The true impact of coronavirus on the games industry is yet to be seen, but there is no doubt that it is currently impacting the industry.
Please note: the information contained in this legal update is correct as of the original date of publication
The true impact of coronavirus on the games industry is yet to be seen, but there is no doubt that it is currently impacting the industry. Last week, the ESA announced the cancellation of E3, one of the world’s biggest and most anticipated industry events for both industry professionals and fans, due to concerns over the spread of coronavirus. Other key events including the Game Developers Conference as well as numerous esports tournaments have also been postponed for the same reason. These cancellations are a blow to those in the industry who rely on these big events to reveal new hardware, meet with potential investors, secure critical deals and for devs in particular who are super excited to showcase their new projects.
The impact of the virus is going beyond just the cancellation of key industry events. With the virus shutting down most of China’s production, there is a very strong likelihood of prolonged supply and demand disruption and possibly game delays. Nintendo’s CEO has already confirmed that the virus has caused direct disruption to the production and onward supply of the Nintendo Switch Console, Joy-Cons and accessories such as Ring Fit Adventure in Japan and we suspect that this may also affect other markets. Many dev studios are encouraging workers to work from home to help minimise the spread of the virus, which may well impact on the development timetables and milestones under publishing agreements.
But what happens legally if you are unable to carry out your obligations under an agreement due to the impact of coronavirus? Let’s take a look.
Generally speaking, if you are a party to a contract and you fail to do what you say you will do in that contract, then you may be liable for a breach of contract and you will more than likely have to pay damages to the other party. However, there is a “get out of jail for free card” only if your contract includes an express clause, called a “Force Majeure” clause (which can sometimes be found in the “general” bit of the contract).
Put simply, force majeure clauses generally provide that, upon the occurrence of a specified act, event or circumstance which is outside of a party’s reasonable control, the party who can’t perform all of, or part of its obligations under that contract because of that event will not be punished for failing to perform those obligations for as long as the force majeure event continues. Essentially, those obligations are suspended until after the event has ended. The contract is paused.
Sometimes these clauses will allow both or one of the parties to decide whether to continue with the contract if the delay or the prevention of performance lasts for a set amount of time. Sometimes, the clause may even let you add on time to account for the delay. Some clauses may go as far to state that if the event causes a delay for a set amount of time, or a party is unable to perform for certain amount of time, the whole contract can be terminated. But this really depends on how the clause is drafted.
We all know that not all contracts are the same, so the effects of a force majeure event on a party’s obligations really depends on how exactly the clause is drafted in that specific contract. If you want to rely on force majeure to pause your obligations under a contract, you will need to consider the following:
The most important thing to remember is that if you don’t have this clause in your contract, you cannot rely on it. This is why it is important to include robust force majeure clauses in your contracts. Although you won’t be able to rely on force majeure, you could potentially rely on the doctrine of frustration (see below)
The legal doctrine of frustration allows a contract to be terminated if an event occurs which the contracting parties could not have foreseen, which is the fault of neither party and makes the contract physically or commercially impossible to fulfil, or the event transforms the obligations of a contracting party into a completely different one to the extent that the running with the change will be unjust. For example if you have a supply contract with an overseas company and there is a law imposed in that country which means that all supply has to be stopped to prevent the spread of coronavirus, your overseas supplier will be breaking the law in that country if it continues to supply to you. This is not fair on the supplier.
An important thing to remember is that in order for the doctrine to apply, coronavirus must be fundamental to the contract and the impact it must be more than just making the performance of the parties more expensive or difficult. The good news is that if a contract is deemed frustrated, it terminates immediately and permanently. End game.
The bad news is that frustration is very rarely used successfully as a defence due to its high thresholds, so it may not help when it comes to coronavirus. So don’t assume that if you don’t have a force majeure clause in a contract you can automatically rely on frustration. Literally frustrating!
Something else to look out for - some contracts may actually contain an express right for you to cancel the contract outright (for any reason), but again the wording of the contract will need to be reviewed to see if this right is included.
Events like coronavirus highlight the importance of having robust terms that deal with force majeure. If your obligations under a contract are affected as a result of coronavirus, you can: