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As a technology solicitor I often have responsibility for drafting or redrafting contracts for clients that have royalty fees. As a matter of course, if my client is due a royalty under a contract, I will look for audit rights. Audit rights allow recipients of royalties look at the books of the paying company, to make sure that they are getting what is due to them.
That is why I was interested in Sawyer v Atari Interactive Inc, a UK Chancery Division decision of Mr Justice Cooke handed down in October. The case involved a software developer, Sawyer, who wrote computer games which Atari developed and distributed. He had a number of agreements with Atari pursuant to which he was due royalty payments, including for Roller Coaster Tycoon games.
In 2003 Sawyer informed Atari that he wanted to conduct an audit of the amounts upon which his royalties were based for period 1 January 1999 to 31 March 2003. Atari said no in respect of sales prior to 2001. Claims and counterclaims followed.
The moral of the story for games developers out there is to ensure that your agreements are properly drafted. Appropriate audit clauses can avoid costly litigation!
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Then of course once you have the audit clause you have to make sure you can use it. Those tricky publishers, when faced with a dev that demands an audit clause, will then slip in other clauses to limit/reduce the usefulness of said clause. By limiting audits to a max of 12 months after the accounting period they relate to (after which errors can’t be corrected) they are putting a statute of limitations on their mistakes and forcing the dev to go to the expense of auditing every 12-24 months.
Always have either a good lawyer, a good agent or a member of the management team who knows the business side inside out.
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Then of course once you have the audit clause you have to make sure you can use it. Those tricky publishers, when faced with a dev that demands an audit clause, will then slip in other clauses to limit/reduce the usefulness of said clause. By limiting audits to a max of 12 months after the accounting period they relate to (after which errors can’t be corrected) they are putting a statute of limitations on their mistakes and forcing the dev to go to the expense of auditing every 12-24 months.
Always have either a good lawyer, a good agent or a member of the management team who knows the business side inside out.[/quote:edaa185946]
Very true.
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