TW Play - Guide to the Games and eGaming

Transcription

TW Play
A Guide to the Games
and eGaming Industries
A Guide to the Games
and eGaming Industries
Evolution in the industry
The Games industry has undergone an evolution in
the last decade. Major titles now eclipse blockbuster
Hollywood films both in terms of production costs and
profits. At the same time, new models have emerged,
with social games and the freemium model becoming
the default model for many publishers. The industry
has also been massively energised by the rapid growth
of app stores and mobile generally, with the ability to
reach players 24/7 driving new revenue models. In-game
purchases, and the growth of in-game currencies, have
brought new opportunities for publishers and developers.
The sector has also been consolidating, with 2014 seeing
over US$24 billion of game company exits including sales
and IPOs, some involving relatively young businesses
such as King and Mojang (the publisher of Minecraft).
The eGaming industry has also evolved and faced
significant market changes. Consolidation in the market,
regulatory action against some high profile brands,
diminishing margins and increasing player acquisition
costs have all impacted on profits. The introduction of
local licensing requirements in Europe has raised new
hurdles for operators at the same time as others have
been lowered in a selection of US States.
This Guide
We have monitored and commented on the challenges and
market developments in the Games and eGaming industries
in our regular email update TW Play. This first edition of
our TW Play Guide reflects in more detail our experience
in Games and eGaming and covers the key issues facing
businesses in these industries. This Guide should be of
interest to companies across Games and eGaming from
developers (including indies as well as larger businesses),
publishers (across all platforms from console to online), and
operators, as well as founders and investors.
As detailed at the back of this Guide, we have a strong
international team dedicated to Games with specialists
across the firm in each of the areas covered. We also
have a dedicated international team focusing on the
eGaming market, working with major operators, platforms
and developers. The section on eGaming addresses the
additional issues specific to the eGaming market.
If you would like to discuss any of the issues covered, or
receive our regular TW Play email updates, we would be
delighted to speak to you.
Key Contacts
Graham Hann
Partner
+44 (0)20 7300 4839
g.hann@taylorwessing.com
Mark Owen
Partner
+44 (0)20 7300 4884
m.owen@taylorwessing.com
Neil Hawley
Senior Associate
+44 (0)20 7300 4763
n.hawley@taylorwessing.com
Contents
Monetising games ..............................................................7
In-game purchases .......................................................... 15
In-game currencies .......................................................... 19
Raising finance for games .............................................. 23
Tax and tax breaks ...........................................................27
Game development projects ........................................... 31
Investing in a games business ....................................... 35
Advertising and promotions ............................................ 41
Prize competitions and lotteries .....................................47
Small print ........................................................................ 53
Protecting games – intellectual property issues ......... 59
Leveraging player data ....................................................67
Packaging and labelling requirements ............................77
eGaming ........................................................................... 83
About Taylor Wessing ..................................................... 92
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Over recent years, several models have evolved through
which to earn revenues from games. These include the
traditional boxed copies and ‘pay per download’ models,
in addition to the more recent (but now common)
use of in-game purchases and adverts. It is important
to consider the legal implications of the different
monetisation options as part of the development process.
Monetising games
Monetising games
Boxed copies and ‘pay per download’
With boxed copies and ‘pay per download’ games,
users make a one-off payment to play the game on
their device. The advantage is simplicity – the publisher
submits the game to the physical and/or online stores
which, in turn, make it available to users and pass the
revenues generated back to the publisher (minus a
revenue share).
The disadvantage is that once the publisher has received
the revenue for the game, the monetisation ends. In
addition, the fact that upfront charges often discourage
users means that developers frequently turn to other
monetisation models.
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Boxed games/‘pay per download’: what are the legal
issues?
This option works well for some publishers and, provided
the game complies with certain content requirements (and
labelling rules for boxed copies), the publisher has few legal
issues to consider. This is because the physical and/or online
stores (rather than the publisher) process the payments
from users and interface with them.
Nonetheless, it is useful to have terms and conditions
for the game (often referred to as an End User Licence
Agreement or EULA) to limit the publisher’s liability and to
inform users about what they can and cannot do with the
game – particularly important if it features user-generated
content. These terms and conditions should also contain
certain provisions mandated by the platform providers
under their agreements with the publishers.
In addition, the inclusion of a privacy policy is important
in order to assist the publisher in complying with data
protection laws. The policy should set out what the
developer will do with users’ personal data. More care needs
to be taken and, potentially, additional measures applied with
wider uses of data, particularly where players are more likely
to be children (see section on Leveraging Player Data).
If games are distributed outside the physical and/or online
stores, for example, on the publisher’s website, it is vital to
consider the practicalities of the strict consumer distance
selling laws. These require, (among other things) a refund
mechanism – a process that would normally be carried out
by the relevant app store.
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The use of in-game purchases is another monetisation
model that has become popular (and in social games,
almost universal where the freemium model has become
the main route to monitisation). This model involves the
sale of game play extras to users in order to add an extra
revenue stream. For example, the hugely popular app
game Candy Crush allows users to purchase boosters
such as ‘Coconut Wheels’ and ‘Lollipop Hammers’ which
each enable users to do something different in the game
to help them complete difficult levels.
Monetising games
In-game purchases
The advantage of using in-game purchases as a
monetisation model, as opposed to the boxed copies and
‘pay per download’ models, is that users are more inclined
to play free games. If they like them, they will tell their
friends, post positive reviews and then make in-game
purchases, or perhaps even purchase a boxed or ‘pay per
download’ version (the rationale behind so-called ‘lite’
app games).
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In-game purchases: what are the legal issues?
The use of in-game purchases, particularly in respect
of games which target children, could breach the
Consumer Protection from Unfair Trading Regulations
2008. The Office of Fair Trading, now the Competition
and Markets Authority, published guidelines on 30
January 2014, that list examples of behaviours that are
“more likely to comply” or “less likely to comply” with
consumer protection laws. In respect of adverts for
games that offer in-game purchases, the Advertising
Standards Authority has held that publishers must
be clear about what consumers can expect from the
free element and what impact failure to make in-game
purchases would have on gameplay.
Publishers are, therefore, advised to make it clear to
users before the point of purchase (as well as within
the game itself) the extent to which in-app purchases
are required to use the game or, alternatively, to explore
other monetisation models.
Subscription/pay-wall
The subscription monetisation model can be lucrative.
Publishers such as Blizzard (for example with its
game World of Warcraft) have released games where
users need to pay subscription fees to play them. The
advantage is that the subscription monetisation model
provides regular income for publishers, although it does
require investment to maintain high quality, fresh content
and compelling gameplay to retain user loyalty.
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If a publisher sells subscriptions direct to users, for
example, on its website, it is (again) important to
consider the practicalities of the strict consumer
distance selling laws.
Monetising games
Subscription/pay-wall: what are the legal issues?
In the context of app games, it is often the case that
publishers use the subscription monetisation model
to encourage users to subscribe on their website
(rather than on or via the app itself). This enables the
publisher to keep 100% of the subscription fees and
circumvent the revenue share taken by app stores.
Nonetheless, the app stores have strict rules which
form part of their agreements with publishers – for
example, if a publisher of apps on the iOS platform
allows users to subscribe outside the app, the same
(or better) subscription price must be offered inside
the apps. The use of links in the apps which allow
users to purchase content or subscriptions outside the
app is also forbidden, making the customer journey
somewhat counterintuitive and, perhaps, impacting
conversion rates. App stores will almost certainly
remove any apps which contravene the rules.
Advertising
Another option is to embed small banner ads and other
forms of advertising into games. In the context of
app games, for example, there are many different ad
networks to choose from including AdMob, Adfonic
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and BuzzCity. It is important for publishers to choose an
ad network (or number of ad networks) that suit their
requirements, target market, geography and budget. The
industry standard is for the publisher to be paid on a ‘cost
per click’ basis – this is where the advertiser pays for
each active response from a user to their adverts such as
clicking through a banner to the advertiser’s site.
The advantage is that the revenue generated from
integrated advertisements means that games can be
distributed for free which, in turn, can generate more
downloads and, consequently, more advertising revenue
for the publisher. This is the monetisation model in the ‘lite’
version of several app games such as Rovio’s Angry Birds.
Advertising: what are the legal issues?
The legal issues are similar to those in respect of ad
networks used on websites. It is advisable for app
game developers to check their agreements with
the ad networks to make sure that advertisements
appropriate for the app are served within it. The
ad network should be under an obligation to vet
the advertisements and not display advertisements
within the app from websites that, for example, sell
counterfeit goods or illegal services. The app developer
will often seek indemnities in case of third party claims
(although no legal contract will, of course, be able to
adequately compensate for serious reputational harm
to the publisher, nor for any criminal liability it might
face in extreme cases).
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Sponsorship, where a game is developed to generate
awareness of the sponsor’s brand, is a common
monetisation method for browser-based and app games.
The game publisher will often receive a contribution
towards the development costs at the start of the
project which ensures a profit before the app has even
been launched. In return, the developer features branding
opportunities within the game, often to the sponsor’s
specification. For example, H&M’s sponsorship of the
MyTown app game, enabled users who checked-in
to H&M stores to earn points that could be used to
purchase branded H&M virtual products in the game.
Monetising games
Sponsorship
Sponsorship: what are the legal issues?
It is important to have an agreement in place between
the publisher and the sponsor. This agreement should
make it clear who owns the intellectual property in
the game and to what extent each party can market/
advertise it (and develop sequels). The publisher and
sponsor also need to set out their respective payment
obligations clearly – the sponsor might pay a one-off
fixed fee or otherwise pay the publisher a revenue
share generated from sales through the game.
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The recent warnings about in-game purchases from
the regulators
The use of in-game purchases has become increasingly
popular. This monetisation model involves the sale of
game play extras to users in order to add an additional
revenue stream. For example, the hugely popular app
game Infinity Blade enables users to purchase swords
and other in-game items with real money for use in
virtual battles as they progress through the game.
In-game purchases
In-game purchases
Although games such as Infinity Blade are of most
appeal to adults, there has been a marked increase in
the number of games that use in-game purchases which
are targeted at children. Public awareness of the issue
has been raised by several high-profile news reports of
children who had spent a fortune on in-game purchases
– like the British child who spent £1,700 playing Zombies
vs Ninja and another who purchased £980 worth of
virtual donuts in The Simpsons: Tapped Out. The widely
reported settlement by Apple in the US has also fuelled
concern in many markets, causing regulators to sharpen
their teeth.
The Office of Fair Trading (now the Competition and
Markets Authority)
The Office of Fair Trading (OFT) responded to the
increase in public concern around in-game purchases and
announced in April 2013, its investigation into the ways in
which online and app games encourage children to make
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purchases. The OFT looked particularly at whether these
games include unlawful “...direct exhortations to children
- a strong encouragement to make a purchase, or to
do something that will necessitate making a purchase,
or to persuade their parents or other adults to make
a purchase for them.” This is unlawful under the UK’s
Consumer Protection from Unfair Trading Regulations
2008.
On completion of its investigation, the OFT published
guidelines which do not set out specific requirements,
but rather list examples of behaviours that are “more
likely to comply” or “less likely to comply” with consumer
protection laws.
The Advertising Standards Authority
In relation to how games are advertised/marketed, it is
the Advertising Standards Authority (ASA) which has the
power to examine the adverts for games and consider
whether or not they could mislead the public.
The ASA has stated that adverts for games should make
clear what consumers can expect from the free elements
and whether in-game purchases will have a significant
impact on gameplay (see section on Advertising and
promotions for more).
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Some game publishers have explored other, less
contentious in-app monetisation models. Blizzard, for
example, has adapted the traditional in-app purchase
model with its recent launch of a new Warcraft-themed
online game, where users purchase collectable cards
bought in shops. These cards are replicated in the online
game in which players battle with others, using the
spells and weapons from the collectable cards to help
defeat an opponent. Another example is the ‘toys-to-life’
concept where physical toys are recognised by games
consoles via Near Field Communication chips and then
replicated as a character within the game (Activision’s
Skylanders franchise is a leading example). These are
new approaches in an area where the law lags behind the
technology.
In-game purchases
Alternative approaches
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E-money
Financial regulation is not the most obvious issue in the
context of games, but publishers should be mindful of
inadvertently issuing ‘e-money’ to facilitate in-game
purchases. E-money is regulated throughout the EU under
the Electronic Money Directive (Directive) and requires,
among other things, that the issuer be authorised by its
national regulator (for example, the Financial Conduct
Authority in the UK), for funds to be safeguarded and for
the e-money to be redeemable on demand.
In-game currencies
In-game currencies
What is e-money?
E-money means any electronically stored monetary value
represented by a claim against its issuer which:

is issued on the receipt of funds for the purpose of
making payments; and

is accepted by someone who is not the issuer as a
valid means of paying for goods or services.
Typically, this could be relevant to any third party issuing
pre-paid vouchers or virtual ‘tokens’ that enable customers
to make in-game purchases. Having said that, many
businesses will fall within one of two exemptions under the
Directive:

the limited network exemption where the only goods or
services that can be purchased using the e-money fall
within a limited network (this would apply to a virtual
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currency that could be used among a small number of
publishers on a common platform); or

an exemption for purchases made through a digital
device for goods or services that are delivered to or
used through that IT device.
As always, the devil is in the detail and affected
businesses should seek professional advice to ensure
they are not carrying on regulated activities without the
requisite licence.
Summary:
�
issuing e-money is regulated throughout the EU;
�
third parties providing pre-paid methods to facilitate
in-game purchases may be issuing e-money; and
�
such businesses should carefully consider whether
exemptions are applicable.
Virtual currencies
Not to be confused with the regulation of issuing
e-money is the somewhat less regulated world of virtual
currencies (such as Bitcoin). Bitcoin, in particular, is
increasingly accepted by games businesses such as
Zynga, and Microsoft recently included it as a payment
option in its Xbox and Windows stores. Virtual currencies
have been getting a lot of media attention, not always
positive, which may scare off potential users. Any
business thinking of accepting virtual currencies must
consider how to manage risks including:
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theft;

fraud;

exchange or marketplace insolvency;

hacker attacks; and

money laundering,
In-game currencies

as well, of course, the risk of serious reputational damage
if things go wrong.
Along with the US and other jurisdictions, the UK
government has started to consider whether regulation is
necessary in this area and there is a risk that fragmented
regulatory and taxation frameworks could emerge.
Mainstream adoption is hindered by the overall lack
of certainty in core areas and, ultimately, we expect
legislation to harmonise requirements covering a range of
topics, such as:

refunds;

price guarantees;

complaint handling processes;

protection schemes; and

secure IT systems.
Publishers need to think about how they can design
systems to accept virtual currencies - and how to redeem
them – in an ever changing regulatory environment.
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General issues
Creating the next blockbuster game tends not to be
cheap. Some businesses ‘bootstrap’ and aim to survive
off revenue alone, but many seek external financing.
Raising finance for games
Businesses may consider:

Equity fundraising
Do shareholders want to dilute their control of a
company to raise funds, particularly when third party
investors are likely to have different motivations?

Debt financing
If a game is unpopular, revenues may not be as high
as expected and a company may be unable to repay
its debt. In a worst-case scenario, a company could be
placed in administration.
Publisher funding for the games industry
For many years, the games industry has relied on
publishers to fund developers. This has a number of
benefits:

security of funding as developers and publishers are
unlikely to terminate their agreements;

publishers support developers of all sizes; and

developers benefit from a close relationship with
publishers and this dilutes some of the risk associated
with taking a game to market.
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However, publisher funding is based on a ‘milestone’
system (i.e. funds are given when certain development
milestones are met) and this raises some concerns
including:

the risk that publishers have too great an impact on
creative decisions by setting the milestones;

milestones may constrain game development and
prevent exploration of different ideas; and

if milestones are not met, a developer may be unable
to pay for all expenditure, particularly payroll.
Alternative sources of finance
While publisher funding is the main source of financing,
there are alternatives available:

Bank lending
A small number of banks lend to developers and
publishers. Lending is usually structured by milestone
payments, as with publisher funding, but there are
likely to be fewer creative constraints. Banks tend to
lend against distribution and would require a guarantee
against the game being delivered to market.
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Project finance
Similar to film finance, investors lend against a particular
game and take a share in the revenue. In some
circumstances, games are grouped together (known as
“slate financing arrangements”) to mitigate the risk of a
particular game flopping.

Crowdfunding

A new funding source where a large number of people
invest in a project through an online platform. There
are various types of crowdfunding, but the gaming
industry may be interested in a royalty-based system
where investors give money in return for a fixed share of
revenue.
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Taxation of games businesses
Games businesses which trade in the UK and are
resident in the UK, or carry on their trade through a
UK permanent establishment, will generally be subject
to corporation tax in the UK on their trading profits.
Currently the UK’s main rate of corporation tax is 21%,
but from 1 April 2015, this will reduce to a top rate of
20%.
�
Certain regulated gaming activities may not
constitute a trade for UK tax purposes (see section
on eGaming).
�
Depending on the nature of the games-related
activities, businesses may also be subject to other
taxes.
Tax and tax breaks
Tax and tax breaks
Tax breaks for games businesses
The UK has a number of tax incentives and reliefs
which may assist game developers and publishers both
in securing investment (such as the Seed Enterprise
Investment Scheme (SEIS) and the Enterprise
Investment Scheme (EIS)), and also in developing
specific games products (such as the Video Games Tax
Relief and the Research and Development Tax Relief).

Seed Enterprise Investment Scheme
The SEIS provides generous tax incentives for UK tax
resident individuals who make equity investments in
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new (and often high-risk) startup businesses (such as
developers or publishers) by subscribing for new ordinary
shares. A company may raise up to £150,000 under the
SEIS. Tax relief is available in relation to income tax and
capital gains tax (CGT) subject to time limits and meeting
the qualifying criteria for an investor or company.

Enterprise Investment Scheme
For larger or more established games businesses which do
not meet the requirements for SEIS, EIS may be available.
This is similar in structure to SEIS – providing income tax
and CGT reliefs for UK tax resident individual investors
who subscribe in cash for ordinary shares in qualifying
companies. A company may raise up to £5m a year under
the EIS. This limit is aggregated with investments under
the Venture Capital Trust Scheme and other notified
State Aid received by the company.
For businesses which have already raised funds under the
SEIS, a further EIS investment can only qualify for EIS
relief once at least 70% of the SEIS monies have been
spent on the company’s qualifying activity.
Again, time limits need to be observed and qualifying
criteria need to be met.

Video Games Tax Relief
The UK’s Video Games Tax Relief provides tax relief to
incentivise the production of “culturally British” video
games in the UK. It should, however, be noted that the
Video Games Tax Relief will not be available to developers
of regulated gaming (i.e. eGaming/gambling) products.
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Tax and tax breaks
Relief is potentially available for a wide range of “video
games”, including games developed for consoles,
computers and apps. To qualify for relief, games must
meet a number of qualifying conditions including that they
are developed for commercial exploitation.
The relief is given through the UK corporation tax system
so it is only available to UK tax resident companies or
non-UK resident companies which have a UK permanent
establishment.

Research and Development Tax Relief
The UK offers specific incentives through the tax
system to encourage UK resident companies, and nonUK resident companies which have a UK permanent
establishment (e.g. a branch or an agency), to undertake
innovative research and development projects in the UK.
Research and development is widely drawn and can
encompass the development of games and games
platforms. The key point is that to qualify as research
and development, the project must seek to achieve
an advance in science and technology or address
technological or scientific uncertainties and be related to a
trade that is, or will be, carried on by the company.
The amount of relief available will depend on which of
the two research and development relief schemes the
company qualifies under: the SME scheme or the larger
company scheme.
Claims for relief under either scheme are made in the
company’s UK corporation tax return and must be made
within two years of the end of the company’s accounting
period in which the expenditure was incurred.
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In some ways, developing a game is no different to any
other software development project. When appointing
the developer, general issues to be considered at the
outset include:

agreeing whether it is a fixed price or time and
materials project;

agreeing the manner and timing by which the
specifications of the game are agreed and captured;

deciding on the overall project timetable;

agreeing who owns the intellectual property rights
created (especially if pre-existing software and/or
open source software is being used); and

price and liability issues.
Game development
Game development
projects
In addition, there are a number of issues which are
particularly relevant to games:

Compliance with the terms imposed by third parties
Some platform providers (i.e. console manufacturers
and app stores) are more prescriptive than others (for
example, Apple’s terms are more prescriptive than
Google’s). Even where there is no direct contractual
relationship between the developer and platform
provider, the specifications in the development
agreement often require the developer (and the game
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itself) to comply with such platform terms. Given these
are not always publically and freely available and the
platform provider reserves the right to change its terms
at will, it can be difficult for the game developer to
ensure compliance. At the least, though, current terms
should be tracked down and requirements factored into
the development of the game.

Acceptance
Publishers will often want final acceptance to take place
only after certain platform providers have agreed to list
the game. This is something game developers ultimately
have no control over so they will want a different
milestone for acceptance, for example, once the game
has met the specification.

Support and maintenance
Publishers may want the developer to agree to support
the game and provide updates once it has been
accepted by the platform provider(s). Again, the game
developer should lobby for acceptance of updates to be
unconnected to any action or inaction by the platform
provider(s) if it agrees to take on ongoing responsibilities.

Scope of any licences granted and restrictions on use
The parties should decide whether the source code is
being given to the publisher, especially if the publisher
needs to undertake support and maintenance itself.
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Royalties
In addition to payment for developing the game, the
parties will need to agree what, if any, royalties received
on the profit generated from the exploitation of the
game should be paid to the developer.

Game development

Rights of first negotiation and last refusal (with the
publisher) on future games
Publishers may request these rights but a game
developer should be careful about agreeing to any kind
of exclusivity option.
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34 |
The UK games market has seen a number of high profile
exits in the last few years at valuations that have caught
the attention of investors not only in the UK but also,
increasingly, from overseas, including private investors
and venture capital firms from the US. This has bolstered
the UK market as it continues to compete with the
traditional tech strongholds like Silicon Valley for funding
opportunities.
Investing in a games business
Investing in a games
business
Funding
A games business, like any technology business, will
require funding to fuel its growth cycle as it aims to
achieve international expansion and potential exit (usually
by trade sale or IPO). Along this journey the business
might expect to start with seed money from family and
friends when bootstrapping isn’t enough, then perhaps
angels for initial outside capital, before pitching to VCs
and institutional money when looking for larger rounds
at higher valuations to achieve the blockbuster exit all
founders are chasing.
Once a developer or publisher takes outside investment,
the founder team will need to walk the tightrope of
managing the business, keeping investors happy and
looking for the next funding round, while all the time
building the company, its titles and achieving a critical
mass of players.
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Typical investment structures
Incoming investors will typically subscribe for shares
in the business and, at the same time, enter into a
shareholders’ agreement to govern the relationship
between the shareholders and the ongoing running
of the business. Convertible debt is another common
method used to invest, although this is less popular for
early stage businesses as this structure doesn’t generally
work for SEIS tax relief (see section on Tax and tax
breaks). The parties are free to negotiate the terms of
the investment and all manner of complexity can be
built to achieve particular objectives or protect certain
interests, however, simplicity is usually the best course of
action.
Typical issues to consider on investment:

Diligence
When investing in a games business, the key assets are
likely to comprise intellectual property (IP) and, possibly,
player data. Ensuring that the business actually owns or
has the right to use the IP that is central to its titles or
platform is key – this could mean code itself but also,
possibly, brands and images licensed in from third parties.
The right to leverage player data will also be key to value
and an investor will carefully examine the privacy policies
used by the business as well as its notification and general
compliance under the Data Protection Act 1998 (see
section on Leveraging Player Data).
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Structure
Corporate diligence is also necessary to confirm the
actual ownership of the company and that there are no
legacy disputes between the shareholders or third parties
(such as employees, consultants or developers) regarding
their equity stake in the business, for example, claiming
they were promised shares for the development of game
concepts, code or other IP.
The specific terms of the investment should always
factor in tax advice at a personal level for the investor. As
described in the section on Tax and tax breaks, SEIS and
EIS relief are very attractive to UK investors but where
there are foreign-based investors, corporate investors
or offshore structures, their circumstances need to be
weighed against those of the existing shareholders and
co-investors. Keeping an eye on the exit event is also key to
ensure that any eligibility requirements are not overlooked
when negotiating the investment terms.

Overseas investors
Investors will invariably invest in the parent company if
there are subsidiaries in other jurisdictions. For games
businesses that were founded outside the UK, but which
wish to attract UK investors, an investment round is often
the time to restructure by interposing a new UK holding
company. While the same position used to hold in the
US (US investors requiring a US holding company), it is
becoming increasingly common for US investors to invest
directly in a UK games business rather than requiring a ‘flip’
to the US.
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Care is needed when investing in companies that started
in less familiar jurisdictions. The diligence matters described
above will be crucial as each country will have its own laws,
for example, around IP ownership.

Minority rights
When negotiating any investment agreement, a key point
will be control and decision making. This can be cut many
ways but once there are multiple shareholders, it is likely
that a concept of an ‘investor consent’ will be used to
act as a check on the company, in addition to protections
baked into the company’s articles of association. For
example, investors will want to ensure that pre-emption
rights will apply on new funding rounds to avoid dilution of
their shareholdings (usually on the basis that each investor
would need to participate to follow their money). “Dragalong” and “tag-along” rights are also often used to enforce
a sale once the requisite majority is met and to ensure
minorities are not left behind.

Vesting and employment
Investors might be investing in a games business largely
because of the calibre of the management team. Provisions
that make the founders’ shares subject to staged vesting
provide a neat way to ensure that the founders actually
“earn” their shares and don’t walk away. The use of “good
leaver” and “bad leaver” concepts add a layer of complexity
but are a helpful way to ensure fairness (although what is
fair is likely to be viewed differently by management and
investor).
38 |

Options
Ensuring the management have suitable employment
contracts is important to make leaver provisions workable
and, therefore, an investment round is generally a
good time to regularise employee terms and set salary
expectations. An investor will also want to make sure that
the management/founders are subject to appropriate noncompete restrictions in the market.
The term sheet for an investment will likely include an
agreed option pool allocation. Options, and particularly the
tax favourable Enterprise Management Incentive (EMI)
options, are a great way to incentivise employees and
attract new hires. Advice is needed to make sure any option
grants are carried out properly and that the company is in
full compliance to ensure both talent and company achieve
the planned tax treatment.
| 39
40 |
Advertising can prove to be a major source of revenue
for many games businesses. Streams of advertising
in the games sector include product advertising,
advergames, online and app games.
In general terms, a distinction can be made between
two types of in-game advertising:

static in-game advertising, where the advertising is
permanently integrated into the game in a format
that does not change; and

dynamic game advertising where the advertising is
only temporarily inserted into the game. An example
of this would be in football/soccer games where the
perimeter advertising in a virtual football stadium
advertises products from a different company each
week.
Advertising games and promotions
Advertising and
promotions
How is advertising regulated?
In the UK, the Advertising Standards Authority (ASA)
is the independent regulator of advertisements across
many different media and sectors. Advertisements and
marketing communications for (or within) games will
fall within the remit of the UK Code of Non-broadcast
Advertising, Sales Promotion and Direct Marketing
(CAP Code) or the UK Code of Broadcast Advertising
(BCAP), which are both enforced by the ASA. For
| 41
example, in July 2014, the ASA published its adjudication
on certain marketing communications for the app game
Dungeon Keeper. It held that there was misleading
advertising because the description of the app omitted
significant information about the impact failure to make
in-game purchases would have on player experience.
As such, there had been a breach of the CAP Code.
The central principle of the CAP and BCAP Codes is
that marketing communications should be legal, decent,
honest and truthful. They must be prepared with a
sense of responsibility to consumers and society and
must respect principles of fair competition generally
accepted in business.
Advergames
Advergames are also governed by the CAP Code. The
Committee of Advertising Practice describes advergames
to be games which are typically used to advertise a
product, brand or organisation and are:

accessible on:

social media sites; or

companies’ own websites; or
downloadable content or apps on mobile devices,
which are directly connected with the supply or transfer
of goods, services, opportunities and gifts.
42 |
Online and mobile
Advertisements and marketing communications in online
and app games are also governed by the CAP Code (see
above).
Advergames must be identifiable to consumers as such
under the CAP Code. The ASA will consider as relevant
the context in which the game is made available, any
references to the product, brand or organisation in or
around the game, and the target audience.
Particular care is needed in relation to advertising
which targets or is likely to be accessed by children.
Following an investigation into market practice, the
Office of Fair Trading (OFT) (now the Competition and
Markets Authority) published a list of eight principles to
help online and app game publishers abide by the UK’s
consumer protection laws.
| 43
44 |
�
cost information and other material information
about a game or the game publisher should be
provided clearly, accurately and prominently upfront,
before the consumer plays, downloads or signs up
to the game;
�
the commercial intent of any in-game promotion of
paid-for content, or promotion of any other product
or service, should be clear and distinguishable from
gameplay;
�
games should not include practices that are
aggressive or which otherwise have the potential to
exploit a child’s inherent inexperience, vulnerability
or credulity to place undue influence or pressure on
a child to make a purchase;
�
a game should not include direct exhortations to
children to make a purchase or persuade others to
make purchases for them; and
�
payments should not be taken from the payment
account holder unless expressly authorised.
The key OFT principles for online and app games
include:
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46 |
Games often take the form of prize competitions or
draws. Both carry the risk of being caught by the
Gambling Act 2005 (Act) commonly as a lottery (see
section on eGaming). Therefore, it is important to
structure them so that they do not fall within the
definition of a “lottery” – these are illegal under the Act
unless the organiser has an operating licence or falls into
one of the (very limited) exemptions.
Prize competitions and lotteries
Prize competitions and
lotteries
A prize contest will not be deemed a lottery if it satisfies
the “skill” requirement (see below) or if there is no
payment requirement to enter.
“Skill” requirement
Under the Act, the “skill” requirement is satisfied if the
prize contest contains a requirement to exercise skill
or judgment or to display knowledge and where it can
reasonably be expected that the requirement:

prevents either a significant proportion of potential
participants from entering; or

prevents a significant proportion of entrants from
receiving a prize.
If questions are too simple to deter a significant
proportion of potential participants, or to eliminate a
significant proportion of entrants, they will fail the “skill”
requirement. The Gambling Commission (the regulator
| 47
for the gambling industry) has given the following
advice:
“The more questions or clues that have to be solved,
or the more obscure or specialist the subject, the more
likely it is that application of the statutory test leads to
the conclusion that the competition is not a lottery.”
A question such as “In what country would you find
London?” would almost certainly be deemed too simple.
The Gambling Commission has not, however, issued
guidance on what would be deemed a “significant
proportion”, apart from that the expression should be
given “its ordinary, natural meaning”.
Free to enter
If a prize contest does not meet the “skill” requirement,
it will be a lottery unless:

no payment is required to enter (whether this is to
participate in the competition, or to establish you
have won, or to collect a prize); or

there is an alternative free method of entry.
The Act states that “payment” includes paying money
or paying more for something to reflect the opportunity
to enter the prize contest. Therefore, if promotional and
non-promotional packs of a product (say a boxed video
game) cost the same, there will be no payment.
Even if there is a paid route to enter, a competition will
be treated as free to enter if there is an alternative free
entry method, provided that:
48 |
the alternative method is a letter sent by ordinary
post or some other form of communication which is
neither more expensive nor less convenient than the
paid-for method;

the choice is publicised in such a way as to be likely
to come to the attention of all those who propose to
participate; and

the system used to allocate prizes does not differ
between the two entry routes.

Consequences of running an illegal lottery
An individual or business involved in promoting or
facilitating an illegal lottery (which includes a contest
which is, in fact, a lottery) is guilty of a criminal offence
under Part 11 of the Act, and, on conviction, is liable to
a fine of up to £5,000 and/or imprisonment for up to 51
weeks (England and Wales) or six months (Scotland).
These sanctions are, of course, a worst-case scenario,
but the bad publicity that could result from running a
contest which is deemed to be an illegal lottery could be
substantial.
CAP Code on prize contests
All prize contests must comply with the requirement
of the UK Code of Non-broadcast Advertising, Sales
Promotion and Direct Marketing (CAP Code). It sets
out certain additional rules. The CAP Code applies to all
marketing communications in print, cinema and video, as
well as online advertising in paid-for space. It does not
apply to broadcast commercials which are subject to the
| 49
UK Code of Broadcast Advertising or Radio Advertising
Standards Code, or to the content of premium rate
telephone services which is regulated by PhonepayPlus.
As well as the general principles that require
advertisements to be legal, decent, honest and truthful,
the CAP Code requires certain information to be given
to consumers before or at the time of entry into the
prize contest. That information includes:
50 |
�
how to participate;
�
free-entry route explanation;
�
start and closing dates;
�
proof of purchase;
�
prizes and gifts;
�
restrictions;
�
availability;
�
promoter’s name and address;
�
any restriction on the number of entries;
�
whether the promoter may substitute a cash
alternative for any prize;
�
if more than 30 days after the closing date, the date
by which winners will receive their prizes;
�
how and when winners will be notified of results;
�
how and when information about winners and
results will be made available;
in a competition, the criteria and mechanism for
judging entries (for example, the most apt and
original tiebreaker);
�
if relevant, who owns the copyright of the entries;
�
if applicable, how the promoter will return entries;
and
�
any intention to use winners in post-event publicity.
�
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52 |
Terms and conditions form a contract between the games
publisher and the player. They deal with the conditions on
which the game is supplied, limit the publisher’s liability
and cover data protection and consumer protection
compliance, and may also deal with regulatory issues
around in-game currencies. There are a number of
challenges with providing the required information in such
a way that it is legally binding, particularly when a game is
being supplied on a small screen.
Small print
Small print
Game publishers will need to ensure they have the
following:

End User Licence Agreement (EULA)
The EULA is a contract with the players setting out
rules on how they may use the game together with
other provisions covering things like the publisher’s
liability, intellectual property and rules on user-generated
content. In the context of app games, publishers often
rely on a default EULA, such as the ones provided by
Apple and Google, rather than supplying their own.
This can, however, leave them exposed as these types
of agreement are geared more towards protecting the
platform provider than the game publisher.

Privacy and cookies policy
The processing of personal data and the placing of
cookies on devices are regulated. Publishers will need
to include privacy policies and a cookie policy (if using
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cookies) to explain to players what is happening to any
personal data they provide, to explain what cookies are
being dropped and to get user consent where required.
Many games collect and process personal information.
Some of this will fall into categories of information that
are considered “sensitive” and which need additional
security if processed, for example, login credentials,
registration and financial information (see the section on
Leveraging Player Data for more detail).
Particular consideration should be given to the following
issues:

Consumer protection rules
Another heavily regulated area is consumer protection.
New rules require providers of downloadable digital
content to get the user to specifically acknowledge that
it has been supplied to them and that this voids their
cancellation right (otherwise standard cancellation rights
will apply). Consumer rules also require certain specific
information to be provided to players at various stages of
any purchasing process.

In-game purchases
It is very important to make it clear to players at the
outset if in-game purchases are available, all the more
so if game experience depends on making them. In
addition, particular care must be given when explaining
this if the game is directed at children. Being upfront
and transparent is key (see section on Advertising and
promotions for more detail).
54 |
In-game currency
As covered previously, in-game currencies may raise
regulatory issues and the terms and conditions will need
to adequately reflect these.

Small print

Enforceability
It is not enough to have terms and conditions buried
somewhere deep in the game. Players need to be
presented with clear terms and conditions at the right
time in the process if the terms are to be enforceable. An
example of where this is particularly important is when
capturing consent both to the EULA and to the privacy
and cookies policies.
Depending on the way the game is distributed, there
will be different appropriate ways of making sure terms
and conditions are enforceable and that user consent is
obtained. Where boxed copies of console games are sold,
the traditional ‘shrink wrap’ approach where the small
print is available within the box remains common. In other
situations, the ideal way to do achieve enforceability is to
present the various terms and conditions at the outset
and provide acceptance tick boxes. This is not always
practical, particularly on small screens and consumer law
does provide that, where there is limited space to display
all the required information, only certain details (such as
the price of the game or the cost of in-game purchases)
must be provided upfront with the rest of the information
supplied in “another appropriate way”, for example
through a link to a web page.
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Where space is limited, a cautious but pragmatic
approach is often for the game provider to:
�
have its own EULA (rather than any default version
from the relevant app store) and privacy policy;
�
make both sets of terms available via a link on the
download page (clearly entitled “End User Licence
Agreement” or, better still, “End User Licence
Agreement - Please read”); and
�
include appropriate wording to obtain agreement
from the player.
Certain information disclosure requirements as part of
the purchase process for games or in-game purchases
fall squarely within the remit of the platform providers
like Apple with its App Store and Valve with its Steam
Store, rather than the publishers. This is because it is the
platform providers which process the payments from
players and interface with them rather than the game
publisher.
56 |
Small print
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58 |
What is protected?
The main forms of intellectual property rights (IPRs) and
protection for games in the UK are:
Form of
protection
Examples of what can be protected
Registered
trade marks
Brand name, business name, logo and
product name (but also potentially
packaging, colours and shapes).
Rights in
passing off
Brand name, goodwill and reputation,
including packaging.
Protecting games - intellectual property issues
Protecting games –
intellectual property issues
Copyright and Text, images and graphics, films and
database rights music. Aspects of software may be
protected by copyright in certain
circumstances. Consumer and sales
data may be protectable via the
database right.
Patents
Traditionally, “inventions”, which
means it is difficult, although not
impossible, to protect games using
patents (but well-known titles such
as Fifa incorporate patented onscreen elements).
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Who owns the IPRs?
In the UK, in most (but not all) cases, IPRs developed
employees in the course of their employment will be
automatically owned by the employer. However, when
outside consultants are used, a signed contract is needed
to transfer ownership to the business. It is best practice
to have signed contracts in place with employees and
consultants alike, which expressly state that any IPRs
created are automatically assigned. Crucially, developers
will own the IPRs in games unless they assign them
formally to publishers.
Can IPRs help in the fight against piracy?
Piracy is an issue routinely faced by publishers. There are
legal solutions for publishers including:

litigation can be used against individuals and websites
that encourage and commit video game piracy;

individuals can also be found guilty of copyright
infringement for selling modchips that enable pirated
games to be played; and

publishers may be able to take legal action for trade
mark infringement where their registered trade mark,
or a mark confusingly similar, is used in the game or
on its packaging. Even where a brand name is not
registered, there may still be some protection under
the action of “passing off”.
While litigation can be an expensive and resource-intense
process, there are a growing number of avenues for
obtaining targeted remedies or going down a cheaper
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site blocking orders granted against ISPs to block
access to websites which carry infringing content;

ISPs cooperating with copyright holders to shut down
illegal sites;

four major ISPs and rights holders groups have also
established the Creative Content UK alert programme
under which ISPs will send a series of warning letters
to subscribers whose accounts are used for infringing
copyright. This has become a relatively inexpensive
and effective method of tackling some forms of piracy.
Clone or copyright?
route through the UK courts including:
Clones (i.e. games intended to be very similar to, or
heavily inspired by, a previous popular game or series)
have been a feature of the games industry since the first
games were produced over thirty years ago. There is a
line between cloning and copying, and it is copyright law’s
job to identify where it is.
A game is likely to be a clone (and thus infringing IPRs) if
it comes too close to the original, for example by:

taking too much of the detailed expression of the
concepts, ideas and appearance of the original and its
narrative; or

if the name of the clone and/or the way it is
marketed misleadingly present the clone as being
associated or connected with the original (e.g. a
version of the same game for a different platform).
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Relevant copyright works include images and graphics
featured in a game, the overall look and feel of the game,
audio and any text used. How far those various copyright
works go to protect the original will depend on how close
they are to the original and what parts of those works
the clone reproduces. If the games simply play in a similar
way, this may not amount to infringement, and nor is
there any monopoly over subject matter, such as a rally
driving or golf game.
Registered trade marks
Business trading names, brands, product names, logos,
shapes and even sounds and colours can all be protected
by registering them as a trade mark. Trade marks for
elements of a game such as character or level names,
and/or images of characters, may also be obtainable.
Trade marks must be registered for specific goods and/or
services. A trade mark registered for one area of use (e.g.
games), will not necessarily be protected in other areas of
use (e.g. clothing or toys) under the same brand. However,
speculative registration may not be advisable as a registered
trade mark which is unused within a certain period of time
may be vulnerable to being cancelled for non-use.
Trade marks can be registered on a national basis or by
a single registration covering the entire EU (Community
Trade Mark). A benefit of the Community Trade Mark is
that it can give indefinite protection in all Member States
of the EU, without having to use it in all of them – use in
even one country is potentially sufficient to maintain the
registration.
62 |
Trading under a brand name that is not registered may
still attract some protection through the rights under the
law of passing off. To establish passing off, it is necessary
to show:

goodwill or reputation attached to the brand or game;

that a third party has tried to pass off its brand or
game as yours, and that this is likely to lead the public
to believe its brand or game is yours; and

that as a result, your brand or game has suffered.
Enforcing rights under a passing off action is usually more
expensive than enforcing rights under a registered trade
mark because of the need to submit evidence of goodwill
and confusion amongst players.
Unregistered brands
Patents protection
Patents are IPRs which are granted for inventions
which are technical. In Europe and the UK, patents
are granted for inventions which are new and which
are inventive compared to technology which has gone
before (known as prior art). They must also be capable
of industrial application and the invention must not fall
within a category of subject matter excluded by statute
from patentability. Excluded subject matter is considered
further below.
A patent is a monopoly right granted in a particular
territory (or territories) which generally lasts 20 years.
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Patentability of games
Patents in Europe and the UK are not available to
protect computer programs, mathematical methods or
algorithms as such. Nor are they available for rules and
methods for performing mental acts, playing games
or doing business. All of these are excluded from
patentability by statute. However, technical inventions
which are nevertheless implemented by computer
software are protectable by patents.
Some patents have been granted in Europe which
protect games in their capacity as software-implemented
inventions. Since patents are granted separately in each
country, whether a software-implemented invention can
or cannot be covered by a patent is dependent upon the
country in which that right is sought.
A software-based invention which would not be
patentable in Europe might be protectable in the US by
a US patent because the exclusion from patentability
for software is narrower in the US than in Europe. There
are, therefore, vastly more patents granted in the US in
relation to games than there are in Europe and the UK.

US patents in games
There are many examples of patents and patent
applications covering aspects of games and, for the
reasons discussed, these are substantially in the
US rather than in Europe. For example, US patents
have been granted in relation to chat capabilities
for multiplayer gaming, game-based incentives for
64 |
commerce, and virtual currency management. Again,
many relevant patents are not directed at games alone
and patents applying more generally to social networks
and to e-commerce may, in fact, also be applicable to
games.
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66 |
Privacy and data protection
The value of player data has soared and publishers
collect, use and share information on a significant scale
across an increasingly connected network of devices and
players. The type of data collected may include personal
contact details, certain device information and details
obtained from gameplay and tracking online habits.
When games are played in the Cloud, allowing players
to switch seamlessly between devices mid-game, the
amount of data collected increases further. The ability to
consume, analyse and utilise this data brings enhanced
value to businesses and convenience to players but also,
inevitably, raises privacy concerns as much of this data
will be personal data, the collection and use of which is
regulated.
Leveraging player data
It is important for businesses in the games industry to
ensure privacy compliance, not only to comply with legal
obligations, but also to build and maintain player trust
and protect investor value. Non-compliance can trigger
negative PR, brand damage and regulator enforcement
(including prosecution and, in the case of serious
breaches, fines). Data losses can also generate headlines
in the mainstream press, as we saw with Sony.
| 67
Key legal considerations:

Transparency about data use
It is essential to be upfront with players about what
personal data is being collected and what it is being used
for, including whether it is being shared with third parties
or transferred out of Europe. This is usually done in a
privacy and cookies policy (see below).

Valid player consent
In many cases it is likely that consent will be needed
to justify the use of players’ personal data. Publishers
will need to consider how to achieve this effectively,
particularly in games targeted at children where it
is necessary to show that the player is capable of
understanding what is being asked of them.

Notification to the ICO
Most publishers will need to notify the Information
Commissioner’s Office (ICO) of the personal data which
is being collected and used, and who it is being shared
with. Failure to do so where required is a criminal offence.

Transferring personal data outside Europe
A publisher will need to take one of a number of
possible compliance steps to ensure the personal data
is protected if it is transferred outside Europe. This can
include using EU-approved ‘model clauses’ or getting
approval to the transfer from the ICO.
68 |
Security
Data risks must be assessed and reviewed on an
ongoing basis. Failure to address these risks can attract
harsh penalties and reputational damage.

Social media policy

Interaction with social media companies should be
carefully considered to ensure that players are explicitly
informed about which parties will access their data,
what parts of the data will be used by each party and
for what purpose. While this is a consideration for
social media companies, it should also be reflected in
the approach to privacy by games businesses. A more
detailed analysis is necessary when collaborating further
with a social media company to ensure there is no
breach of relevant data protection laws, for example,
where players are pre-identified as those who have a
social media account for targeting purposes and for
further profiling of individuals through increased data
sharing.
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Fundamentals to include in a privacy and cookies
policy:
�
details of the organisation in control of the data
being processed (usually but not always the
publisher);
�
type of data that is collected;
�
cookies description (see below);
�
use of collected data;
�
whether the data will be shared with third parties
and, where possible, their names;
�
child safety provisions;
�
reference to any external links included on the
website;
�
security measures in place to attempt to protect
against the loss, misuse and alteration of personal
data collected;
�
where collected data is stored;
�
rights of the individual whose data is collected; and
�
an appropriate contact point.
Upcoming changes: new data protection Regulation
The European data protection landscape is in the process
of being updated, so publishers should keep a close
watch on developments in order to prepare for likely
changes (particularly US publishers who may not have
been previously caught by new laws). Current proposals
70 |
Cookies
Almost all publishers and games will use cookies of some
kind to support a wide range of services and functions.
The use of cookies is governed by EU law and a cookie
policy is required to set out what cookies are used and
what they are used for.
contemplate the introduction of significant fines based
on global turnover, elevating data protection laws to the
level of anti-trust/competition laws in terms of penalties.
Prior consent to the use of cookies is needed from
players if they are being used for any purpose other than
one which is “strictly necessary” for a service requested
by a player. While the interpretation of “prior consent”
varies across Europe, industry practice in the UK and
some other markets is to use a prominent pop-up or
banner to achieve this.
Regulators across Europe are paying an increasing
amount of attention to cookie compliance and can
impose significant sanctions for breach.
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Cookie review:
�
identify the cookies used;
�
assess how intrusive those cookies are;
�
implement the most appropriate way of obtaining
the player’s consent to those cookies;
�
prior consent should be obtained through a
communication with the individual so that their
action knowingly indicates their agreement to
receiving cookies; and
�
this action should happen (wherever possible)
before the cookie is set (but is only needed the first
time the cookie is set).
Marketing
Another regulated area is the use of marketing
communications, particularly where they are unsolicited
and, again, player consent to send these is needed. In
essence, a positive action is required by the player and
best practice is to use an opt-in box. Consent must
be opt-in where a third party is sending the marketing
communication and the third party should also be named
in the opt-in language if possible. Opt-in consent is also
required where the communication relates to different
products or services to those already being provided to a
player (i.e. cross-selling). It is also important to include an
‘unsubscribe’ option in all marketing communications and
to operate a ‘suppression’ list to ensure those players that
opt-out are not marketed to again. There is also a public
72 |
Mobile games
App games can gather large amounts of data from
player devices and it can be challenging to achieve data
protection compliance in an app-friendly manner.
register, the Email Preference Service, which must be
checked regularly to catch any players who have opted
out through that route.
The key to ensuring data protection compliance in apps
is addressing privacy issues at the development stage
as, typically, this is where it is decided both how personal
data of players will be collected and how information
will be presented to players. EU regulators highlight that
other stakeholders including app stores, OS providers,
device manufacturers and other relevant third parties
must also address privacy concerns in relation to apps.
| 73
74 |
�
name the organisation which is responsible for and
makes decisions about data and where it is based
(with contact details);
�
explain in clear language the features of the game,
what data will be accessed, by whom and how it will
be used or shared;
�
empower a player to: (i) consent to or reject the
download of the game; (ii) distinguish between
different data sets the app will access; and (iii)
consent to different proposed uses of data;
�
highlight the use of device features and app-derived
data;
�
make the privacy and cookies policy available at
download via the app store and within the game;
�
set out how long their data will be collected for;
�
build in security features at the design stage;
�
replace device identifiers with app-specific or
temporary identifiers to avoid tracking players or
wider distribution of data; and
�
conduct ongoing privacy and security resilience
testing.
Top privacy tips for mobile games:
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76 |
PEGI
Historically, the games industry was subject to a
patchwork quilt of age rating systems across different
markets. Since 2012, all games sold in the UK are
regulated under the Pan European Game Information
System (PEGI). As its name suggests, PEGI is used and
recognised throughout Europe. Whilst PEGI is a selfregulatory members’ organisation, it covers every game
for the Microsoft, Nintendo and Sony games consoles as
well as most PC games. Selling a game to an under-age
customer can constitute criminal offences for retailers
in some countries, and retailers universally require the
products they sell to be labelled by PEGI.
Packaging and labelling requirements
Packaging and labelling
requirements
PEGI is based on five age categories and eight content
descriptors that advise the suitability and content of a
game for a certain age range based on the games content
(not on the level of skill required). For boxed games, the
age labels should appear on the front of the box with the
descriptor labels generally appearing on the back (their
purpose being to illustrate the key reasons why the game
has been classified in a certain age category). Games are
rated by the UK based Games Rating Authority (for labels
12, 16 and 18) and by NICAM in the Netherlands for ages
3 and 7. Publishers submit their own online declaration as
a basis for the rating of the content of the game.
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Age labels:
The game is suitable for all age groups. Some violence
in a comical context is acceptable however the child
should not be able to associate the character on the
screen with real life characters, they should be totally
fantasy. The game should not contain any sounds
or pictures that are likely to scare or frighten young
children. No bad language should be heard.
Any game that would normally be rated at 3 but
contains some possibly frightening scenes or sounds
may be considered suitable in this category.
Videogames that show violence of a slightly more
graphic nature towards fantasy character and/or non
graphic violence towards human-looking characters or
recognisable animals, as well as videogames that show
nudity of a slightly more graphic nature would fall in
this age category. Any bad language in this category
must be mild and fall short of sexual expletives
This rating is applied once the depiction of violence (or
sexual activity) reaches a stage that looks the same
as would be expected in real life. More extreme bad
language, the concept of the use of tobacco and drugs
and the depiction of criminal activities can be content
of games that are rated 16.
The adult classification is applied when the level of
violence reaches a stage where it becomes a depiction
of gross violence and/or includes elements of specific
types of violence. Gross violence is the most difficult
to define since it can be very subjective in many cases,
but in general terms it can be classed as the depictions
of violence that would make the viewer feel a sense of
revulsion.
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Bad language
Game contains bad
language.
Discrimination
Game contains
depictions of, or
material which
may encourage,
discrimination.
Drugs
Game refers to or
depicts the use of
drugs.
Fear
Game may be
frightening or scary
for young children.
Gambling
Games that
encourage or teach
gambling.
Sex
Game depicts
nudity and/or sexual
behaviour or sexual
references.
Violence
Game contains
depictions of
violence.
Online gameplay
Game can be played
online.
Descriptor labels:
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PEGI OK Label
The PEGI OK label was devised to apply to online social
games that are suitable for all age categories.
Toys
Many games produce toys as part of their offering and
there are a number of legal requirements relating to their
packaging.
It is important to consider the labelling requirements of
products before they are released for sale. There are legal
requirements that need to be met in respect of toys,
as set out in the Toys (Safety) Regulations 2011. These
apply to toys that are designed or intended (whether or
not exclusively) for play by children under 14 years old,
although certain toys are excluded such as slings and
catapults.
The Toys (Safety) Regulations 2011, place certain
requirements on manufacturers to ensure that each
toy has been designed and manufactured to comply
with essential safety measures during its foreseeable
and normal period of use. They also contain labelling
requirements.
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eGaming
eGaming
Many of the issues we have covered in relation to games
also apply to eGaming but there are additional factors to
be considered.
Gambling – major changes to the regulatory regime in
the UK

Implementation of the Gambling (Licensing &
Advertising) Act 2014 on 1 November 2014
The Gambling (Licensing & Advertising) Act 2014
(Act) came into force on 1 November 2014. It amends
the Gambling Act 2005, so that remote gambling by
consumers living in Great Britain will be regulated on a
‘place of consumption’ instead of a ‘place of supply’ basis.
Prior to 1 November 2014, the Gambling Act 2005
required each operator offering its services in Great
Britain to be licensed or regulated by one of the
jurisdictions approved by the UK’s Gambling Commission
(Commission) – the ‘white listed’ jurisdictions. Licences
issued in these ‘white listed’ countries were treated as
having been issued in Great Britain.
However, the government became concerned that
without specific requirements imposed by overseas
jurisdictions, operators were not compelled to report
certain information, such as instances of suspicious
betting activity, to the Commission. Although some
operators voluntarily shared information with the
Commission in addition to their home regulator, it was
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often of insufficient detail to be used in an investigation.
As such, the government asserted that the regime
needed to change to a ‘place of consumption’ basis
because “it [is] essential for the Gambling Commission
to have a greater degree of oversight in respect of the
gambling offered into Great Britain.”
To that end, the main change set out in the new Act is
an obligation for overseas operators which sell into the
British market to obtain a licence from the Commission.
Operators are now required to abide by the provisions of
the Gambling Act 2005, and its regulations, as well as the
social responsibility and technical standard requirements
issued by the Commission. This means that, for the
first time, operators based abroad are now under a
legal obligation to notify the Commission in respect of
suspicious betting patterns involving British consumers
to help combat illegal activity and corruption in sports
betting.

New 15% levy on profits derived from customers in
the UK
Crucially, the new licence regime removes the tax
benefit of being registered in a low-taxation jurisdiction.
Since 1 December 2014, all companies which have an
operator licence from the Commission have needed to
pay the same 15% tax on UK gross profits, no matter
which jurisdiction they are registered in. Whether this
was a fortunate by-product of the government’s wish
to address problem gambling or the driving force behind
the changes (the tax is anticipated to raise around £300
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eGaming
million per annum) has been the topic of much debate
within the industry.
Taxation of regulated eGaming activities
The UK imposes a number of taxes specifically
chargeable on the gross profits of regulated eGaming
activities such as bingo and bets placed.
As noted earlier, UK gaming taxes now operate on
a ‘place of consumption’ basis which means that all
operators which provide regulated gaming activities to
UK customers will be required to charge, and account,
for UK gaming taxes regardless of where their business
is established. Consequently, operators will be required
to verify whether their customers are “UK persons” as
defined under the Gambling Act 2014.
For the purposes of UK gaming taxes a “UK person” will
be:

an individual who usually lives in the UK; or

a body corporate which is legally constituted in the
UK.
eGaming operators which intend to carry on a regulated
activity with UK customers must register with HMRC for
gaming taxes, submit regular returns and pay the required
tax. If the operator fails to comply with the tax regime,
is late making payment or makes mistakes, HMRC may
charge a penalty and/or interest on unpaid amounts.
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eGaming advertising
The Act requires that only gambling operators licensed
by the UK’s Gambling Commission (Commission) are
allowed to advertise to consumers in Great Britain or
offer eGaming services to them.
Licensed operators which offer eGaming are under an
obligation to show a link (on all web pages that are used
to access gambling services) to their licensed status with
the Commission. This provides consumers and those who
feature gambling-related advertising with the option to
check whether operators are properly licensed.
The Commission requires under its licence conditions
and codes of practice (known as the LCCP), that
eGaming operators wishing to advertise must comply
with the advertising rules. These rules are written
and maintained by the Committee of Advertising
Practice (CAP) and enforced by the UK’s Advertising
Standards Authority. These rules cover the content and
placement of marketing communications and ensure
that gambling-related advertising is socially responsible,
with particular regard to the need to protect children,
young persons and other vulnerable persons from being
harmed or exploited. The rules provide, for example,
that no-one who is, or seems to be, under 25 years old
may be featured gambling in a gambling communication.
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social responsibility messaging;

display of licensed status;

broadcast media – messaging;

television advertising – watershed; and

sports sponsorship.
eGaming
There is also a voluntary code developed by the gambling
industry which supplements the CAP Code. It sets
certain minimum industry standards in the following
areas:
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Additional data protection requirements for eGaming
operators
eGaming operators licensed in the UK, as well as having
to comply with European data protection law, are held
to a higher standard by the Gambling Commission’s
conditions and codes of practice. Heavy sanctions can be
imposed for failure to comply.
eGaming law in Germany
Most States in Germany have a government monopoly
over gambling and eGaming. This means (subject to
certain exceptions) that only they are allowed to provide
eGaming services to the general public. The legality of
these restrictions has long been disputed and despite
liberalisation of German gambling laws in 2012, the
debate continues.

Permitted gambling services
Private providers are allowed to broker the lottery
services of the State monopolies, both on and offline,
and horse betting services can also be offered within
certain limits. Private providers can, theoretically, apply
for one of 20 online sports betting licences to allow them
to provide online sports bets to German players but the
licensing process, which began in 2012, has still not been
completed.

Legality of the German regime
A number of courts have taken the view that German
gambling law is in conflict with EU law as it restricts the
right of European providers to offer services to German
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eGaming
players. While there has been no definitive ruling on the
subject, the arguments are strong enough for a number
of private providers to take a chance and offer services
in Germany despite the official prohibition on supplying
eGaming services there.
Tax
Regardless of whether eGaming services are provided
lawfully or unlawfully in Germany, taxes will generally have
to be paid by all German and foreign gambling operators.
For online casino and online poker services, general VAT
law applies and the gross gaming revenue (the amount
wagered by players less the winnings paid out) is taxed
at 19%. Sports bets are taxed at the (much higher) rate
of 5% of the stake and lotteries are taxed at 20% of the
stake.
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Privacy requirements for eGaming operators in
Germany
Germany has one of the strictest privacy laws in Europe.
This does not usually prevent eGaming operators
collecting and using player data for the purpose of
providing their services. This means collection of a
player’s name, address, email address, games played,
billing details etc. is generally permitted provided they
are deleted once no longer required. The rules for
marketing emails are, however, subject to much stricter
requirements.
As a general rule, marketing emails are only permitted
after the recipient has given unambiguous consent to
receiving them. In order for consent to be valid, the
prospective recipient must be fully informed about the
nature and quantities of emails which will be sent.
The position under German law is different to those in
other EU countries. Whereas ticking a box on a website
to indicate consent is sufficient in most EU jurisdictions,
in Germany, a ‘double opt-in’ is required for consent to
be enforceable. This means that after having received
the initial opt-in, the provider must send out an (advert
free) confirmation email to the user who must then
indicate a second consent by clicking on a link in the
email.
The only exception to this requirement is where there is
already a contractual relationship between the eGaming
operator and the user, in which case, it is sufficient to
give the user prior notice that marketing emails will be
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Failure to comply with the requirements in relation to
marketing emails is likely to breach both German data
protection law and German unfair competition law
and may result in action, not only by data protection
authorities, but also by competitors of the eGaming
operator and by consumer protection agencies.
eGaming
sent, together with information about how to opt out.
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About Taylor Wessing
International Games Group
Taylor Wessing is an international law firm with a focus
on the industries of tomorrow including technology,
media & communications. A key part of this is our
market leading international Games Group. We work
internationally with a large number of developers,
publishers, and platforms throughout the sector, from
well-known global brands to startups and SMEs, and
including a number of major US publishers. The team
comprises specialists from across the firm including IP,
commercial, finance, data protection, corporate, tax and
employment, and is truly international with specialists
in the UK, Germany, France, Eastern Europe, Singapore
and China. We regularly advise on:
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Game development projects

Monitisation models

In-game currencies

Use of player data

Intellectual property protection and enforcement

Content licensing projects including from studios and
brand owners

Game financing

Tax and tax breaks for developers and publishers

Image rights and other content clearance issues
Payment platforms

Software and platform licences

Brand protection issues, including trade mark portfolio
management

Advertising and promotional laws

Affiliate and marketing agreements

Terms & conditions and privacy policies

Data protection

Anti-piracy

White-label projects

Prize contests and promotions

Packaging and labelling

Multi-jurisdictional projects

SEO services

Funding

M&A

Litigation and dispute resolution

International eGaming Group
We are also well placed when it comes to convergence
in the games sector, particularly in respect of social
gaming. This is bolstered by our very strong international
eGaming Group which advises a number of key operators
and suppliers including in relation to the US market as it
opens up again to the eGaming industry.
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TW Play
TW Play is our international industry initiative for
Games and eGaming and includes a regular e-update
targeted at our clients and contacts in these thriving
industries. The update comprises a feature article,
together with the latest industry-specific news and
comment.
If you would like to receive these e-updates then
please contact Graham Hann or Neil Hawley in our
international Games and eGaming team:
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Key Contacts
Graham Hann
Partner
+44 (0)20 7300 4839
Mark Owen
Partner
+44 (0)20 7300 4884
m.owen@taylorwessing.com
Neil Hawley
Senior Associate
+44 (0)20 7300 4763
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Europe > Middle East > Asia
www.taylorwessing.com
© Taylor Wessing LLP 2015
This publication is intended for general public guidance and to highlight issues. It is not intended to apply to
specific circumstances or to constitute legal advice. Taylor Wessing’s international offices operate as one
firm but are established as distinct legal entities. For further information about our offices and the regulatory
regimes that apply to them, please refer to: www.taylorwessing.com/regulatory.html
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