Say a game company goes bankrupt but another company wants to make a sequel. Is it possible for the other company to obtain rights to make a sequel?
Who would they even contact about this?
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I believe this happened with Midway Games, who sold off Gauntlet to Warner Brothers Interactive following its implosion; if you're curious about what happens if the company doesn't restructure.– Erin BNov 21, 2019 at 14:14
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2@ErinB Just a quick note: Midway Games was acquired wholesale by Warner Brothers in the wake of that implosion, not just the Gauntlet property, so I'm not sure it's quite directly applicable. (Source: I was a Midway employee at the time.)– Steven StadnickiNov 21, 2019 at 17:06
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@StevenStadnicki Good clarification, but that does help to illustrate how IP transfer could/would happen in this situation! (Thank you so much for your input, I'm so sorry you had to go through that, Midway was one of my favorite companies in the world after Dark Legacy!)– Erin BNov 21, 2019 at 18:12
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2 Answers
A company does not cease to exist simply because it goes bankrupt. The company may wind down its operations, but it may just go through a process of restructuring its debts.
If the company is merely restructuring, the bankruptcy would not probably not have much effect on its ownership of intellectual property such as copyright and trademark rights. So it would retain those interests in the video game, and the company making the sequel would need to obtain licenses from the original company.
If the original company is going through bankruptcy in anticipation of shutting down completely, you can expect it to sell off all its assets, which would include its copyright and trademark interests in the game. In that case, the company making the sequel could either attempt to purchase those rights itself, or it would need to obtain a license from whoever does buy those rights.
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5I'm also quite interested by this question. What would happen if the company was unable to sell their assets? Say, no one was interested in purchasing the rights to the game. What would happen to the rights to the game?– ESRNov 20, 2019 at 11:38
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37Speaking as someone who's worked for a few: small businesses that fail spectacularly often do not sell their IP when they fail. There's not enough value to either the failed business or any hypothetical buyer to justify the labour involved in striking a deal. I have no idea what legal status the IP ends up in in such a scenario, but you absolutely can't just take for granted that it will have been sold off, like this answer does. Nov 20, 2019 at 11:53
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15@ESR: Assets not sold in bankruptcy revert to the owners of the company.– MSaltersNov 20, 2019 at 12:08
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13@ESR one scenario (which, if I recall correctly, I have read about exactly in the context of old game IP, but I can't remember which game) is that near the end of the asset sale some company gets a bulk deal to purchase "any and all remaining assets of company X" with the expectation that they'll earn a profit by sorting out various remaining odds and ends, everything from unused packaging and spare fire extinguishers left at their facilities to long-uncollected unpaid debts. Such an "all-inclusive" deal would also make them legal owners of any unsold IP, even if they ignore it at the time.– PeterisNov 20, 2019 at 13:19
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7It's also very common for the original shareholders or founders to buy the assets of a liquidated company. The price will be set either by auction, or by agreement with the liquidator if there are no other likely purchasers. It's in this way that wound-up companies can reappear the next day with the same name and same directors.– BenNov 20, 2019 at 13:44
The copyrights do not disappear just because the owner ceased to exist. That applies to both companies and people. As an asset, the copyright is part of the estate of the entity and will be either transmitted to the heirs, remain in the estate, or go to the buyer of the assets. As @MSalters pointed out, assets that are not sold will belong to the owners of the company.
It might become nebulous as to who is the owner in the case of a company going bankrupt, but the problem arises when someone who has a plausible cause to believe they are the owners decides to sue.
The game company will be dragged into a lawsuit that might end either way. Sometimes the lawsuit in itself is costly enough (in both time, effort, and/or money) to discourage even touching that IP.
One real-world example was Sunbow Entertainment [1] that went bankrupt and some of its assets went to Sony Wonder and some to Rhino Entertainment. One IP in particular, Jem and the Holograms, rested in copyright limbo for years until Hasbro bought the rights to both sides.1
If someone were to make a product based on Jem and the Holograms during that time, a lawsuit could have come from Sony, Rhino, or even Hasbro, as any of them could have claimed to be the rightful copyright owner.
Only after Hasbro cemented its claim did the company decided to try and flop at making a live-action movie based on that IP.
Licensing would be a nightmare, as every one of the possible copyright owners would want their share of the pie.
1 - A contract about such often contains language close to *any rights Party A might have in Item 1 to Party B
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If it's not clear who owns the IP, you could offer any potential owner money for a license that literally says "for whatever IP this company owns". If it's two companies, you could offer each one half the value. If the IP is worth $10,000, and fighting about ownership costs an estimated $20,000 both potential owners might be happy. Sep 9, 2020 at 12:07