Brands: Loosen Your Gr-IP

Overly Strict Copyright Laws Can Stifle Fandom

Strong intellectual property (IP) has the power to transcend its original medium and expand into other forms of entertainment. In gaming, these adaptations have dated back to as early as the 1990s from games such as Pokemon, Super Mario Bros, Mortal Kombat, and Street Fighter. This has become increasingly common since then, with notable acceleration over the past few years (IGN). Some recent examples of successful media crossover between gaming and TV/film/written media are the popular television series, The Last of Us (IMDb), and the new Harry Potter game, Hogwarts Legacy. We believe this trend will continue. 

The methods and mediums of fandom are fundamentally changing as well. When the expansion of lore and IP is discussed, diversification in media channels (video games, television series, films) is what typically comes to mind. But today, passionate fans no longer have to stick to online chat rooms waiting for the next installment of their favorite game. 

Fans themselves are creating new stories within the universes of their favorite IP (e.g. fanfiction, cosplay, roleplay), even making the transition from observers to contributors by creating and selling their own custom merchandise on sites like Etsy and Redbubble. Fans even organize meetups or formal events to meet other fans in person (conventions like Comic-Con).

As both media channel diversification and fan expression continues to evolve, the legal implications of IP rights must as well. This is an area of tension in gaming and broader entertainment, as the fans want to celebrate the IP yet technically, only the owner of that IP has the right to commercialize that IP (e.g. Nintendo shutting down Smash World Tour in November 2022). It is our view that it is beneficial for IP holders to allow its community to expand the IP to different mediums without overly restrictive rules or “cease and desists”.

Intellectual Property Rights Are Gray

Copyright laws are in place to protect original works of authorship from unauthorized copying and distribution, and give the owner of a work the exclusive right to reproduce, distribute, and display their creation (among others). These typically apply to any expression in a tangible form (e.g. literary works, music, software, or visual arts such as photos or paintings).

The structure of these laws is not universal across geographies, but generally those other than the owner may be able to incorporate IP if it is done in such a way that is considered "fair use". 

Whether or not something is considered fair use depends on a number of factors, including the:

• purpose and character of the use
• nature of the copyrighted work
• amount and substantiality used in relation to the copyrighted work as a whole
• effect of the use on the potential market for or value of the copyrighted work

If a person is using a copyrighted work for one of these purposes and the use is transformative (it adds new meaning or expression to the original work) and the amount used is reasonable and necessary for the purpose, it may still be considered fair use even if that person is making money from it. However, if the use is commercial in nature and competes with the original work, it may not be. Yes, this is quite nuanced and very open to interpretation (hence the issues in the industry and the premise of this newsletter).

Fair use law has evolved over time through court cases and changes in technology and use cases. For example, legal courts have had to consider how fair use applies to online activities such as streaming, downloading, and sharing of copyrighted material. Within broader culture, as the practice of sampling music became more widespread, courts have had to consider how fair use applies to the use of small portions of copyrighted sound recordings in new compositions (DJ mixes, TikTok videos, YouTube videos, etc).

Gaming is at the Frontier of Copyright Innovation

Within video games, it has historically been much easier to draw a line in the sand on copyrighted material. For example, Rockstar made the explicit decision when developing Grand Theft Auto V to use an entirely unlicensed car library, however, the names and car designs are very close to real-life cars (Ferocious vs Ferrari, Jugular vs Jaguar). 

The Pokemon game series is a success story for having stringent copyright laws. It is arguably a big reason why they have been able to defend their market position as the franchise has ascended to an untouchable level - there has not been a similar role-playing game that has come even close to competing (Pokemon has grossed over $100b compared to its next closest competitor, Digimon, which grossed ~$6b). Even fan-made spin offs with millions of downloads have eventually succumbed to lawsuits (pokemonwe).

UGC: A Key Gray Area of IP Infringement

What may move the needle on fair use in fandom is the gray area of user-generated content (UGC) in gaming. 

Free community building and management: One testament of the power of fan communities is the Minecraft Middle-Earth community. This organized, non-profit community spent over 10 years recreating Middle Earth (the fictional world from Lord of the Rings) on the platform, despite there being over 30 licensed Lord of the Rings games (The Gamer). Over this time period, there were over 300 people with staff positions who actively helped build and support the server, in addition to players who volunteered for one-off projects (PC Gamer). This endeavor was free community building and management.

Free marketing: Netflix Series Squid Game was released on September 17, 2021. The TV series is rated TV-MA - meaning that it is specifically designed to be viewed by adults and therefore may be unsuitable for children under 17 (TV Guidelines). However, 4 days later, a playable replica was released on Roblox, which is still primarily used by kids. The Squid Game on Roblox was a hit and has over 1 billion lifetime visits (RoMonitor Stats). The game was also subject to widespread (good and bad) press coverage, putting the Squid Game brand in the news for more than just the show’s reception. By the time the next Squid Game TV season comes out, every kid that played the game in Roblox will be 2-3 years older and will already be familiar with the IP.

What Could Go Wrong?

There are substantial downsides for companies pressing charges against fans:

Community backlash: Outside of being very capital intensive, brands targeting fans (even ones that monetize their creations) run the risk of serious community backlash and reduced engagement. These are costs that can far outweigh the financial rewards lost from licensing. 

Last month, the owner of Dungeons & Dragons, Wizards of the Coast (subsidiary of Hasbro), attempted to change their Open Game License (OGL). The draft they shared with creators included language that was designed to restrict large corporations from attempting to use their licensed content. However, this would impact a majority of independent creators as they would no longer be able to own the stories and content they produce (D&D Beyond). This was met with massive backlash from the community and Wizards of the Coast ended up reversing their stance on the new licensing.

Revenue upside from forcing official licensing is far outweighed by the value of user acquisition and engagement: There is a significant pool of products and activities that, regardless of whether they are being monetized, do not bring significant enough upside to individually license. Brands can run the risk of restricting the magnitude of engagement with the IP, just because it is unofficial. For example, cosplaying, fanfiction, fan-made videos (TikTok, Tumblr, YouTube), and organized tournaments are all ways that fans stay in touch with the IP they love. 

In gaming, we believe that cutting off the channels for people to engage with your game is a mistake. As we mentioned above, the 2023 Smash World Tour (hosted by a third-party organizer) was forced to shut down by Nintendo without any warning. In 2022, the unlicensed tournament connected “over 6,400 live events worldwide, with over 325,000 in-person entrants, making the Smash World Tour the largest esports tour in history, for any game title” (Smash World Tour). While Nintendo has carved out a differentiated niche in the gaming world, it is arguable that this type of punitive action could push away players that desire to freely compete and create in unrestricted ways.

Suspension of disbelief: There is a degree of separation between the original IP or brand and the world of fan imagination and expression. For example, LeBron James and Ariana Grande are both skins available in Fortnite. However, if a streamer decided to use that likeness while they shot at other players in-game, no one would believe that LeBron or Ariana advocate for that kind of violence.

Forcing innovation: Allowing more open licensing does not block a company from holding their own legitimate events and selling apparel on their own. In fact, spending less time and capital on diligence and allocating licenses opens up resources to explore more innovative marketing, fan engagement, and revenue models outside of what can also be created by fans. Official items could have the potential to hold even higher value if IP holders spend more time and effort creating their first-party products.

Our view: We believe that the next evolution of open licensing is coming. Companies can and should prepare for a world where copyright laws are less strict. We also expect very few changes to the definition of “fair use”. In the competitive world of game development, if gamers do not get to play, create, and explore, they will move on to somewhere that will allow them to (UGC platforms like Roblox, Minecraft, Fortnite Creative, and more).