The breakout success of Palworld and its striking resemblance to Pokémon sparked a great deal of debate about what constitutes IP infringement.

According to its creator, Palworld had been passed over by every publisher that had seen it, yet it reached 19M players in a matter of weeks. It has been followed by another surprise hit, Helldivers 2, which bears a striking resemblance to Starship Troopers — so much so that one reporter was surprised its developer didn’t get sued.

The speed of IP development has exploded as barriers for amateur game developers have been lowered thanks to UGC game platforms such as Roblox and Fortnite Creative, and also traditional game development platforms like Unreal Engine 5.

The increasing saturation of the game market means that developers of all kinds are turning to well-established IPs as an assurance that they will find an audience. However, indie developers, including those on Roblox and Fortnite, often infringe because they don’t have access to the IP holders or they may be unaware of copyright law to begin with. As it stands today, game developers of all kinds walk in a gray area of copyright and trademark law, and brand integrity, consumer confusion, and millions of dollars are at stake.

IP Infringement Is Complicated (An American Perspective)

If you speak with an intellectual property lawyer (like we did for this article), you will likely learn that bright lines and clear answers are not always possible. That’s because intellectual property law analysis is often nuanced and performed on a case-by-case basis.

In the U.S., IP law is itself a bit of a misnomer, as there is no single body of “intellectual property” law. When people refer to IP law, they are typically referring to several distinct, but complementary, areas of law. In independent game development, copyright and trademark law tend to be the areas where many problems arise.

Copyright law is designed to incentivize the production of original creative works by providing exclusive rights to artists/authors for their expressive, tangible creations. Through these exclusive rights, the artist/author has control over how and when their work is used. If an independent studio wants to utilize a copyright-protected character or element, they must first obtain permission from the IP owner. This is typically accomplished through a licensing agreement.

When determining if someone has infringed a well-known copyright, typically the IP owner must establish that the accused work is “substantially similar” to the protected work. This is frequently a difficult task, and usually involves a trial, including the testimony of expert witnesses on both sides of the argument. There are various tests that courts employ in their analysis, but the determination is fact-specific and varies on a case-by-case basis. Unfortunately, there are no hard formulas whereby if you make a fixed percentage of change, you are comfortably in the clear.

Trademark law is designed as a commercial protection. The underlying purpose of the law is to protect consumers from confusion in the marketplace: If every burger place could call itself “Burger King,” you may have a hard time determining which was the “Burger King” you preferred.

Trademark infringement is evaluated based on the likelihood of consumer confusion. If you choose a similar sounding name, or a logo that may be close to the one used by a reasonably related product, you may have inadvertently created a trademark issue. The more likely that consumers of a similar product would believe the two are related, or officially connected, the more likely a trademark issue exists. Indirect evidence of confusion can also be cause for concern for game developers, such as when publications begin referring to a game as the “One Piece' Roblox game” or “Pokémon with Guns”.

If an IP owner believes someone is infringing its copyright or trademark related rights, a DMCA takedown request can be initiated.

DMCA (Digital Millennium Copyright Act) is a U.S. law that protects platforms from being responsible for the content that individuals upload to their servers. Most famously, the DMCA created what is known as a “safe harbor” for online service providers (such as those that allow users to upload UGC). This means that if content platforms meet specific requirements, they will not be held liable for any infringing material their users upload.

To take advantage of this protection, platforms must provide a process by which IP owners can notify the service provider of what they believe are infringing materials. Once notified, the platform must promptly block or remove the alleged infringing material. This is what is commonly referred to as the “notice and takedown” process that many are familiar with. If the platform complies with the requirements of the DMCA safe harbor provisions, it can avoid responsibility for the potential infringement of its users.

That isn’t to say that platforms are not immune to lawsuits. In 2021, Roblox was sued by several music publishers for encouraging the use of unlicensed music content. The case was settled out of court. As such, both platforms and their creators need to be careful with unlicensed content.

Unlicensed Content Is Facing an IP-Owner Reckoning

Game content is proliferating at an unprecedented rate, and the number of gamers, while quite large, is not matching the pace of gaming content creation. Roblox developers, for example, contribute 20M experiences each year, and Fortnite Creative has contributed an additional 67K maps in the past 10 months, according to Fortnite.gg. While mods have existed since the beginning of video game time, there is now real money being made by these indie developers.

Source: Fortnite and Roblox Numbers, Overwolf Numbers, Steam Numbers 1, 2
*Steam earnings were calculated by taking Steam revenue and multiplying by 70%. Steam reduces its rate to 25% for games making more than $10M revenue, so developer earnings are likely higher than $6B.

Considering that payouts to UGC game developers grew by 30% last year, UGC game platforms are attracting more and more attention.

Developers may not consciously be looking for a leg-up in an increasingly saturated market. In all likelihood, they are drawing on the experiences from their past that stand out as fun and building from there. Either way, it is in a developer’s best interest to appear ignorant, since asking permission first could be considered wilful infringement and further evidence of a copyright violation. The results are some astonishingly large revenue numbers generated from the use of unlicensed IP.

On Fortnite:

At the time of this writing, 26 games from Fortnite's top 250 islands appear to use unlicensed IP.

This makes up roughly 1% of engagement on Fortnite, and is roughly equivalent to $5 million in annual engagement based payouts.

As UEFN tools become increasingly powerful, we expect it won’t just be assets of unlicensed IP, but potentially entire games that could be used.

On Roblox:

At the time of writing, 36 games from Roblox’s top 250 experiences appear to use unlicensed IP.

According to revenue estimates from Spaceport, a licensing company specializing in Roblox, these 36 experiences represent $92M in 2023 earnings for Roblox developers, and $460M in bookings for Roblox (5% of Roblox’s bookings in 2023).

At least on Roblox, IP owners have started to take notice.

Toilet Tower Defense, a top-5 Roblox experience using "Skibidi Toilet" IP, was unlicensed at launch but has since negotiated a licensing agreement.

Anime Adventures, a top-20 game on Roblox, was taken down last month for infringing on "My Hero Academia" IP.

*Roblox game Anime Last Stand shows the likeness of Monkey D. Luffy, Roranoa Zoro, et al. At the time of writing, it is the 13th most popular experience and estimated to be making over $500K/month.*

IP Owners Issuing DMCA Takedowns, Tread Carefully

Lack of awareness is not the only reason why IP owners allow for so many unlicensed games to exist. Many of these games have massive community followings that love the IP.

Anime Adventures has almost 900K members in its Discord and 133K followers on X.

Meanwhile, "My Hero Academia" has 138K Discord members and 1.7M X followers.

Issuing a takedown could upset the IP’s fanbase, like it did when Anime Adventures was taken down. Luckily for IP owner Crunchyroll, the community backlash fell upon Gamefam, the developer that got the license for "My Hero Academia" from Crunchyroll. This DMCA takedown also removed three other infringing titles and is estimated by Spaceport to have eliminated $4M-5M in annual spend from these games. A licensing agreement between Crunchyroll and the developers could have easily netted over $1M in annual profit for Crunchyroll.

Rather than attacking these games, which have millions of daily active users seeking to engage with the IP on a deeper level, IP owners could seek to partner with these developers.

IP owners come from a strong bargaining position given the nature of a DMCA takedown

IP owners can provide art assets that bring an additional layer of authenticity to these experiences.

IP owner communities are existing marketing channels hungry to engage with content on a deeper level

One potential challenge to this idealistic view is that licenses are often held by third parties less interested in preservation of the IP and more interested in extracting value. Even taking an extractive view of these games, a healthy revenue share is still worth more than a costly lawsuit that could upset avid fans of the IP.

The Road Ahead

As UGC game platforms continue to grow and as the cost of creation continues to drop, one thing is certain: The amount of unlicensed content created by fans will only increase.

Unfortunately the DMCA, a law passed in 1998 before the rise of the internet age, continues to be the primary tool for managing copyright and trademark disputes today. While effective in some regards, this system alone cannot keep pace with the rapid evolution of UGC and the complexities of modern IP rights.

The future of effective IP management in gaming, then, lies not just in legal enforcement, but also in proactive collaboration between IP owners and content creators.

New approaches, such as licensing agreements that are more accessible to independent developers and the use of technology to automate rights management, could pave the way for a mutually beneficial relationship between the creators of original IPs and those who wish to build upon them.

By acting as mediators in these discussions, third-party platforms such as Spaceport, Layer, and Remaster are facilitating licensing models that allow fan-made creations to exist in a legal and endorsed manner while avoiding liability through the existing DMCA framework.

Gaming platforms like Roblox face the decision of building, buying, or partnering with these platforms — it’s worth noting that in the case of immersive ads, Roblox built its own version of what already existed and declared third-party providers violators of its Terms of Service.

Ultimately, the goal should be to create a system that rewards originality and respects IP law, but also recognizes the value of fan-generated content. This possible future is a win-win-win model, where IP owners are respected, developers have easier access to their favorite IPs, and players get to enjoy the content they love.

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