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Suppose that I made an MMORPG which has interesting gameplay, but rather bad graphics.

One day, a fan of the game writes a client in Unreal Engine that lets them play the game with HD graphics (but they still need to buy subscription from me to connect to the server). Because of this, my game becomes more popular and I'm making twice as much money.

Epic's license for Unreal Engine asks for 5% royalties, but I never agreed to this licence, the person who made the third-party client did.

Do I have to pay royalties to Epic? If yes, is it just on the portion of profits from players that connect using the third-party client?

1 Answers1

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Technically, as I've read the unreal license agreement, the person who made the mod would owe Epic 5% royalties on all your sales related to the mod, even if they did not collect the sale price.

You cannot be a party to a license you did not agree to, but Epic has very strange royalty terms that seem unreasonable on the surface and I'm not sure they've tested that in court.

Here is what the license says:

  1. Royalty

You agree to pay Epic a royalty equal to 5% of all worldwide gross revenue actually attributable to each Product, regardless of whether that revenue is received by you or any other person or legal entity, as follows:

a. Gross revenue resulting from any and all sales of a Product to end users through any and all media, including but not limited to digital and retail;
b. Gross revenue resulting from any and all in-app purchases, downloadable content, microtransactions, subscriptions, sale, transfer, or exchange of content created by end users for use with a Product, or redemption of virtual currency, either within a Product or made externally but which directly affect the operation of the Product;
c. Gross revenue from any Kickstarter or other crowdfunding campaign which is directly associated with Product access or in-Product benefit (e.g., in a multi-tiered campaign, if an amount is established in an early tier solely for Product access, your royalty obligation will apply to that amount for each backer with the same access, but not on additional amounts in higher tiers based on ancillary benefits);
d. Your revenue from in-app advertising and affiliate programs;
e. Revenue from advance payments for a Product (from a publisher or otherwise);
f. Revenue received in connection with a Product’s inclusion in a streaming, subscription, or other game-delivery service (e.g., Apple Arcade, Microsoft GamePass, or any similar or successor services), including without limitation development funds and bonuses; and
g. Revenue in any other form actually attributable to a Product (unless excluded below).

So the first part says "regardless of whether that revenue is received by you or any other person or legal entity". So somebody else may have revenue attributable to the product (aka a 50% increase in sales due to this mod), and you owe it even if you are not collecting or receiving that money directly.

The last part (g) also says that revenue in any other form attributable to the product. Epic's license doesn't allow you to make a "front-end" to a paid product and release the front-end free, and collect money on the back-end. So if revenue is attributable to the product you develop, you owe royalties on the sales related to the product regardless of you collecting that income or not.

Notice how it doesn't say "directly attributable to each Product...", it says "actually attributable to each Product". This is the part I find a bit egregious and not sure it will hold up in court, however the terms of the license are written so that the developer of the Unreal product has to pay royalties even if they don't collect money from it themselves.

Ron Beyer
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    Interesting that the person who made the mod would owe Epic, even though they're not collecting any money with which to satisfy that requirement. – Andrew Leach Apr 13 '20 at 11:08
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    @AndrewLeach It's not so strange if you think about it. Virtually all products/services require you to pay for them regardless of what money you make when you use it to produce something else. If you happen to have a business model that involves you giving your finished product away for free, and someone else takes it and makes a profit on it, that isn't Epic's problem. – JBentley Apr 13 '20 at 12:17
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    Epic is probably going to sue OP anyway allegating that the mod writer is an employee/contractor and that OP is just hiding this to avoid paying the license... If they don't do this they probably won't get any money by anyone. – Bakuriu Apr 13 '20 at 15:11
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    The mod writer could probably choose to pass the fee onto the players. – Solomon Ucko Apr 13 '20 at 16:09
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    Why would the person who made the client owe any money to Epic if they give the client away for free? Their royalties are zero, and 5% of zero is still zero. Your answer would be much better if it explained what part of Epics license would lead to the outcome you describe. – Polygnome Apr 13 '20 at 19:56
  • @Polygnome I added information that supports my conclusion from the license. It's because somebody elses revenue is attributable to your product. – Ron Beyer Apr 13 '20 at 20:21
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    @RonBeyer I am very skeptical that revenue received by someone else can be considered revenue attributable to that product. I mean, if someone sells a texture to someone else, and that texture was purchased for use in a game made with Unreal Engine, Epic doesn't get a 5% cut of that texture sale, either. From none of those parties involved. – Polygnome Apr 13 '20 at 22:31
  • If it was an "in-game" purchase, then yes, royalties would be owed (read (5.b)). Technically this is written such that if you sell through an App Store (like Google Play), you can't say "well Google is the one collecting the money, I just get what Google pays me for having the app there", however it's written much broader than that and the only way to 100% clear this up would be through courts. – Ron Beyer Apr 13 '20 at 22:36