Xbox Live 360.com. Games and Games.

It's been on the major news sites that a class action has been levied against SquareEnix for fees associated with Final Fantasy XI, the company's MMORPG. However, there's more to it if you look at the filing posted by GamePolitics.

News sources have been quick to point out that the monthly fee is clearly stated on the Square website, as most MMORPGs with a monthly subscription plan do. Looking at the pleading, though, the main monthly fee isn't the crux of the complaint. I think the stronger complaint lays with the penalties and interest for late payments, and 'charges while the online game account is suspended,' if that means the monthly fee is continuing to toll. This case may not be about the base monthly fee at all, but rather what happens if you don't pay.

More troubling still are facts 11 i and vi, which essentially challenge the software licensing model as a whole. Fact 11i reads 'Licensing of the online games software disguised as a sale;' while count 11vi reads 'Termination of the right to use the online games for late payment of fees.' To me, this reads that they're challenging traditional software retail and MMO sales as a deceptive trade practice because buying the game doesn't actually purchase a copy of the game nor the right to play. The latter is certainly the weaker point, as I'm fairly certain the box references the required monthly subscription. Normally I wouldn't put stock in an attempt to redefine the entire software industry, especially in California where so much software is developed, but the California courts have been known to issue unusual decisions and have long favored consumer protection.

Count vii, which contests the terms of use, seems like a dead end unless the entire software licensing model is shot down by the court. The Terms of Use are an extension of the license, and if the license is upheld, then the terms of use will be. Other cases have failed to strike down either (other than with regard to things like arbitration provisions), so I doubt this will be successful.

It will certainly be interesting to see the claims in the suit fleshed out further. Based on the information available, this looks like a case of 'I bought the game, didn't pay my monthly fees, and are mad that you won't let me play and are charging me interest on the fees I owe you.'

Continuing from Part 1, this article addresses the concept of mergers and acquisitions, which are undoubtedly important to the smaller developer. For those outside the industry, or who don't hav a business background, the overwhelming question is probably a simple "Why?" Part of it seems to be a trend in the industry, a trend which has happened in many other industries before. Large game companies (i.e. EA, Ubisoft, Microsoft, Nintendo, Sony) like to acquire up and compning developers for a number of reasons, such as adding fresh thought to the development process, adding new intellectual property to their roster both from the standpoint of the software and the brand that accompanies it, and a broader mass appeal, not to mention the added revenue. From the standpoint of a start up developer, a big studio taking over gives you many of the perks that come with being in a big company, and may remove many of the financial concerns and burdens that occur with a smaller business. Of course, if your small business is more like, say, id software, or if you happen to have a genius like, say, Miyamoto* break off to form a small development company, then you're probably not looking into being acquired.

So, what are mergers and acquisitions? Well, it's two different means to the same ends: two companies combine to form one. A merger is where two companies come in on more equal footing, and merge into one new entity. An example would be SquareSoft and Enix becoming SquareEnix. An acquisition, on the other hand, is typically used to describe a large company absorbing a smaller company, such as when Microsoft originally acquired Bungie. In both types of transactions, the mechanism is controlled by the contract, and often times they all work about the same, other than the respective sizes and bargaining powers of the entities. Hence, Mergers and Acquisitions (or M&A, as they're often called in the legal and business worlds) are typically discussed as a single concept.

This brings us to the basic workings of the concept. Generally, this starts either by one company deciding it wants to acquire another, or two companies mutually deciding they're be better off joining forces. From there, the deal is negotiated through, once again, the contract. There may be some additional regulatory issues if there's a cross-border transaction or if both companies are publicly held, or if the new company would result in some sort of a monopolistic anti-trust monster, but generally, there won't be too much government interference to worry about, unless a location happens to require particular permits. There is also always a tax element to pay attention to, but that applies on both a local and national level (as well as a state level in many places). Once all of the details are ironed out in negotiations, there is some sort of closing to sign the documents, and then the companies are re-assembled according to the terms of the agreement. As this is such a flexible process, given the flexibility of the agreements and the dramatic differences between potential parties, this is another occasion where tips are more appropriate than a guide.

1. Keep your position in perspective. Remember that no two transactions are alike, and your place respective to the other party in the deal may reflect directly on your bargaining power. If it's a merger, you probably can't force the other party into too many different directions. In an acquisition, I tend to believe the little guy often has more power than the big guy. Typically, in an acquisition, the big guy wants the little guy, and the little guy may be able to get a few extra perks because of that desire. Of course, individual situations do vary.
2. Each side needs independent counsel. Much like I stated in the previous part, everyone needs to have their interests represented independently. More than that, independence removes the appearance of impropriety in case the deal falls apart down the road.
3. Organization is the absolute key. Negotiations in these deals can, and do, drag on for months at a time. Without a pretty thorough organization, things will be overlooked. Your legal representation should handle organizing the documents and keeping you apprised of the word for word changes in redlined versions, but checklists help with the bigger picture.
4. Remember: Contracts are flexible. When it comes right down to it, most any outcome can be written into the contract. If you want to maintain separate offices, that can be done. If you want salaries locked in for 5 years, that can be done. If your big sticking point is making sure there's a frozen yogurt machine in the breakroom, that can be addressed too.
5. Build in a mechanism to resolve future issues. As much as every attorney wants to be sure the document accounts for every contingency and every alternative, inevitably something will come up. If a way to resolve issues is built into the contract, hopefully it will keep the deal from falling apart over unresolved problems, be they with healthcare or office attire or the number of action figures allowed in a cubicle.

In the grand scheme of things, M&As are pretty routine. They have been happening in business forever, and there are plenty of professionals who have significant background in these transactions. Now that the game industry is one of the biggest kids on the block, more traditional business issues will continue to arise in the industry and be well publicized, just as the recent events noted in Part 1 were.


*Note: There's no indication this would ever happen, but he's a recognizable example of the concept. This is not meant to create some grand rumor about a new studio in the works.