Modern game development is faster and more efficient thanks to the wide availability of third-party software and engines. However, these tools often come with their own license terms and fees. For this reason, most video game publishing agreements include a third-party software clause that regulates their use.
What is the third-party software clause?
The third-party software clause sets the rules for using external software components in the development of a video game. In many agreements, it prohibits developers from including such software unless the publisher provides prior written approval.
What is the importance of the third-party software clause?
From the publisher’s perspective, this clause ensures transparency around licensing risks and potential costs. Without it, several problems can arise:
- Unexpected fees: in case the game relies on paid third-party software, the publisher might only be able to publish a game when they obtain a paid license to the third-party software. Some third-party software is very expensive and thus the publisher may face unplanned expenses.
- License restrictions: some licenses limit how a game can be published and commercialised. A classic example is open-source software which is distributed under the GPL license. The GPL license requires any product made using the licensed software to be distributed under the GPL as well. The GPL license includes an obligation to make the source code public, which publishers which invest in a commercial game want to avoid.
The third-party software clause is also important for a developer. The reason for this is not just to ensure that the developer is allowed to use the third-party software, but also to ensure that the publisher will comply with the applicable license conditions.
Example of the third-party software clause in a video game publishing agreement
Below is an example of a third-party software clause in a video game publishing agreement which we have seen in practice, so that you can recognize a similar clause in your own draft:
“Developer is not allowed to include Third Party Software in the Game, except in cases where Publisher has provided prior approval. The Developer will provide the applicable license conditions and fees when requesting approval”
Most common engines in practice
Engines are the most impactful “third-party software” in most projects. The most common commercial engines are Unreal Engine and Unity. Alternatively, Godot is an upcoming open source video game engine. Looking at both helps you align license approvals, costs, and support expectations with your publishing agreement.
Unity Engine: things to consider
Despite controversies of proposes unilateral changes of the terms of the Unity Engine, the engine is relatively straightforward with regards to video game publishing agreements. As with all engines, there are conditions on what you can and cannot do while using the engine, but there are no specific things to consider when negotiating a publishing contract.
Using Unreal Engine: things to consider
Unreal Engine is widely used for commercial titles and typically involves revenue-based license fees (royalties).
Unreal Engines license fee and the net revenue calculation
When using Unreal Engine, it is important to realize that the license fee is partly dependent on the revenue generated with the game. Most video game publishing agreements include a provision that certain costs are deducted from the revenue before the remainder is shared between the developer and the publisher. However, these costs are mostly out-of-pocket costs of the publisher, while the costs for the engine might be paid for by the developer. In such cases, it is important to agree that the costs for the engine license can also be deducted from the revenue. This is especially important if the investment of the publisher in the development of the game is (still) being recouped, as in these situations it could take a while before the developer will receive the first revenue.
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Using Godot: things to consider
The Godot Engine is quickly rising in popularity as one of the leading open-source video game engines.
From the legal perspective, open-source software is software distributed under one of the standard (open source) license conditions. If these standard license conditions are used, it is immediately clear what the terms and conditions are.
The Godot Engine is distributed under the permissive MT-license, which means that the license conditions are straightforward: they only contain a limitation of liability and a requirement to properly include the Godot Engine in the credits of the video game. There are no further restrictions on the usage of Godot.
However, there are still legal and practical issues to consider for developers using Godot when negotiating a video game publishing agreement.
Make sure open-source software use is allowed
Some commercial contracts limit or prohibit the use of open-source software. While many clauses only restrict “copyleft” licenses (like GPL), which require publishing the source code, others may ban open-source use altogether.
An example of a clause in a video game publishing contract which prohibits open source software is as follows:
“Developer represents and warrants that no Open Source Software is or will be incorporated into the Game. For the purposes of this Agreement, “Open Source Software” means any software that is distributed under a license that requires the Developer to (publicly) disclose or make (publicly) available the source code of the software or any derivative works thereof”
This clause would actually allow for the use of the Godot Engine, as the MIT-license does not require the developer to make the source code available.
Discussing the usage of Godot in advance with a publisher is important nonetheless, because some publishers may have limited experience with the engine.
Be mindful of bug fixing and technical support obligations
The security and support of open-source software depends largely on the participation of the community. This is no different for the Godot engine, which is a non-commercial initiative. This also means that there is a possibility that SDKs will be abandoned or that there is no (commercial) party who you can approach to solve your problem in case technical problems arise with your game build.
While this is not necessarily negative, developers should take it into account when negotiating bug-fixing and technical support obligations with publishers.
Before you sign: summary and next steps
Third-party software can speed up development but introduces legal risks. Clear arrangements in the contract prevent disputes and unforeseen costs. Whether you use Unreal, Godot, or other tools, developers must ensure license terms are respected and publisher expectations are managed.