Law of the Game on Joystiq: Non-Disclosure Agre3ments

Each week Mark Methenitis contributes Law of the Game on Joystiq, a column on legal issues as they relate to video games:

As we wrap up our E3 2008 coverage here at Joystiq HQ, I thought it might be a good time to take a look at what makes many of E3's big surprises possible: the non-disclosure agreement. Non-disclosure agreements, or NDAs, are common not only in the gaming industry but in virtually all industries, and I've drafted my fair share of them. However, they are exceedingly prevalent in the game industry because of their application to not only game company employees but also members of the press who are given early access to titles subject to media blackouts, which are just another form of non-disclosure agreement.

So, what is an NDA? At the simplest level, it's just another contract, but one that limits someone's ability to share certain information, sometimes with anyone and sometimes with certain designated people, for a set period of time. The NDA arose because companies have to share information with employees and outsiders, and those companies need to manage the risk of having that confidential information leaked to the public or to competitors. NDAs may be stand alone contracts or provisions of larger agreements, largely depending on the context in which they are needed.

Because there are so many applications for NDAs, they come in many shapes and sizes. However, there are four that come up the most often in a gaming context: employment, business, testing, and press. Each of these has some of its own common features. First, employment NDAs are what are signed, typically on the day of hiring, between a developer or publisher and a new employee. Because developers and publisers operate at different stages of production, the specifics of what cannot be disclosed may vary to some degree, but generally these NDAs are going to be fairly expansive. These are the people who are commonly thought of as "insiders," the people whose leaks and rumors can often play huge spoiler to, say, a big E3 press conference. Generally speaking, these agreements are tied to employment in a number of ways. First and foremost, violation of said agreements often leads to termination or some other negative job-related consequence. Secondly, the term is generally for the entire period of employment plus some amount of time afterward; 2 years not being unusual. The other unique feature of employment NDAs is they're often coupled with non-competition agreements. A non-compete is another agreement by which you're agreeing not to work in certain designated companies for a reasonable period of time after you leave your present job. Those companies may be named by name, designated by geography, designated by industry, or any other criteria which is reasonable, but the particular limitations on non-competes are more complex than I'd like to discuss here.

NDAs in the "business" of gaming are more often small parts of larger agreements, but do also appear as independant agreement. They appear in a lot of different contexts. NDAs may be in place for a developer to show a new concept to a potential publisher, or for a hardware manufacturer to show new hardware to developers. These are just two examples. Any time something confidential is being shared between parties, an NDA may very well be appropriate.

One specific business-related NDA is the testing NDA. These accompany early stage testing builds of games sent to those not covered personally under other NDAs and operate to theoretically keep testers from leaking images, videos, or other information. However, as we saw recently with the EndWar leak, this isn't always 100% effective. The general idea is that you need to bring in people beyond the normal employees, but also want to retain control over information flow to the public at large. Obviously, not all tests are controlled in this way, and many times it's the exact opposite, with beta testers encouraged to share their experiences with a rabid fanbase. These agreements often aren't as valuable as they seem because the consequence of someone breaching the agreement is simply being ejected from the test group. In cases where more severe penalties are in the agreement, the NDAs are generally more effective.

The final NDA is the one applied to the press, often referred to as a "media blackout" or "media restriction." This is just another form of non-disclosure, but one that has its own set of rules. Generally, these restrictions are much more short-term, and the potential loss for the media members upon breaking the agreement is the ability to get more information in the future, even from other publishers. Given that game websites and magazines depend on having access to information, the threat of loss here is pretty significant.

There are a few other important things to know about NDAs. First, they can be applied to pretty much anything that isn't public knowledge; this could be a plot for an upcoming game, or a particular piece of code for resolving a certain in-game issue, or a new piece of hardware. On a related note, NDAs theoretically terminate when the knowledge covered by the NDA is made public. The information that is being protected has to be something private and new to the recipient of the knowledge. That also means NDAs can't be enforced if the person already knew what was being disclosed through another source. Finally, NDAs are critical for the protection of trade secrets. In trade secret cases, NDAs generally operate to show additional evidence of the protection of the secrets, which is a critical element to being able to enforce trade secret protections.

So, that's the NDA in a nutshell. It's the one agreement that allows for us, as gamers, to receive big surprises, as well as major annoyance at the lack of information on certain titles. In fact, I'd be willing to bet there's an NDA involved in the cancellation of Bungie's announcement, and they're almost certainly responsible for the lack of Kid Icarus Wii and Kingdom Hearts III information. Love them or hate them, NDAs are forever going to be a part of the game industry.

Mark Methenitis is the Editor in Chief of the Law of the Game blog, which discusses legal issues in video games. Mr. Methenitis is also a licensed attorney in the state of Texas with The Vernon Law Group, PLLC and a member of the Texas Bar Assoc., American Bar Assoc., and the International Game Developers Assoc. Opinions expressed in this column are his own. Reach him at: lawofthegame [AAT] gmail [DAWT] com.

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