Wizards of the Coast, LLC (“WOTC” or “Wizards”) and its parent company Hasbro, Inc. (“Hasbro”) recently found themselves facing unexpected backlash from their attempt to modify an existing license agreement which they had in place with content creators, the Open Game License (OGL), which allowed those creators to use game mechanics and other elements from the Dungeons and Dragons (D&D) table-top role playing game. The resulting controversy can provide other intellectual property owners strong insight into creating and controlling their own IP licenses while still maintaining their established goodwill.
First, some brief history for those less familiar with the world of role-playing games (RPGs). WOTC is a publisher of popular games such as D&D and Magic: The Gathering, and was acquired by Hasbro in 1999. In 2000, Wizards published the OGL (as Version 1.0(a)) which allowed third-party creators to use portions of the then-current Third Edition of D&D to create new game-related materials compatible with D&D, such as game adventure modules, supplemental rulebooks, or even new games such as Pathfinder, which was created as a modification of the Third Edition of D&D under the OGL. The license rights under OGL 1.0a were very broad, perpetual, worldwide, non-exclusive, and royalty-free. Fans of D&D and many game writers generally view the OGL 1.0a licensing as being at least partially responsible for a boom in the RPG industry in the early 2000s.
OGL 1.0a continued in full force and effect, for both the Third and Fifth Editions of D&D. Although Wizards did produce a new licensing system for Fourth Edition D&D, that license was more restrictive and incompatible with OGL 1.0a and was not broadly used. However, since OGL 1.0a was by its own terms a perpetual license, the vast majority of creators just kept operating under the OGL and Third Edition rules. Wizards seemingly recognized this and made OGL 1.0a applicable to the Fifth Edition when it was released. As a result, OGL 1.0a has been in widespread and constant use for more than two decades.
One might wonder why any company would allow such widespread creation of new, royalty-free works based on the company’s IP, but Wizards did receive significant benefit. The third-party creation of adventures and supplemental materials gave a wealth of new and ongoing materials to D&D players at no cost to Wizards, keeping interest high and generating increased consumer interest in D&D generally. Moreover, in order to use these adventures and supplements, players would need to purchase the core D&D books published by Wizards, thus generating extra sales for the company itself.
In late 2022, however, speculation began that the OGL would be discontinued as D&D transitioned to its new version, One D&D. Wizards signaled that it would continue to support third-party creators but that the OGL would need to “evolve.” Subsequently, in early January 2023, a leaked copy of the new OGL (“OGL 1.1”) was made public. Wizards explained that the OGL 1.1 was intended to control creation of non-fungible tokens (NFTs), limit the exploitation of IP by large companies, and protect against racist, sexist, homophobic, transphobic, or other bigoted, discriminatory content. While this goal was laudatory, other elements of OGL 1.1 were more problematic to the third-party creators. Most critically, OGL 1.1 invalidated OGL 1.0a, meaning that unlike with the Fourth Edition license, creators could not simply ignore the new terms and continue to operate under the original license. OGL 1.1 also clarified that it would not allow for the creation of apps, videos, video games, virtual table tops, novels or graphic novels, songs and music, or anything other than printed (or printable, such as PDF) materials. OGL 1.1 also allowed Wizards to use any and all OGL content created by third parties in any way Wizards saw fit, and required accounting for all licensed materials earning more than $50,000, and a 25% royalty on all revenue over $750,000 (even if that revenue did not generate profit). While only a small number of current creators would actually end up paying a royalty, a much higher percentage would fall under the obligation of creating the required accounting, which could drive away content creators due to the burden and expense of such accounting. Additionally, all creators would have to register their licensed works with Wizards, use badging to identify works created under the OGL, and take measures to identify any licensed materials in the third-party work separate from the creator’s own work, whether by the use of different fonts, asterisks, or a separate index. Collectively, these requirements would cause the vast majority of creators to make significant changes to their materials or distribution models, if their third-party works were not completely invalidated for not being printed or printable. Most critically, Wizards was apparently giving a very limited window for creators to agree and apply these changes or cease production, as OGL 1.1 was slated to go into effect for all works published on or after January 13, 2023, after being planned for release on January 4, 2023.
Immediate and vocal outcry from the community followed, by third-party creators and fans alike. More than 60,000 people signed an open letter condemning the changes, multiple creators announced that they would move away from D&D to other platforms or to create their own RPG systems. In fact, so many D&D fans and players canceled their online D&D subscriptions that the system crashed. The backlash was so widespread that Wizards immediately found itself needing to back away from its position, stating that the leaked copy was not final and suggesting that certain changes could be made, such as removing the registration, accounting, and royalty obligations. Wizards also stated that it would allow all work previously created under OGL 1.0a to remain unaffected, and that creators could continue creating livestreams, virtual table tops, and actual play content. Wizards solicited comment on this new version of the OGL 1.1, but creators and fans were still not on board. Wizards reported that 88% of respondents stated that they would not use the OGL 1.1 and 89% objected to invalidating the OGL 1.0a going forward. Wizards acknowledged that it was clear people wanted OGL 1.0a to remain in force and scrapped plans to make any changes. In essence, Wizards completely backed down and ended up with the same license, but only after a catastrophic loss of goodwill, and of players and creators, in less than a month.
So what lessons should other IP owners take away from this debacle? Let’s start from the IP licensing question: Is there any harm in wanting reporting, accounting, and royalties from your licensees? Does it make sense to control or limit who can use your IP and what kinds of works can be created by licensees? Not in the slightest. These are all core elements of many, if not most, IP licensing agreements. Wizards of the Coast’s folly was in trying to impose these elements decades after licensees started creating materials with minimal restrictions. Thus, the lesson for IP licensors should be to consider and contemplate not just current terms of a license deal and the intended current uses of the IP, but the potential future possibilities under the license, such as new technologies, types of works, or distribution methods, and to draft license agreements accordingly. Be sure to include license terms to account for future growth and potentially foreseeable issues so that you do not have to try to shoe-horn them in later. Perhaps address and include thresholds for accounting and royalty payments even if you do not anticipate reaching those levels, so that there is no surprise if growth exceeds expectations.
No matter how well you plan ahead, however, issues may arise that would be difficult to foresee, especially as new technology and uses emerge and become commonplace. Any license that has been in place for some time may need updating and tweaking to stay current. One important lesson we should learn from the Wizards debacle is that not all changes to a licensing program are worth the potential loss of licensees and goodwill. It may be desirable to propose and discuss potential changes with licensees in an open dialogue, rather than imposing changes on licensees with a limited window for compliance. You should also stay abreast of changing issues in the industry, and consider incremental changes, so that you do not have to reverse 22 years of business practice to update your license agreements. Be prepared to accept that you may need to choose between including new restrictions in your license and potentially losing licensees. Consider whether wholesale changes are worth driving off business and creating a boom for competitors, as occurred in the Wizards case. Of course, licensing decisions are fact-specific and will be different in each case. Ultimately, the final business decision will be made by the IP owner, hopefully after negotiation with the licensees. The Intellectual Property & Technology Attorneys at Stites & Harbison can assist in this decision and negotiation process, and help revise and update your licenses in an effective manner.