thoughts on such clauses? I've seen other engines say you must pay more IF you generate sales/profit greater than some amount, from USING the licensed technology and that seems more sensible.

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If you were to license a commercial engine (such as Quake, Unreal or Crytek), I am fairly sure that they would want access to your full financial status and business plan *before* they sold you the license.

As for Unity, I imagine that once you have an annual turnover in excess of $100,000, a few grand for Unity Pro licenses will seem like a drop in the bucket [smile]

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Original post by swiftcoderAs for Unity, I imagine that once you have an annual turnover in excess of $100,000, a few grand for Unity Pro licenses will seem like a drop in the bucket [smile]
Not really. Turnover != profit.

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Original post by JDXSolutions Ltd
The idea I should have to be prepared to disclose my financial records to license something seems a little odd to me. If I start using a free license are they therefore able to demand I prove my turnover?
If you don't like the terms of the license, don't use the product under those terms.

Many contracts allow audits of the books. It is a fairly standard thing to ensure that one side isn't cheating the other.

On the enforcement side of things, the company is very likely to enforce this clause unless you obviously fall outside the bounds.

Enforcement is expensive. If they had to take you to court over it then it would cost significantly more than the thousand dollar licence to the pro version. That means they will only enforce it in the courts if they can get more money out of the business for IP infringement of using the product improperly than the cost of the lawsuit.

In order for that to be true, the infringer would need to be making a significant amount of money.

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It's also a poorly worded clause - you don't have to incorporate in many countries to be self-employed, whereas in the UK many freelancers/contractors set up companies due to the way tax works here.
If you are making that much money in turnover from products using Unity, then you are obviously selling your game professionally. That amount of money is enough to hire one full time developer and have some money left over.

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Any thoughts on such clauses? I've seen other engines say you must pay more IF you generate sales/profit greater than some amount, from USING the licensed technology and that seems more sensible.
They can license it basically however they want. The very small fee they charge for the pro license is trivial (just 1% when you crossed over the $100K line) for any company who makes that much.

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Original post by frobOn the enforcement side of things, the company is very unlikely to enforce this clause unless you obviously fall outside the bounds.
Typo?

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They can license it basically however they want. The very small fee they charge for the pro license is trivial (just 1% when you crossed over the $100K line) for any company who makes that much.
Isn't it $1500 per developer? That's less trivial, especially if you're some kind of indie with several people working part-time.
I suppose if you don't EMPLOY developers but hire them as freelancers, each developer then only needs a license if they earn over $100k. The main company would still have to buy a license in order to build the code, but not one per dev.

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I haven't taken a look at the entire license for either Unity or Unity Pro, but generally speaking provisions like that are enforceable. While occasionally those provisions don't stand alone (they're typically attached to an audit/accounting clause), a stand alone provision prohibiting "professional" entities and commercial corporations from using the free version isn't unusual.

I assume that they use the incorporated entity/corporate status specifically to avoid including individuals, loose partnerships and unincorporated collaborations.

I wouldn't worry much about "disclosing financial records"; unless the license expressly requires disclosure or an audit it's more likely that the licensor will base the determination of enforceability by eyeballing and asking you. Generally you can't require a licensee to disclose proprietary information by implication in the contract language. The requirement of disclosure would likely need to be express.

Turnover's not the best word-- generally "net earnings" or "gross earnings" is more appropriate. But maybe they have something specific in mind.

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> If you don't like the terms of the license, don't use the product under those terms.

... or negotiate different terms. Some companies can bend the rules if you can agree to alternative terms (pr, demo at a trade show booth, logo on the box, etc). If that fails, then walk away. It means you're not considered as a good customer and it's likely they will treat you the same way once you start asking for support.

-cb

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I imagine Unity's EULA is as enforceable as any Open Source license (which Unity 2.6 of course includes more than a few open source programs) as they don't use traditional click-wrap "I Agree" button prior to download. I don't think they even require a user to review the EULA prior to download. However, they probably enforce their rights by limiting access to source code to Unity Pro licensees and requiring licensees to purchase upgrades in order to receive support. There might be some other good reasons for licensees to pay for the Unity Pro if they are capable of producing games that generate $100K/year, but the free license is just a loss leader to get developers comfortable working with their tools.

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Original post by d000hg
Turnover != profit.
Quite, but it doesn't affect the outcome as much as one might expect.

This problem only arises if the team turnover was under $100,000 last year (so that they used Unity free), and this year is over $100,000 (so that they need to upgrade). Now, either the team turned a profit last year, in which case increased cashflow allows them to afford the licenses easily, or they showed a loss last year, in which case increased cashflow minus license costs doesn't seem to make them any worse off.

I will end with the observation that for a team of 2+ people, $100,000 profit per year is barely making wages, and if you have significant costs taking a chunk out of that, you might as well be working the grocery checkout [wink]

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Quote:
Original post by swiftcoder
Quote:
Original post by d000hg
Turnover != profit.
Quite, but it doesn't affect the outcome as much as one might expect.

This problem only arises if the team turnover was under $100,000 last year (so that they used Unity free), and this year is over $100,000 (so that they need to upgrade). Now, either the team turned a profit last year, in which case increased cashflow allows them to afford the licenses easily, or they showed a loss last year, in which case increased cashflow minus license costs doesn't seem to make them any worse off.

I will end with the observation that for a team of 2+ people, $100,000 profit per year is barely making wages, and if you have significant costs taking a chunk out of that, you might as well be working the grocery checkout [wink]


shouldn't profit be calculated after overhead and costs(e.g. wages and expenses)?

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> This problem only arises if the team turnover was
> under $100,000 last year {...} and this year is over $100,000

If a potential customer straddles a contractual term over time then it's a risk that would need to be assessed by the licensor ahead of executing any contract. For the licensee, it's a matter of negotiating a deal that spans the lifetime of the ongoing projects rather than on wobbly financials.

My point is simple: ALL contracts are negotiable. It's a matter of sitting down with the licensor and comming with reasonable terms for both parties. If that isn't achievable, then find another licensor.

> $100,000 profit per year is barely making wages

Sorry for nit-picking, but let's get our accounting terminology straight here. Wages are expenses which are subtracted from income to make profits. Either you mean contribution margin or shareholder dividends, but it can't be wages.

-cb

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I don't see the big deal. If you're making $100,000 gross, even if 99% of that is going to costs, that means you're spending $99,000 per year on costs, and an additional $1,499 is a drop in the bucket - sure that might mean you've gone from making a $1,000 profit for the year to a $499 loss, but there's really not that much difference between the two in "real" terms.

Also, the cost of the Pro license is a one-off: you might lose $499 this year, but (assuming everything else is the same) you'll be back to $1,000 profit next year.

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Original post by cbenoi1
> $100,000 profit per year is barely making wages
Sorry for nit-picking, but let's get our accounting terminology straight here. Wages are expenses which are subtracted from income to make profits. Either you mean contribution margin or shareholder dividends, but it can't be wages.
Sure, my terminology was a little imprecise.

If you have a 2 man team, and you receive $100,000 revenue, split evenly between the two of you, that is $50,000 each, which amounts to roughly $25/hour. Split between a 3 man team, and you are down to $16.50/hour.

Now, I don't know about you guys, but I find that $35/hour is the low end for Java/web/database work, and $16.50 in no way pays the rent...

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Quote:
Original post by JDXSolutions Ltd
I find such clauses troubling. The idea I should have to be prepared to disclose my financial records to license something seems a little odd to me. If I start using a free license are they therefore able to demand I prove my turnover?


You seem to be troubled with the part that you have to disclose your financial records, more than the fact that there's a limit between Pro vs Free version.

Well, in most agreements you don't have to disclose your records, but you do have to show your Financial statement (particularly, that clause probably is interested in your income statement) but that doesn't mean they have actual access to every transaction you've made.
These are more or less the same requisites that you would need if you would like to a take somewhat significant loan in a bank.
They may require that your statements must be audited, such auditor would need to have access to your financial records but you're then protected by professional secret.
Furthermore, some countries force some companies that meet some criteria to perform their statements and make them public.

If you hide from them the fact that you have a turnover greater than $100.000 and they found out or have a strong suspicion, then they would evaluate if they decide to sue you, come to an agreement, or watch how the situation evolves, whatever costs them less.

Oh, and IANAL
Cheers
Dark Sylinc

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