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Royalties and User Generated Content Store

If a game developer were to make a game with UE4 and then provide a marketplace where players could sell user generated content to each other for that game specifically, with the game developer getting a cut of each purchase (e.g., Valve's TF2), how would the license and royalties be determined?

Or put another way, given the below definition from the EULA, is user generated content considered "Product", assuming it does not use any UE tools or anything else requiring that the player agree to the UE4 license? Since the content would not be "developed under this agreement", it seems like it would not be a Product in the eyes of the license, but I'm not entirely clear if that's accurate.

“Product” means any product developed under this Agreement that combines any Licensed Technology with any other software or content, regardless of how much or little of the Licensed Technology is used.

Let's say a player makes a map using only tools provided by the game developer, and sells it on the game developer's marketplace for $2. The game developer takes a 25% cut of each purchase (22% after payment processing fees are considered). 10,000 players purchase the map, which results in a total of $20,000 transferred, with $5,000 going to the developer ($4,400 after fees), and $15,000 going to the map maker.

Regardless of who pays Epic, how much total would Epic be owed in this case?

  • $0, because the map is not considered a "Product" under the terms of the EULA?

  • $250 (5% of the $5,000 the developer made) because this would be revenue vaguely similar to ad revenue on a free-to-play game?

  • $1,000 (5% of the $20,000) because the map is considered a "Product" by the EULA?

I presume 5% of $4,400 is not relevant, since that would be net profit, not gross revenue. Similarly for 5% of the map maker's $15,000.

If the answer is the third bullet point, then a further question is if the game developer can require that the map maker be responsible for acquiring his or her own UE4 license and and paying any royalty fees (based on the full price of $2 per purchase, subject to the $3,000 quarterly minimum according to the map maker's personal profits), if the game developer can split the royalty responsibility with the map maker 25/75, or if the game developer must be fully responsible for all $1,000 owed to Epic.

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asked Jun 03 '14 at 04:48 AM in Legal & Licensing

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Againey -

You've asked a very interesting, nuanced question! Assuming you are distributing to the general public, here are some initial points:

  • You can have a UGC-making tool, but that tool can't be based on Epic's editor and other tools (i.e., distribute or link to (statically or dynamically) modules in the Developer or Editor source folders).

  • Also, your game can't permit end users to make UGC which is a standalone product.

  • So, assuming your UGC-making tool complies with the above, you are permitted to have such an in-game tool. Let's say it allows users to make hats, and those hats can be sold to other end users via an in-game marketplace. That's all permitted.

  • As for royalties, there is a 5% royalty on gross revenue that is generated from "all in-app purchases, downloadable content, microtransactions, subscriptions, or redemption of virtual currency, either within a Product or made externally but which directly affect the operation of the Product."

  • Therefore, the developer (UE4 licensee) is responsible for a 5% royalty on the entire purchase price of the hat, before distribution of part of the money to the end user hat maker. Subject to the $3,000 quarterly minimum, as you stated.

Now answering your questions specifically:

  1. $1,000 is owed by the developer on the $20,000 gross map revenue.

  2. The map isn't the Product; the game itself is the Product and the map is an extension of the game. As you stated in your intro, the map is for that game specifically. And if the map were standalone, it would be prohibited (per above).

  3. If the developer wants to get someone else to pay all or some of the royalties owed, Epic isn't too particular.

Now if the game is only distributed to other UE4 licensees (which I presume is not the case), things are a little different. For one, there is no restriction on use of the editor. And two, no royalties are owed on revenue from a product which is only distributed to other UE4 licensees.

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answered Jun 04 '14 at 02:50 AM

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atypic STAFF
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avatar image againey Jun 04 '14 at 03:00 AM

Very clear answer, thanks a bunch!

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