WIPOD – Make IP Your Business: Transcript of Episode 5

Videogame Development: A Quest for IP 
Level 4 – IP during acquisitions and investments

George Lemnaru: Is like painting Mona Lisa by throwing paint on the canvas.

Allison Mages: Today we Make IP Your Business. It’s a podcast that explores how intellectual property positions a company to succeed or stumble. I’m Allison Mages, Head of the IP Commercialization Section at the World Intellectual Property Organization (WIPO).

We call this season “Videogame Development: A Quest for IP”. Join our adventure through five levels of game development, where you'll hear from industry experts about how these rights will help your business “level up” or reach "game over".

Micaela Mantegna: And hi everyone. I'm Micaela Mantegna, a videogame lawyer and researcher at the Berkman Klein Center at Harvard University, and I am this season co-host. We are on Level 4: IP during acquisitions and investments.  Today, we will hear more about one of the biggest transactions in the European gaming industry.

Welcome, George. This is a pleasure to have you in our podcast. And just to kind of do an icebreaker, we wanted to ask you, how did you start in the video gaming industry?

George Lemnaru: Hello and thank you for inviting me. So, the first game that we built, it was, we didn't even realize that it's a game. We started building a geopolitical and macroeconomic simulation. And little by little, we realized that what we're building is a game, and it should be a game because it will make this simulation, this the experience of the users much, much more pleasant. So that's how we started; it was back in 2006. It was a harsh winter.

Allison Mages: I love how harsh winters are like this whole romantic notion, right of being able to get something started that it keeps you excited. OK, so I gotta ask you know, George, this is a podcast about intellectual property. So where did you first hear about intellectual property?

George I was lucky to have our first investor. He had a lot of experience with previous startups, so he basically opened our eyes about the intellectual property, so that that was the first moment when I got exposed to this concept as an entrepreneur.

Micaela Mantegna: You're saying that you what you're making is more than a game experience, it's involving community. Can you tell us a bit more about the company and the philosophy that you need to have to develop these kind of communities around sports?

George Lemnaru: Sure, sure. We, from the start we ask ourselves “Why are we special? Why Green Cross Games is special compared to other gaming companies?” And the answer to that it lied in the very strong social aspect. Like when you join a game, when you join Football Rivals for example, our main game, you're part of a tribe. You're part of the of the team with people like you and this creates a magic because you get to meet new people and you have a common goal. So basically, you’re fighting together, playing together with other people in live matches, chatting with them, suffering through defeats and being happy about last-minute winning goal.

It's amazing. It creates some amazing and long-lasting bonds. It creates you have a social status there. It basically turns becomes a world in itself. You know, like we have the professional world, we have the family world. You have different worlds that you can go to when you need validation, shelter. So this is what Football Rivals becomes for people. And even for me, because I'm a player too.

Micaela Mantegna: Absolutely. I can imagine you and it would be amazing to see how people enjoy what you are creating and the strong bonds and relationships which another thing we were having talking during the podcast about how games can unite people.

And I could absolutely relate what you were saying about creating bonds because I always talk about Mass Effect in every single episode and every single podcast. But the thing is, I'm a huge fan of that game, and the moment I found another person that has played it is like instant friendship because you have like that common background, that commonality and it's like as you were saying, you belong to that tribe.

I wanted to ask you a bit about the monetization models for your games. Because I know that when you have like these single player simulations that we were talking about, it's like you sell the game and that's it. But you are creating like a whole experience like a whole world with these games. It’s like: how do you create money? How do you get money from them?

George Lemnaru: You can play our game for free. We have most of our players are playing for free and that's OK and that's we'll have to have to have those players. If you want to advance faster, you can buy these boosters that will help you. And as a developer this is great because you can maximize your revenue and benefit also from the free players that otherwise maybe they wouldn't have played the game. And as a player also it's a good thing because it allows me to test the game; it allows me to play the game for free if I want to play for free and there are games that I play for free because there are other people that are willing to spend and there are games in which I'm willing to spend that other people are playing for free. So, I think it's a model that works for both sides and I'm happy that we're in this in this area.

Allison Mages: So George, I want to ask you a little bit about this magic of the game. When in your game Football Rivals, you're not using real teams in terms of like branded teams that exist already. Why did you choose to use sort of more of a fantasy or made-up names as opposed to going into something that might be more familiar?

George Lemnaru: So currently we are exploring also bringing IP of real teams in the game and I think that might be a valuable advantage. I think many players would look forward to this. To have the logo, our team to have the logo of the real team; me as a player to have the official T-shirt in the game of the real team. I think that would be an advantage.

It works also without it. Because basically as a player when I start a team, when I build the team, that team it becomes somebody with the trophy that it wins, with the story that it creates. Then you might become somebody in the community and people will start knowing about you. For example, in Romania there is a Romanian family that's a very well-known team that was built in Football Rivals. So those people they are really proud of their team.

Allison Mages: I think it's incredible that you can achieve that and in this completely, you know, bespoke world that you've created as part of the game. And what I think is particularly interesting, George, about what you were saying is that you were able to do this without necessarily going and licensing the other team’s logos or names or players, which I think is really a great approach, especially when you're first getting started in this world, where you might not be able to bring in those sort of big names, right away. So George, at some point you were saying earlier you started to think about IP as something that you had to look at as a company. So, tell us how that started.

George Lemnaru: And as I told you, we had the investor that I had in the first startup; was very experienced with that, so he started build, maybe help us build the infrastructure while on the second startup, on Green Horse Games, things were much clearer for me.

I was aware by the importance of IP, so I built that infrastructure. Maybe it's exaggerated to say an infrastructure, but I built the, I'm focused on this subject from very, very early because I understood how important it is.

As we are not an outsourcing company, so we're not building games for other companies, I was aware that that what we're building is IP. So, it was very important to make sure that every line of code, every design, every concept that was put in the game, it was covered through IP rights, so the ownership of that IP belongs to the company.

Allison Mages: I think it's great because a lot of companies don't always think about that until much later on in the process and. In in fact, I know that your company was recently acquired by Miniclip and I was curious, you know, what was it like to go from being a, you know, a smaller startup to going to a much larger company?

George Lemnaru: What I can tell you that this is a positive story. The integration in Miniclip was amazing. I, we are lucky to work with great people. They offer us a tremendous amount of support and trust. So practically, we're still an independent studio and the approach from Miniclip is really supportive. They mostly start the conversation with how can we help. So on this side, I think we are very lucky.

Micaela Mantegna: I love that you said you have, like, great people and great talent because having a great team is at the end of the day, what makes you succeed. So, can you tell us a bit more about your team and the culture of your company and how kind of like it fitted into like the integration into this acquisition process?

George Lemnaru: For us there are three values that we have and are very important for us and usually our communication is around those values. There are three because there were more people forget them.

So, we're very focused on growth. So we constantly our mindset is that we should grow constantly. We are results oriented, so we'll focus on numbers because at the end of the day, the gaming industry is a lot about numbers with some magic on top. And also, it's about empathy. So, you need to be empathic with your colleagues and especially with the players.

So those are our values. We're very clear if you have those values then you can be part of the team; everything else can be solved. And working together with Miniclip went pretty naturally and most of their values are very close to ours, so this helped a lot.

Allison Mages: So, speaking of Miniclip, why do you think Green Horse Games was such an interesting investment for them?

George Lemnaru: It was also the chemistry. Like we felt that we were speaking the same language. I felt, I personally was actively looking, I wasn't looking for to be for the company to be acquired. But discussing with them we realized, I realized, that we can go faster and further with them.

It's a part of what we're doing. It's as one of the values is results oriented it's important to show numbers, because that's all for the stability that you need. But at the end of the day, we love what we're doing. What we're doing is a big part of our life so, and we’re humans. And I think that's the way I see my professional life.

And of course, this approach doesn't work with everybody. But on the other hand, I'm not planning to work with everybody. We're planning to collaborate with people, you need to work with people that have similar values with you. We were lucky to find them. It's also about luck. Hence, we love what we're doing.

Micaela Mantegna: And do you think that having, like you were saying, like organized IP strategy played a big role in this process of the acquisition? It's like the first thing that they checked on your company was about that?

George Lemnaru: Oh yes, yes, I can confirm that. During the due diligence process, which is not a pleasant process for a company that that would be acquired, there are of course there's is normal for problems to appear. Why? Because in every country there's some bureaucracy that you need to respect, and you never manage to be perfect. But one thing that we're very, very careful was the IP. We realized from the start that if you want to get an investment, if you want to be acquired on the IP side, you need to be very, very well covered. So, we focused on that a lot and also the feedback after the acquisition of the people involved was very positive, said “Guys, it was very simple with you.”

Allison Mages: No, absolutely. And I can tell you, I've done a lot of these kinds of deals myself and “simple” is usually not the word that you end up using. So that's incredible.

So Gorge, walk us through what the process is of being acquired by a company, because I think a lot of the people who are listening in right now are thinking “I want to be bought out at some stage.” So how does it work?

George Lemnaru: Well, first of all you need to create value. You need to create something that is interesting for somebody. Then first of all, it's about chemistry. Will I be able to work with those people? That's the first question that you have to ask. And then of course, why should we do this, what both parties benefits from this? Because there are cases in which something is split and you get less in total and there are cases if the deal is done right, you get more than the sum for things you create value, the partnership creates value.

And after we realized that there is chemistry then we started talking about numbers and then a term sheet and then the lawyers appeared, and we negotiated the term sheet, term sheet was signed and then there's the due diligence process and then the sign, the actual signing. So just a very simplified and not an expert view description of what usually happens.

Allison Mages: I think that’s really helpful as an overview, George, and you know, you mentioned earlier that your first introduction to IP was very much as in terms of your advisors and then part of this due diligence process. So how much of a role did IP play in the due diligence process?

George Lemnaru: Very central role. As I was saying at the end of the day, what we're building is IP, that's the fruit of our work. If that part is not 100% covered then problems might appear. They are starting to have big question marks. What are we actually buying here? Are we buying employees? That's not our goal. We want to buy IP; we want to buy a system that works and that generates new IP. So, it has the IP in the due diligence process, it has a central role.

Allison Mages: What kind of questions were you asked about your IP?

George Lemnaru: I don't remember exactly, but there were many questions related to IP. And the first thing that we did was to provide all the documents that prove that we own the IP or the trademarks and that we owned and all this, all this stuff, but I cannot recall the exact question.

Allison Mages: No, I think it's great to, you know, so it sounds like ownership was a major aspect of the diligence process.

Micaela Mantegna: And what I was thinking when you were talking about IP and that they are not acquiring a trademark, they are acquiring a system. Because from people that's maybe outside video game development, intellectual property or IP has a very different meaning when the meaning when we are talking about IP in video game world, because we are talking about the lore of the game, you are talking about the history, and everything integrated as a system. So they are acquiring this like the whole package, which is a very different meaning of when you are talking “Oh, I'm going to acquire this trademark or this license in this book” is like, as you were saying, a whole system that works together towards a common goal. And I think it's really interesting.

But I can get what you were saying like you're like the person that also unites the team because it's like you are being in the middle and organizing all these moving parts in the company. But what is the role that you enjoy the most? We know now that you don't like coding and you don't like design, but about the business is like there is something. What are you passionate about the business of video games?

George Lemnaru: To be honest, the part that I enjoy the most is actually building concepts, building games, it's a lovely process because on one side there's a lot of data, there are a lot of numbers that you have to look to. But on the other side, there's a lot of magic there; there's a lot of intuition that you have to use because, you know, we're doing many AB tests, but you cannot build a game only using AB test. It's like you need a vision. You need a creativity. You need a final goal; is like a painting Mona Lisa by throwing paint on the canvas.

Now, if you try that two million times, probably, or 2 billion times, you might have something that looks nice or close to Mona Lisa. But a much more efficient is to have a vision, know where you're heading and use the numbers and the AB test to understand where you are at that moment.

Micaela Mantegna: I love the concept of surprise and I love the theme about the whole interview. Talking about magic and human values. I really can connect to that.

And talking about surprises, and we were talking about how stressful the process of due diligence could be, now that you know everything that you know now, if you go back to the past and talk to the past George about the acquisition, it's some advice that you can tell him about IP, some advice that would have made the process easier?

George Lemnaru: In my case, I was lucky to own my first startup. As I said, to have an investor that has experience and on my second one to already know the importance of IP. But if I would start all over with no experience, with no connection, the most important thing that I would advise is that you need to get a specialist. This is not something that you can do that can be covered by yourself. It's not coding, it's not design. You cannot afford to make mistakes there. So, get somebody that has experience.

Allison Mages: Absolutely. And I think before, George, you go out and you hire that specialist, how can you position yourself better as a company when it comes to IP?

George Lemnaru: I think that would be one of the first steps that you have to do before actually collaborating with anyone. Because when you collaborate with somebody, designer, developer, whatever, that builds or helps you build IP, you need a a contract. You need a paper that describes your type of collaboration, and that contract needs to include the right wording on the IP clause. So, that clause, that IP clause, needs to be created by somebody that is a specialist in IP. So, it's before everything, like after I have an idea.

Micaela Mantegna: If you have to give advice or some other small developers in the audience that are listening to us, independent studios, that are thinking about being acquired, just like a quote of advice for them like a short quote of advice, what would that be?

George Lemnaru: Probably the most important thing that you should think about is how to create value and for whom you want to create value. And in order to answer this question you need to understand what you're good at. And if you're focused on what you're good at, you might build something that nobody else has. You might build something that is rare. You might build the knowledge that is extremely rare, and that's very, very valuable. If you build something that is rare, creates value. That's amazing.

Micaela Mantegna: I love that, how to build your “green horse”, your own “green horse”. That's super cool advice and thank you so much, George, for taking time to join us. It has been a pleasure to have you here in our podcast.

Allison Mages: No, absolutely. So, George, it was really, it's great to hear about, you know, your journey as a company and how you took this, you know, from something small to something that has really taken off in a huge way.

George Lemnaru: It was a pleasure also on my side.

Allison Mages: So what does it take to get ready for working with an investor or an acquirer? Putting it all together for us, as Professor Gaetano Dimita and his PowerUp. Gaetano?

Gaetano Dimita: During an acquisition and investment meeting, a potential investor might not ask you directly a big question, but that doesn't mean they don't want to know about it.

IP here is crucial. IP is what they're acquiring and what they're investing in.

If your game is creating new IP, they want to be sure that you own this IP. You can prove it and there are no risk of being engulfed in an expensive IP infringement case.

If your game is based on preexisting IP, they want to know that you have all the proper licenses to distribute the video games in the countries you wish to.

Every IP relevant aspect of your game should be documented, and ownership and license clear. If you haven't done it already, and I hope you did it already, now it's time to get help from a specialist. You cannot afford any mistake and without the expertise, it's very difficult to do it right yourself.

In order to be organized for a due diligence, you should put in place an IP audit system. This is a systematic review of the intellectual property that you own, that you use, and that you acquire in order to assess and manage the risk and immediately remedies in case there are any problems and sometimes introduce better practice.

It is a more time and money efficient way to check everything since the beginning instead of tracking it back at the end.

Take for instance the use of open-source software. You might find online a piece of code that is brilliant and you really want to use it in your game. You could just use it immediately without checking only to find out later that in order to comply to the license you will have to make your entire game open source. This is something that you might don't want to do it, and at this stage changing it back to avoid a piece of code might be extremely complex and expensive.

On the other side, by checking on an open-source license before using the code will make it clear immediately whether or not the license is permissible, so you can use the code without making the entire project open source or whether you simply should avoid that code and try for something else from the beginning.

Open Software is an incredible tool but consider there are a number of very different open-source licenses, and they will profoundly impact on the commercialization of your game.

The fact that it's freely available doesn't mean they come with the freedom to use it commercially in your game. Always check the fine print.

And generally speaking, before signing anything, read it carefully, understand it, and ask for clarification that you want to receive in writing. The contracts you're signing at this stage of an important ramification for your IP, and you don't want to unknowingly assign it to someone else or agree to confirm terms.

Did I mention that it is advisable to get legal counsel? If you follow all the previous suggestions, you train your team in IP, you have an efficient and updated IP audit system in place, you should be fine, or at least you should know where the risk lies.

And still don't be afraid to ask for help. You cannot afford to make any mistake at this stage. Not only to avoid the risk of IP infringement and expensive litigation, but also because any investors would walk away if you don't show your IP is in order.

On these positive notes, this is all for this episode. See you next.

Micaela Mantegna: And that's a wrap for level 4. Stay tuned for the next episode of Video Game Development: A Quest For IP. We are going to talk about the role of IP in the field of esports. We will hear about commercialization strategies of esports and the role of IP from Riot Games.

Allison Mages: Thanks for listening to Make IP Your Business, this podcast is brought to you by WIPO, the UN Agency for IP that enables innovation and creativity for everyone, everywhere.

You can find all the episodes, download the PowerUps and join the community on our website. Check out the show notes for the links.