Under Development

The Gig

It occurred to me that many people who may read this blog aren't interested in starting their own business. Most fresh developers are more interested in getting involved with an independent studio, or just getting a steady paycheck.

So here we're going to discuss employment. Most entertainment industries have unions. Sports, film, television, and even to some extent the music industry have unions and guilds that represent the interests of talent and professionals within those industries. Those unions will typically enter into collective bargaining agreements with trade and/or industry associations (such as the RIAA) to draft standards that are thereafter embedded into every employment contract where union labor is used.

The games industry has no such union or guild. As a result, what goes into an employment contract is dictated entirely by the employer and the prospective employee. It is therefore very important that you actually get an employment contract laying out the terms of your employment in writing. As an employee getting his or her first gaming gig you should be aware of what an employer is required to do on your behalf. You also want to make sure that your quality of life doesn't go down the tubes because your agreed-upon compensation didn't take into account things like overtime, health insurance, and revenue sharing in the event of a major success.

Do not fall under the delusion that working for a game developer means that you should be working 60 hour shifts plus weekends. The terms of your employment are determined mostly by you, and you should never sacrifice your health and mental well-being for what is ultimately just a job.

What Your Employer Should Provide

• Form E-4: If you are located in the US, your employer is required to withhold a percentage of your income for tax purposes. This is called the payroll tax, and if you're working as an independent contractor, you should be aware that you're responsible for both the amount normally withheld by the employer and the taxes you yourself pay (essentially double what you pay as an employee). This goes for both state and federal taxes.

• Employee Manual/Handbook: Under Federal and most State law, employers should provide you with a handbook or other documentation that sets forth the business's policies, practices, and procedures. It should also set forth employee rights and it may also include dispute procedures. While some of this will also be covered in your employment contract, the bulk of the important information concerning your rights will likely be provided to you in the form of additional documentation. This includes workers' compensation information, workplace health & safety, employee health insurance policies, sexual harassment and other discrimination policies, retirement benefits, family leave policies, and employee stock options if available.

• The Employment Contract

What Your Employment Contract Will Include

• Recitals/Introduction: this sets out the name of the company and the employee (you), the place of business, etc. It sounds silly, but make sure you're actually being employed by who you think you're being employed by—in the games industry there are a number of parents and subsidiaries, so it's always best to know who will actually be responsible for signing your paycheck.

• Duties: This usually explains why you are being hired and the tasks that you will be required to perform. It may also include the title of your position. This section may also include a minimum number of hours you are required to work.

• Term: The length of your employment. Some states place limitations on the length of an employment contract (California being one), so most employment contracts will have provisions for renewal.

• Nondisclosure: NDA's may be a separate document or an embedded provision—a NDA sets out specifically what must remain confidential, although many contracts keep the definition of "confidential information" and "trade secrets" fairly broad. This is a bit dangerous for the employer because unless employees are aware of what must remain confidential, it may difficult to raise the argument that a specific piece of information should have remained confidential pursuant to the agreement.

• Work-for-Hire: While employee product created in connection with the employment is automatically a work-for-hire under Copyright law, some employers may seek to broaden the scope by including language that encompasses any work product created during the term of your employment. In this manner an employer may seek to claim ownership over any invention you created independently. It is therefore very important that you read this provision carefully if it's in your contract and address any issues you have before signing your contract. This is especially true if you're an independent contractor.

• Compensation: This should set out your salary, or it should make reference to a schedule that sets forth your salary. Be aware of who is responsible for paying what and what deductions will be made from your salary for tax and employee benefits purposes.

• Contingent Compensation: in some instances, particularly if you're working for an indie and you're getting paid peanuts on the condition that you'll get a bigger piece of the pie later, you may have a contingent compensation clause. This will set out the royalty you are entitled to once your company starts earning profit from the product.

• Credits: If this isn't in your contract, it should be. You are entitled to credit for your contribution to a project. This should set forth how your credit will be displayed and where.

• Covenants: Many agreements include covenants not to compete. While most jurisdictions legally (judicially) limit the scope of these clauses by time and geography, the covenant still may be burdensome. A covenant not to compete will usually state that, upon termination of your relationship with your employer, you are not allowed to seek employment from a "competitor" for a specific period of time (anywhere from six months to a year, usually). This obviously creates a problem if you're only taking an entry level position and plan on moving to another potentially competing firm. A reasonable employer probably won't enforce this unless you had access to highly confidential information, and there's evidence that you disclosed trade secrets to a competitor. Then again, it's a dangerous business to expect employers to be reasonable.

• Stock Option/Revenue Sharing/Pension Plan: Larger firms may offer you an opt-in to the company's stock option/revenue sharing/benefit/401(k) plan. Make sure you understand the terms of those benefit plans and what you're entitled to, as well as when you will be entitled to opt-in and subsequently collect from those benefits. It is also important to note how much of your salary will be paid directly into that plan when negotiating your salary.

• Termination: Employment is typically at-will. This means that both parties can terminate the employment at any point in time on the condition that the terminating party provides notice to the other party (usually 30 days). The Agreement may also include automatic termination in the event that you materially breach the Agreement or breach one of the major bylaws and/or company policies and practices.

• Disability: If this isn't in your agreement, it should be. If you are unable to perform your duties under the contract as a result of a serious mental or physical disability, you want to make sure that your inability to perform does not constitute a material (actionable/sueable) breach of the contract and that the disability creates a no-fault termination. Yes, there are some companies out there who really can be horrific enough to sue a paraplegic because he can no longer do his job. This is also a good time to contemplate disability benefits.

• Dispute Resolution (arbitration): Most employment contracts include dispute resolution, mediation and/or arbitration provisions as a preliminary measure to a lawsuit. This is to the benefit of both parties because it's less expensive than going to trial. It is also less formal. You will also want to pay attention to who is responsible for attorneys' fees—depending on the language of the provision, it may be better for each party to bear the cost of their own attorneys' fees.

Conclusion

Before accepting employment, get an idea of what it's like to work there—talk to current employees, talk to your interviewer, and try to get a tour of the workspace so you can get an idea of whether this is where you want to be. It is well documented that quality of life for game developers can at times be extremely poor. Crunch time, poor planning, and seemingly impossible-to-meet milestones can all lead to a work experience that has a detrimental effect on your personal life and psychological well being. Because there is no organization acting on your behalf to prevent these quality of life issues from arising, it is important that you take the steps to ensure that the profession you've chosen and company you work for is a good fit for your lifestyle.

Concerning Lawyer Mythology

    A friend of mine told me that most independent game developers refuse to acquire legal counsel for a variety of reasons. These reasons range everywhere from prohibitive costs to intimidation to fear of getting too wrapped up in the "business end" of things. This obviously creates a few problems if you seriously plan on doing business. Think of your legal matters (i.e. contracts, negotiations, accounting, litigation) in terms of programming. Would you be able to write a full game after only reading one or two websites on coding? Would you be able to fix bugs without knowing the programming language? Would you be able to make your own game by relying entirely on someone else's code, without knowing what that code does? I'm stretching the metaphor a bit, but by now you should be getting the point—there's a reason lawyers exist, and that reason is to help you navigate the legal mine field you're walking into when you do business.

In this post I'm going to try to dispel some of the myths and fears that seem to surround the legal profession. I'm also going to give some general good advice on how to determine whether your lawyer is a good fit.

Myth #1: I can't afford to pay a lawyer

    Simply put, if you can't afford to pay a lawyer to look over a contract, you shouldn't be doing business. Lawyers want to help you. Some lawyers will review a contract for free or for a reduced rate if you inform them of your financial situation. Others will agree to do the work in exchange for a percentage of the deal. Still others will agree to a reduced flat fee. Many permit payment via installments, and several firms and solo practitioners now take credit cards and alternative methods of payment. The cost of having a contract reviewed is a cost of doing business; just as purchasing certain software is a cost of game development. 

Myth #2: I can do it myself

    Representing yourself has several drawbacks. First, you are probably inexperienced with legal documents. You may not understand the strategy of choice-of-law, the benefits of arbitration, the breakdown of royalties, and the nuances of intellectual property law both domestic and international that all play significant roles in game contracts. You probably aren't terribly familiar with your available remedies in a breach of contract versus a material breach of contract. You're probably confused by a lot of the boilerplate that exists in contracts—don't worry, you're not alone. There are many attorneys without transactional experience who aren't aware of why certain provisions exist in a contract. A good attorney, however, will know where to get the answer. The attorney you want is one who can explain why that language exists and more importantly, can change the language in a way that benefits you; otherwise he or she can at least point out why the language poses a risk to you.

    Second, it's unprofessional. Honest, experienced business people understand the necessity of lawyers. They anticipate lawyers in the negotiation process. They expect agreements to be reviewed by competent, diligent counsel, and if you show up without an attorney, you are at a distinct disadvantage.

    Third, and on a related note, honest, experienced business people have lawyers, and will expect you to have a lawyer. Anyone who suggests that you shouldn't get a lawyer or that lawyers will only "complicate things" is very likely trying to screw you. Be very wary if the person you're contracting with tells you that you don't need a lawyer. They are either inexperienced or they have every intention of taking advantage of you.

Myth #3: All lawyers are evil

    I've heard this one a lot, and I really think that many people believe this. Everyone has a lawyer horror story or has more than likely heard a lawyer horror story that they feel bears repeating.

    There are honest lawyers. They love what they do, they have a passion for their work, and they aren't in it strictly for the money. The legal profession is first and foremost a profession, and people who go into it for the money don't last long. Simply put, practicing law requires discipline, dedication, love, and a desire to help others. Without those basics a lawyer will be very dissatisfied with their chosen profession. There is a lot of heartache, disappointment, injustice, unpaid fees, and politics that lawyers have to put up with. If they don't love what they do, you'll probably know the moment you meet them. They give off a distinct air of "I don't have enough time for you and I'd rather be doing something else." Otherwise they'll spend more time talking about what they can do for you instead of learning what they can do for you by listening to what you have to say.

    Simply put, lawyers are people. They have hobbies, friends, relationships, and families, most of which come second to their profession. They are not all business suits and sleaze. Granted, there are plenty of bad lawyers out there who have manifested in the horror stories you've heard— but every product or service produces its own brand of garbage, lawyers and game developers being no exception to the rule. The best way to avoid bad lawyers is to check out their product—ask the lawyer for previous clients who can provide a reference. From the client list provided you can determine 1) whether the attorney will have time to manage your workload; 2) whether the attorney has experience with your type of product and; 3) obviously, whether (s)he's any good. If you've picked up a new/young/fresh after the bar attorney, ask for information regarding former employment, mentors, etc.

    Remember that you must rely on your lawyer. Good lawyers want you to feel comfortable trusting them, will trust you, and will actually care about you and your business. A good lawyer is your priest, your therapist, your defender, your confidante, and your most honest friend. They're a bit like house elves, actually—they keep your secrets while servings your needs. They're just slightly better dressed.

Myth #4: All lawyers are naturally adversarial

    This is a myth with some seeds of truth to it. Attorneys are advocates. They are obligated to zealously defend their clients in court. Some attorneys take this zealous spirit to the negotiating table, where it is sometimes less effective. Deals can fall apart when a lawyer puts his own ego before his client's needs. It's been known to happen, and the best way to avoid it is to know your attorney and know his or her reputation. You want your attorney to go to bat for you—you don't want your attorney to hit the person sitting on the other side of the negotiating table in the teeth with said bat.

    Only 2% of civil cases go to trial in the US. Most cases are settled out of court. Settlement requires that the parties settle on what is tantamount to a contract. Lawyers, regardless of their chosen practice area, are primarily negotiators. They may argue vehemently for their clients in memoranda of law to the courts prior to going into settlement, but once they enter into settlement negotiations, the goal is to reach a decision that both parties can stomach.

    Transactional and entertainment attorneys are probably better suited to deal with the particular contracts you will have to deal with. However, it is also important to note that a good lawyer will avoid litigation, but will not be afraid to litigate if necessary. Oftentimes you will need an attorney experienced in litigation when your rights are infringed upon or when you're being sued.

    The bottom line is that your attorney must be aware of your needs. They must know what you want and need out of a deal, what you as the client will and will not accept. While an attorney should zealously attempt to get the best deal possible, an attorney who lets his or her own ego or adversarial nature get in the way of a perfectly good deal is a huge liability to your business.

 

    In any business relationship, the best advice I can give you is to know who you're dealing with. This is true for lawyers, business consultants, financial consultants, accountants, and publishers. This is especially true for your lawyer. A good lawyer will explain the terms of the contract to you in detail. A good lawyer will return your calls within 2-4 hours, or at least within the same day. If they don't, they'll e-mail you or find some other way of getting in touch with you to let you know the status of your case or deal. They will let you know how they spend their time, and they will provide you with documentation, research, memos to justify their fees. A good lawyer will find a way to make representation affordable. Most of all, a good lawyer will look out for your best interest and will be in a position to protect you in ways that you are not able to protect yourself.

 

• Note: This is a slightly biased slant, because I work for and know some truly excellent, ethical, and gifted lawyers, and they've set the bar for the type of lawyer I want to become.

Royalties

Royalties are overwhelming if you're not used to working with them. Royalties operate on two levels in most contracts—first, there's the language used to determine the kind of royalty we're dealing with, and next is the actual number that applies. Therefore it is necessary to know both the terminology and the math involved. I am going to explain this word-by-word, with examples, because it's the only real way to keep track of the details. *Note: The deal points and amounts set forth in the examples are NOT real world examples and are totally arbitrary.

Advance: An advance is a lump sum or installments of a lump sum (i.e. milestone payments), paid out to the developer and later charged against the developer's royalties.

    Example: Publisher will pay Developer an Advance of Thirty Six Million Dollars ($36,000,000) payable pursuant to a mutually agreed upon milestone schedule.

Guarantee: A Guarantee, Minimum Guarantee, or Minimum Commitment is more common in license or distributor agreements and is sometimes used incorrectly (in other words, it's sometimes used interchangeably with "advance"). It means that the party responsible for revenue is promising the other party that the other party will earn a specific dollar amount in royalties by a specific time. If that amount isn't earned, the party responsible for the revenue promises to pay the rest of the guaranteed amount out of its own pocket.

    Example: XXX guarantees to sell at least the minimum quantities of _____________ for each of Company Y's Product within thirty-six months of Delivery ("Guarantee"). In the event that XXX does not achieve the Guarantee, XXX agrees to pay, at the expiration of thirty-six months after Delivery, the difference between the royalties which would have been payable had the Guarantee been achieved and the actual royalties paid to Y Company. 

Recoupable: Advances are usually a) recoupable and b) non-refundable. B is self explanatory. A sounds like gibberish. Recoupable means that the amount of an advance must be paid back through sales. Specifically, it means that the royalty you're entitled to under the contract won't be paid to you until you've paid back your advance directly from your own royalties. 

    Example: Publisher will pay Developer a non-refundable, recoupable Advance of Thirty Six Million Dollars ($36,000,000) payable pursuant to a mutually agreed upon milestone schedule.

    Example- Application: The publisher must earn back that $36,000,000 from the developer's royalty rate. If the Developer has a royalty rate of 10% of Net profits, then the game would have to earn $360,000,000 in Net Profits before Developer is entitled to royalties.

Royalties: Simply put, royalties are the percentage of earnings you are entitled to. You sell your intellectual property rights (or a substantial portion of those rights) to a publisher. In exchange for those rights, the publisher gives you a royalty, which is usually a percentage of Net Profits. Note: Even though you are no longer the legal owner of your intellectual property, your royalty gives you an equitable interest in that property. That means that you still have standing to sue as a "beneficial owner" in the event of infringement.

 Example: Developer shall receive a Royalty equal to 30% of Net Profits.

    Example- Application: Assume that Advance has been recouped. After recoupment, Publisher earns an additional $100,000 in net profits. The developer is entitled to 30% of that $100,000. The developer is therefore entitled to receive $30,000.

Gross Profits: Gross profits or gross revenue is the total amount earned in sales before deductions and expenses.

    Example: Publisher has sold 10,000 units at $15. The gross profits/gross revenue is $150,000.

Net Profits: Net profits mean revenue earned AFTER deductions. Deductions may include cost of goods sold, reserves, "free goods", shipping and transportation, taxes, duties, and tariffs, marketing allowances, and earnings of third parties (i.e., if the game is based on a movie, the IP owner of the movie may have a royalty senior to the developer's royalty. The amount paid to the licensor is deducted from the net profits.)

    Example: "Net Profits" shall mean all monies received by Publisher, its affiliates, subsidiaries, assigns and licensees less customary reserves, cost of goods sold, lost and damaged goods, returned goods, promotional units and free goods, rebates, trade/marketing discounts, allowances and credits in connection with Product, and earnings due to third parties.

    Example- Application:

Gross Revenue	$10,000,000
Cost of Goods Sold	$2,000,000
Free Goods	$10,000
Reserves	10%= $1,000,000
Lost and damaged goods	$10,000
Marketing discounts	$50,000
Senior royalties	10%= $1,000,000
Net Profits	$5,930,000

 

    @ 30% royalty, you earn $1,779,000. If you aren't recouped, this amount goes towards your Advance and you never see it.

Reserves: Reserves are typically a percentage of the receipts that are withheld for a specific period of time to cover returned units. Retailers are entitled to return units that they are unable to move, and they can get a refund from the Publisher for those units. Publisher may try to pass those losses onto the developer.

    Example: "Reserves" shall mean 10% of Net Profits for all returns, discounts, markdowns and allowances of Units. Publisher shall liquidate Reserves if Reserves are not used within 180 days.

    Example- Application: Your deal sets a reserve amount of 10% for a period of 6 months. This means that at a maximum Publisher can withhold 10% of revenue as reserves against net profit calculations for 6 months (this doesn't include lost or damaged goods, those are accounted for separately). Publisher sells 1,000 units at $20 to Retailer. Of that $20,000, Publisher can withhold $2,000 for 6 months from royalty accounting to cover returned goods by Retailer. Of those 1,000 units, retailer returns 50 units. Assuming there is no penalty Retailer is entitled to a refund of $1,000. Publisher can then use the reserve to cover the $1,000 loss, which is deducted then deducted in Net Profits calculation. At the end of 6 months, the remaining $1,000 is added into the accounting for Net Profits assuming there are no more returns.

Free Goods: Somewhat self-explanatory—publishers will give away units to various media entities for promotional purposes. Those units are typically marked "For Promotional Purposes Only, Not For Resale." Those promotional units are not considered "sold" and provide no revenue. Therefore the cost of those units is deducted from Gross revenue.

    Example: No royalties shall be earned with respect to (a) Units used for promotional purposes or furnished free to the trade, press or for public relations use; (b) Units furnished free to distributors, sub-distributors, retailers, or others; or (c) prior to a uniform wholesale price reduction, Units sold to distributors, sub-distributors, retailers or others for less than the actual per unit cost (i.e. "at-cost" price) of the applicable Unit.

Cross-Collateralization: Cross-collateralization means that revenue earned from one game title can be used to cover unpaid advances and development fees of other titles. This is typically the case when one developer works with one publisher over various titles. The term can also be used in reference to sale of the same title over multiple platforms. 

    Example 1: All royalties shall be cross-collateralized across all platforms and version of the Title.

    Example 2: Publisher may recoup Advance and all additional fees in whole or in part from all Royalties earned by Developer under this Agreement or any other agreement between the Parties.

OEM: Original Equipment Manufacturer, or "bundling." Publishers may license a game title to OEMs (i.e. console manufacturers) to be bundled into the product. OEM agreements are typically treated as "ancillary" compensation. Under OEM deals the publisher grants the equipment manufacturer a license to distribute the game software in a very specific manner, usually as part of a bundle with equipment or a console. To do this, the publisher usually delivers a master CD of the game to the equipment manufacturer, and the manufacturer is responsible for printing and packaging that product pursuant to approvals by the publisher.

    Example- Application: Your game is ported to Nintendo Wii. Your publisher then enters into an OEM Agreement with Nintendo to bundle your game product with the sale of each Nintendo Wii. The royalty rate for OEM bundled products is ordinarily substantially less than the retail list price. If OEM products are included in your deal as ancillary revenue, and your ancillary royalty rate is 50%, you'll be entitled to 50% of the publisher's OEM royalties from the Nintendo OEM deal.

Ancillary revenue: Ancillary revenue is usually calculated separately from Net profits because ancillary revenue doesn't involve the sale of traditional units. Instead ancillary revenue is derived from licensing of the game product. For instance, strategy guides, merchandising, and licensing your game's IP to a movie studio all constitute ancillary revenue.

    Example: "Ancillary Rights" shall mean any and all ancillary items, including, but not limited to, strategy guides, toys, books, comic books, photographs, posters, television series and motion pictures, derived from, based on, or in any way related to, the Title and/or content of Title.

Future Products: In the event that the Developer doesn't create sequels, prequels, or additional ports for the game, the developer may still be entitled to additional compensation for future products that use the game's IP.

    Example: Publisher shall pay to Developer X% of Net Profits for Future Products not developed by Developer, including any future ports, sequels, prequels, and other game products derived from the Title's content.

These are the general principles behind royalties. However, how royalties are calculated depends very much on the specific agreement, and relying on "general" principles can therefore be dangerous. Your best bet is to read the definitions section of your agreement. If royalty terms aren't spelled out there, review the "royalties" Or "contingent compensation" section of your agreement. If something isn't clear to you, consult a lawyer. It's the only way you can be sure that your royalties are properly being accounted for.

[Soapbox]

A photographer friend of mine posted an article by Mark Simon concerning Orphan Works. Between that and the discussion brought up through an IGDA mailing list I belong to, I started looking into this a bit. I think a lot of people, developers and designers included, may get a little overwhelmed or fearful when this issue comes up. To avoid this, it's important that you actually learn about the issues. Orphan Works are a touchy subject because artists want their works protected and creating a new law that enables people to use works that would ordinarily be protected is necessarily going to piss artists off. It's worth noting that Orphan Works proponents have been trying to get this into the Copyright Act since the expansion of copyright protection in 1976. It hasn't made it in yet. We are signatories to the Berne Convention, and as such doing anything that could seriously injure authors' rights will raise some very concerned international eyebrows.

 

An Orphan Work is, simply stated, a work where the author cannot be found. Because there may still be rights attached to the work, people who want to use the work but who are unable to locate the owner of those rights are often afraid to use the work for fear of future liability. To address this issue, Congressional subcommittees have been formed to formulate a way to treat these works. The first bill that came before Congress was the Orphan Works Act of 2006. It failed. However, there is always a chance that it could come up again, so people like Mark Simon and the Illustrator's Partnership of America are trying to bring attention to the issue.

 

The problem with the Orphan Works issue is particular to visual works like photographs and digital images. One major fear is that it would be possible for someone to claim that a work is an orphan work because some prior infringer took the image and cropped or removed anything that could identify the rights holder. As a result we have private companies who want to create registries where artists could register their work. One issue is the reliability of such registries. Another is the cost to the artists.

Mark Simon paints a very doom and gloom picture, which is understandable. He's an artist. But sometimes misinformation and passionate speech does more harm than good. There are plenty who are already jumping on the bandwagon to discredit his article. However, Mark Simon made some very valid points. Under Best Practices, it is the individual industries that determines due diligence. What Marybeth Peters fails to point out is that making vague law requires that due diligence be determined in Court. This kind of law immediately puts artists at a disadvantage, especially when the remedy itself may be limited. Every case will have to be brought to court to determine whether the due diligence standard has been met—it makes the issue a question of fact as opposed to law, which is inherently problematic. An Orphan Works Act shifts the burden to the author as opposed to the user in the fair use equation, and that is highly discouraging to artists. In a fair use case, at least, the artist may still be entitled to significant statutory damages. Formulating an Orphan Works Act with a due diligence standard is also counter to copyright public policy—not all rights under copyright are equal, and therefore some artists will be harmed more than others under an Orphan Works Act.

 

As the IPA points out, relying on registries will also be problematic. There are plenty of pitfalls, slippery slopes and dangers in the proposed legislation. One potential fear is the chilling effect this will have on the free distribution of creative works. Currently the threat of statutory damages is sufficient to prevent users from commercially exploiting or distorting creative works where the attribution, for whatever reason, is absent. Removing from, placing a condition on or creating a loophole for that threat may encourage artists to employ DRM and other methods to prevent the free distribution of those works.

My personal belief is that the Copyright Office should put more time into setting reliable guidelines for fair use, where the uses considered for orphan works should be handled, as opposed to creating new law. Most of the uses speculated in Marybeth Peters' testimony are matters of fair use-- the reason people are afraid to make fair use of copyrighted works is the fear of having a lawsuit brought against them. This is obviously a serious issue. Museums and individuals who own the physical copies of historical works of art should be able to preserve and display those works to enrich our culture. After all, if the work truly is an Orphan Work, who is going to bring the cause of action against the user? Actual orphan works don't present a threat to users—only the threat that they are not truly "orphan" can create the prohibitive fear. It is the commercial use of works that have owners who want to protect their interests that create a threat to the users of "orphan works." Those copyright owners have a right to protect their interests. Shifting the burden of proof onto the author and limiting the remedy to "reasonable compensation" may seriously tie the hands of valid rights holders.

 

An alternative is to avoid unduly burdening either party by clarifying the law of fair use.

It's important to educate yourself and handle things in an intelligent, clear-minded manner when you take up any cause. Mark Simon failed to do so, and while he definitely raised awareness on the issue, passionate prose is often dismissed.

A couple of notes:

1. No Orphan Works Act has been presented to Congress yet in this session. A great resource is govtrack. Keep an eye on the legislation if it's of issue that is important to you.

2. There are many sides to this issue. On the one hand, museums and valid users of copyrighted works feel that their own hands are tied when it comes to fulfilling their community duties. Artists, however, feel that their rights are going to be seriously diminished if this Act passes. It's important to maintain a realistic balance when examining this issue. A compromise should certainly be reached, but a new law probably isn't necessary when current law can be adapted to handle this issue.

 

[/soapbox]

Hiring for your Development Company

In the beginning, most independent developers don't think about hiring employees. Much of the work is done on an independent contractor basis, and the projects are small enough to not require additional labor. However, once you earn a reputation and you begin pulling down more projects, you may find that hiring additional employees is necessary to manage your workload.

Employment and labor law differs from state to state, country to country. Workers' Compensation, employee discrimination, and sexual harassment are all very serious issues that employers have to consider when setting up their business. There are also other logistics, such as managing payroll and tax withholdings that may require additional software or accounting to ensure state and federal tax compliance. If you are considering hiring employees, it's always smart to consult an attorney that is versed in employment and labor law. Failing to do so could lead to failure to comply with certain jurisdictional guidelines. Furthermore, lawsuits by disgruntled former-employees can create serious problems for developers and can often be avoided if certain quality of life and human resource issues are addressed prior to the hiring process.

The following checklist has been adapted to address issues peculiar to developers.

1) Get your tax information squared away.

This means a) filing an SS-4 for your EIN for federal taxes, b) registering with your state's labor department to pay unemployment taxes, and c) set up a payroll system for state and federal withholdings. Turbotax is a great program for setting up payroll tax withholdings and is the one currently recommended by accountants. To determine what forms you will need to file come tax season, visit the IRS website (federal) and the FTA (state) for more information.

2) Get insured

Employers are required to carry workers' compensation insurance to cover on-the-job injuries. You have to comply with your state's guidelines when you file for insurance, and you can typically do so in one of three ways—self-insurance, state-administered insurance plans, and private insurance. To get insured, first figure out what your state requires and/or permits. Next, do your homework and determine which option is best for your purposes.

3) Develop Safety and Quality of Life Guidelines

Companies are required to comply with OSHA (Occupational Safety and Health Act), which sets out the baseline requirements to ensure the safety and health of your employees. Health and Safety becomes an issue for developers when you're dealing with a lot of computers in a small space. There is the possibility of fire, electrical outages, electrical shock, improper grounding, spills, and various other risks and hazards that must be addressed. You must also comply with any applicable municipal building codes. Make sure your electrical wiring is up to date and provide employers with guidelines for how to properly handle certain situations. Make sure your fire alarms are all fully functional, and have appropriately spaced and well-marked emergency exits in your place of work. You may also be required to admit the fire marshal to ensure building code compliance, so be sure to notify your employees on the day she or he will be in the building.

4) Comply with Department of Labor posting requirements

Visit the DoL website to determine what information and notices you need to provide to your employees. You are required to inform them of their rights under federal (and some state) law. Make sure to comply with the posting requirements as well.

5) Create Personnel Files

Every employee should have their own file that contains their application, their signed NDA, their resume, other work related documents, their I-9 and their W-4. The file may also include employee evaluations, complaints, and other information relevant to their employment. Any medical information MUST be kept separate from the main file and locked away due to HIPPA and state health care privacy laws. Disclosure of any health care related information could lead to both civil and criminal sanctions depending on your state's laws.

6) The employee handbook

Your employee handbook should describe office procedures, complaint reporting requirements, sexual harassment policies, anti-discrimination efforts, disciplinary measures, and confidentiality requirements. It should describe how you want your employees to behave. It should also describe your goals as a company and your standard business practices. It is important to enforce your disciplinary procedures, particularly in the areas of confidentiality/non-disclosure to maintain protection of trade secrets. You may also want to describe any employee benefits that employees can apply for if you've taken steps to provide a 401(k) or health insurance policies to your employees.

7) Annual reporting

You need to fill out a form 940 or a form 940-EZ every year for your federal unemployment tax. A form 940 is required if you are required to pay unemployment taxes in more than one state or if you failed to pay all of your unemployment taxes by January 31 of that year. Otherwise you may fill out the 940-EZ. You are also required to pay those taxes you withheld in you employees' paychecks. These withholdings account for federal income taxes, medicare taxes, social security taxes and FICA. You can find all of the appropriate federal filing information at the IRS website. In particular you will need to fill out forms 941, 943, 944, and an annual W-2. A copy of the W-2 must also be provided to employees. Note that these are just for your federal tax filings. You must also comply with state tax filings.

Caveat: A lot of developers hire programmers and designers from other countries. If those employees are relocating to the United States, they MUST obtain the proper work visas and fill out an I-9 form. For more information on I-9, visit the USCIS website.

With each new employee that you hire, you must do three things:

1) Notify your state's employee reporting agency;

2) Every new employee must fill out an I-9 to show that they are allowed to work in the U.S. This is required for both US and non-US citizens.

3) Have the employee fill out a W-4 and withholding allowance certificate.