On January 16, 2024, the U.S. Supreme Court refused to consider appeals from both Apple and Epic Games (See Reuters: US Supreme Court snubs Apple-Epic Games legal battle).

The appeals pertained to the antitrust case initiated by Epic against Apple in 2020, resolving a several year battle over Apple’s 30% charge for every purchase made through the App Store and making digital platforms more competitive, arguably with the better outcome for Apple.

What Was This About?

Unfortunately, the Supreme Court did not explain why it rejected the appeals. Hence, we would like to backtrack. In 2020, Epic filed an antitrust lawsuit against Apple, alleging that Apple engaged in unlawful monopolistic practices because Apple required users to download applications exclusively through the App Store and make in-app purchases exclusively through Apple's in-app system. At the core of this is the financial issuethat Apple typically applies a commission of 30% on in-app purchases – thereby likely cutting Epic’s margins by 30%. However, Epic’s main legal claimwas that Apple should have allowed developers to direct users to systems other than Apple’s in-app system, which would increase competition, lower prices, and lead to a net gain for users.

While the antitrust claim failed, crucial findings by the lower courts (in 2021 and 2023) have been confirmed, namely that Apple had violated California's unfair competition law by preventing developers from directing users to purchase digital goods through a system other than Apple's in-app system. Consequently, Apple is now obligated to permit developers to provide links and buttons that direct users to other ways to pay for content within the apps, but is not prohibited from charging a fee for a transaction.

Neverending Story: Increasing Competition By Restricting Business?!

The underlying topic of Epic’s claim is antitrust law’s purpose to prohibit anti-competitive conduct that deprives consumers of the benefits of competition. Historically, antitrust claims have targeted industries like railroads, telecom companies, and oil corporations, aiming to curb monopolistic control that harms competition and consumers through e.g. stifling the entry of new competitors and setting unfair prices.

This is not an uncommon narrative that major platforms are regularly confronted with, but which has yet to prevail under current law. It should also be noted that Epic brought a similar claim against Google, where the jury in United States District Court for the Northern District of California decided in Epic’s favor, finding that Google’s practices were monopolistic and anti-competitive. However, the remedies are yet to be decided. The underlying concern is the reason why the European Union has passed a new law called the Digital Markets Act (“DMA”), which will come into effect on March 7, 2024. Based on the DMA, Apple will have to permit third-party app stores and billing systems in the European Union.

While a successful antitrust claim could potentially take down Apple’s 30% fee, Epic’s concerns were not heard, and the courts only penalized Apple’s exclusionary behavior with respect to its prevention of downloads and purchases outside of the App Store.

That, however, is that from antitrust law. While antitrust laws' primary focus is on promoting competition and preventing practices that could lead to monopolies or anti-competitive behavior, unfair competition law is a broader term that encompasses a variety of practices that are considered unfair or deceptive.

While it would seem that the U.S. Supreme Court’s rejection is a lifeline for major digital platforms, indicating that they are not subject to antitrust laws in the classical sense in this instance, the limitations and requirements with respect to their download and sale practices show that courts are dissatisfied with how the platforms are conducting themselves and treating competitors – but through antitrust’s step sister: unfair competition law.

What are the Direct Implications of the Rejection?

As a result of the U.S. Supreme Court’s rejection of Epic’s and Google’s appeals, the ruling by the U.S. Court of Appeals for the Ninth Circuit stands. This means that Apple must enable developers to add external links, buttons, or similar features within their apps to direct users to payment systems other than Apple’s in-app system.

Apple has chosen to comply with the injunction, i.e., permit users to circumvent its in-app system related to in-app purchases. However, Apple is still requiring developers to pay a commission of 27% of any purchases made through a system other than Apple’s in-app system that users have been directed to by the developers, which, arguably, defeats Epic’s intent to get rid of the 30% commission. In practical terms, due to the additional effort and lack of benefit in directing users to other payment systems, we do not expect this decision to change much for any party at this point in time.

What Happens Next?

Epic’s CEO Tim Sweeney expressed in X that "Epic will contest Apple's bad-faith compliance plan in District Court” (See X: TIm Sweeney). Sweeney claimed that the 27% commission “kills price competition”, and that Apple purposefully detached the process from the standard payment flow on iOS. The latter means that users have to log in to a separate browser session and search and select the digital goods again that they wish to purchase. If Epic does, in fact, file a new lawsuit against Apple based on Apple’s way of complying with the injunction, it may take up to years before a final judgment is received.

For a developer, that means that you now can offer in-app purchases through systems other than Apple’s in-app system. However, when you are making the decision on whether or not to provide such an option, you need to be aware of the 27% commission that is to be paid to Apple, as well as the other limitations mentioned above.

Author: Jesper Rantatulkkila and Daniel Koburger

From July 10 to August 4, 32 patent applications filed by Nintendo were made public in Japan, 31 of which concern the game mechanics in “Legend of Zelda: Tears of the Kingdom” (see naoya2k’s post in the Hatena Blog for a full list of the patent applications).

The hottest patents that are being discussed relate to the player character’s abilities, specific mechanics, and loading sequences. Our fascination lies with Nintendo’s attempt to use patents to protect the mechanics of a game.

Nintendo’s Patent Game

Notably active in patent filings, Nintendo ranked fifth in the number of patents held in Japan in 2022. A well-known example of Nintendo's previously registered patents include patent No. 8,313,379 related to Wiimote’s motion-tracking capabilities (see Patent Arcade: U.S. Patent No. 8,313,379: Video game system with wireless modular handheld controller). The new patents are considerably interesting because of the scale and the subject matters: mechanics! In particular, a mechanic that prevents the character from grabbing objects it is positioned on top of, a mechanic that results in the character moving in alignment with dynamic objects beneath it, and a mechanic that focuses on the character transitioning from one location to another seamlessly.

However, with the newest splurge Nintendo seems to be on a spree right now, likely due to the success of Tears of the Kingdom.

Protecting Mechanics a Never Ending Quest?!

The fascination surrounding this spree of applications is figuring out how developers can best protect their IP and brand. While there are several avenues, such as Trademark, Trade Secret, contractual obligations, confidentiality, copyright, and more, protecting a game’s mechanics and use of genre tropes is a uniquely difficult task that devs so keenly are interested in. In this blog the dispute between PUBG and Fortnite already put a spotlight on how copyright approaches this issue.

In short: U.S. law and U.S. courts have steered toward not awarding game mechanics copyright protection because they are so called unprotectable ideas and/or functional elements rather than protectable original expressions. However, the law is currently somewhat unclear as to when mechanics constitute functional elements outside of copyright protection and are protectable only by patents.

Hence, Patents as another tool, garner attention and likely more value in the future?

Is a Patent the Solution?

Generally, it is particularly difficult to patent game mechanics, primarily because software is often considered an abstract idea, and likely to be viewed as ineligible subject matter under Section 101 of the U.S. Patent Act. However, this obstacle may be overcome if the software improves computer functionality or performs the computing tasks in an unconventional way (Is Software Patentable in the United States?). Moreover, for any invention to qualify for patent protection, it must be unique and non-obvious. This means that the game mechanics being patented should not be already known or in use by others, and the differences between the game mechanics and prior game mechanics must not be obvious to someone with ordinary skill in the field of game design. Due to these criteria, utility patents for game mechanics are relatively rare.

Nonetheless, there have been noteworthy attempts by other companies to patent mechanics and features which often are not protectable otherwise. A notable example includes Bandai Namco's patent No. 5,718,632, covering loading screen minigames (Electronic Frontier Foundation: The Loading Screen Game Patent Finally Expires). The mechanic was patentable due to its novelty and nonobviousness, but it was not copyrightable due its functional nature. Another famous example includes Warner Brothers’ patent No. 15/081,732 for the Nemesis system used in both Middle-Earth: Shadow of Mordor, and its 2017 sequel, Shadow of War. This system generates personalized NPC opponents for the player to interact with (IGN: WB Games' Nemesis System Patent Was Approved This Week After Multiple Attempts). While the system was patentable due to its process description, it was not copyrightable as it lacked unique protectable expression.

Other Patent Issues: Costs and Process

Patents are also costly and difficult to obtain. The expense of filing a patent application varies based on its complexity, ranging between $7,000 and $15,000. In addition, you can generally expect the need to respond to up to five office actions, each of which may cost $2,000 or more. After filing the application, it usually takes 1 or two years before the initial office action is issued. Further, there is no guarantee that the patent application will be approved. For instance, Warner Brothers had to submit several patent applications before they received a patent on the Nemesis system. Its prior applications were rejected because of too close similarities to other patents and due to issues with the specificity of the language used in the prior applications. Thus, doing proper due diligence and carefully writing down realistic patent claims can be vital in order to save costs and to get a patent application approved (IGN: WB Games' Nemesis System Patent Was Approved This Week After Multiple Attempts).

So, no Patent for me?

Due to the costs and difficulties involved with acquiring a patent, generally patents are not a developer’s go to tool for protecting a game’s inherent value. This is particularly true for small and mid-size game developers with limited resources. For a small and mid-size game developer, other forms of intellectual property play a larger role, namely, copyrights, trademarks, and trade secrets. Having said that, if your game contains a mechanic that you regard as new, you might want to consider conducting patent due diligence to ensure that you are not infringing on someone else’s patent, and to file a utility patent if you think that the patent will bring your business additional value. As to the filing, see e.g. Zachary Strebeck’s article on video game patents, which contains an overview of the requirements for acquiring a game patent, and the costs related to the filing.

Author: Jesper Rantatulkkila and Daniel Koburger

Among the various instruments available to startups for raising capital, the Simple Agreement for Future Equity (SAFE) has gained traction since its introduction by Y Combinator in Silicon Valley.

Although termed “simple,” a SAFE is a complex instrument with nuanced terms that both companies and investors need to understand thoroughly. While many people in the startup space are familiar with the SAFE basics, some terms might be less emphasized for two reasons: different SAFE forms have evolved over time, and the general terms of a SAFE form can be tailored to specific party needs, leading to a mix of standard and unique clauses. In general, the SAFE provides an inventive way for startups to raise initial funds without the complexities or constraints of debt.

This article aims to highlight lesser-discussed SAFE terms that might require negotiation.

A Brief Overview of SAFE for Beginners

Before exploring the detailed aspects of SAFE negotiation, it is essential to grasp its fundamental purpose.

A SAFE is an innovative financial tool used by startups to raise capital. It allows investors to provide funds to a company in exchange for the right to obtain equity at a future date, under specific conditions. For investors, it is a bet on the company’s potential success, with the understanding that their investment will convert into equity, typically during a significant funding event.

Unlike convertible notes, SAFEs are not loans. They do not accrue interest nor have a maturity date (this also means that if a startup fails, SAFE holders do not have the same claim to assets that debt holders might). Further, while the SAFE is a convertible instrument that might convert into preferred stock, at the time of the SAFE round, a corporation’s certificate of incorporation does not have to be amended to authorize the issuance and set forth the rights of such preferred stock. So, occasionally, entrepreneurs argue that SAFE financings involve minimal negotiation because the primary discussions only revolve around two big items: the investment amount and the valuation cap.

Why should I use a SAFE to raise for my company anyway?

First of all, it is worth mentioning that SAFEs are not suitable for all deals or companies. Particularly, companies not expecting significant funding rounds in the future might find that SAFEs do not align with their long-term capital raising strategy. This is because SAFEs are inherently designed to convert into equity during such funding events. Moreover, certain investors may prefer more traditional securities instruments that offer more defined terms and timelines.

That being said, SAFEs can be advantageous as they enable a company to raise funds without pinning down a valuation and by extension, a price per share. The formula universally recognized is: Price per Share = Valuation / Fully-Diluted Capitalization. Determining a valuation can be a difficult and time-consuming process, especially for companies that are pre-revenue and other early-stage companies. A SAFE lets both parties defer the moment of the valuation determination until a later date, which is expected to be when the company and a future lead investor agree on a valuation and resulting share price for preferred stock. Valuation disputes can be a common source of tension between early-stage companies and their investors and using a SAFE instrument can help to avoid such disputes and maintain a positive relationship between the company and its investors.

When the SAFE Conversion is Optional

A milestone for post-SAFE financing companies is the closing of the first priced equity round. Typically, a SAFE instrument will contain language that will provide for the immediate conversion of the SAFE upon the occurrence of a priced equity round.

However, sometimes the SAFE language grants companies discretion on timing for conversion. Companies then have the choice to convert the SAFEs or to leave them outstanding. What are the risks for investors if a SAFE lacks mandatory conversion stipulations? Suppose a company successfully achieves initial funding through a SAFE issuance during the course of a Pre-Seed, Seed Round, or bridge round (however you might want to call it) and later issues preferred stock in a Series A round, becomes highly profitable, and distributes dividends. SAFE holders won’t receive dividends or other distributions. Their SAFE investment remains outstanding with no voting power, potentially tying up the investor’s capital for a long time. This can be an issue as, for an investor, the idea behind a SAFE investment is to eventually convert the initial investment into company equity.

What Kind of Financing Events Trigger SAFE Conversion?

Not all financing rounds may trigger a SAFE’s conversion, and conditions may vary. Typically, SAFEs employ the term of “equity financing” to refer to qualifying priced rounds, with varying definitions. A majority of SAFEs define equity financing as the issuance of preferred stock for capital raising purposes at a fixed valuation. Other instruments require a minimum fundraising threshold for conversion (often $1-2M for early-stage companies). Investors often prefer a restrictive definition for the qualifying financing event, especially when the conversion means receiving the same stock as new investors. If a company attracts modest seed funding, the rights attached to the stock being sold might not entirely satisfy SAFE investors. Rather, they anticipate a subsequent substantial investment with a preferably robust lead investor, hoping to obtain better rights than seed investors (e.g. seniority, liquidation multiple, director seats, or protective provisions which may allow them to veto certain company decisions). Hence, understanding the exact equity financing event triggering a SAFE conversion is crucial.

Crowdfunding tip
Avoid solely using “Preferred Stock” language to define that financing event, as many companies may later choose to issue common stock in a Reg A offering, which could be a suitable conversion event for both the company and the investors.

The Fine Print: Why Fully Diluted Capitalization Matters

In the event of a qualifying financing, most SAFEs convert based on 1) the conversion cap formula, 2) the discount formula, or 3) the formula yielding the most shares - the last being the most investor friendly.

Calculating the conversion price using the discount formula is relatively straightforward: If the SAFE converts into equity in connection with an equity financing round, the SAFE holder gets shares at a price discounted from what new investors pay, typically by 20%. Easy enough.

A bit more complicated, and thus the focus of this discussion, is the valuation cap formula. A valuation cap determines the maximum company valuation at which the SAFE amount will convert into equity. If the company’s next equity financing round values the company at a higher valuation than the cap, the investment amount of SAFE holders will convert into equity at the capped valuation, ensuring them a more favorable price per share (i.e., the conversion price) than the price paid by the investors who initiated the Equity Financing. However, even if the valuation cap is defined in the SAFE instrument, the corresponding conversion price is not set in stone. That is where you want to carefully look at the definition of fully diluted capitalization and what it precisely comprises.

The fully diluted capitalization refers to the total number of outstanding shares of stock of a company, taking into consideration the potential conversions of outstanding convertible instruments. The fully diluted capitalization essentially represents the total number of shares that would exist if all convertible rights were exercised. Why does this matter? Because under the valuation cap formula, the conversion price will be determined by dividing the valuation cap amount by the fully diluted capitalization of the company, as defined in the SAFE instrument. If the fully diluted capitalization is a high number, the resulting conversion price will be low; and, thus, the more shares the investor will receive for a given investment amount.

The components included in the fully diluted capitalization definition directly affect how much ownership SAFE holders receive when the SAFEs convert. There are several items that can be included or excluded from a company’s fully diluted capitalization. The fully diluted capitalization of the company, depending on what it and its SAFE investors agree upon, typically includes all issued shares of common stock, as well as shares of preferred stock calculated on a converted basis, as well as issued options and warrants. However, in order to keep the conversion price low, investors will typically want to include shares that have not necessarily been issued but instead have been reserved for the employee stock option plan (the “option pool”). Further, they might negotiate that the definition includes any increase in the shares reserved for the employee stock option plan. More commonly, investors might push to include convertible instruments such as Convertible Notes and SAFEs as well. You get it - by neglecting to carefully define or examine what is included under the fully-diluted capitalization definition, company founders might give SAFE holders more equity than the founders expected.

Amending the Terms of Outstanding SAFEs

Now, a few words to founders who want to issue SAFEs to more than one investor. Sometimes, amendments to outstanding SAFES are required, whether for compliance purposes, to ensure consistency or meet the requirements of new investors, or just because the company has to undergo structural changes (think about the transition of an LLC to C-corp).

When multiple investors have signed a SAFE, coordinating amendments can become a logistical challenge, especially if some SAFE investors are reluctant. In order to achieve a seamless amendment process, founders should make sure that the SAFE instrument contains flexible amendment provisions. In particular, founders may propose language that permits the amendment of an entire SAFE round with the vote of the majority-in-interest of all holders of that SAFE round, meaning, the vote of the SAFE investors whose combined SAFEs total more than 50% of the aggregate SAFE round. In the presence of numerous investors, founders won’t have to get amendment approval from each single individual investor. Instead, they can simply address the majority and streamline the amendment process. If the majority-in-interest of all holders of SAFE agree to the amendment, all identical SAFE instruments will be amended in the same way, in spite of the potential refusal of minority SAFE holders. However, most amendment provisions contain certain safeguards prohibiting the amendment of the initial investment amount. The SAFE amount paid by investors is typically sacrosanct and cannot be changed.

The problem with stand-alone SAFEs

The last item this article will address is the emphasis on the SAFE instrument being typically a very short document, which can allow companies to get funded in a fairly short amount of time. The brevity of the legal work around the SAFE is undoubtedly one of its biggest selling points. But the devil is in the details.

Keep in mind that any business still needs very specific representations in any investment contracts in order to be adequately protected. While stand-alone SAFEs have become popular in rounds that are only open to accredited investors pursuant to Rule 506(c), in the absence of explicit representations, a company may inadvertently assume unforeseen liabilities or risks. If no complete Private Placement Memorandum is made available to SAFE investors in connection with the investment opportunity, the classic SAFE form will often lack comprehensive and tailored representations - a series of statements confirming the current status and health of the company and addressing any applicable issues. Needless to say, it might be hard to ensure transparency between the company and its investors when the only governing document is condensed in often no more than 5 pages. And yet, it is not advisable for a company to sell a stand-alone SAFE that fails to protect the issuer against investor claims.

Another common mistake for startups is to focus solely on the simplicity and speed of the SAFE signature process, overlooking applicable and important securities laws. SAFEs are still securities instruments and issuing them triggers a range of legal obligations under federal and state securities laws. Ensuring compliance often necessitates the inclusion of specific language in the SAFE instrument to address the company’s adherence to securities laws, including representations about the company’s status, disclosure of material information, and confirmation of the investors’ accreditation status. This is why a company and its legal team should ensure that all potential compliance or disclosures issues have been identified and then include in the SAFE instrument all needed representations tailored to the company’s unique situation. Being cost-effective and moving rapidly in the world of SAFEs without proper due diligence and disclosure can be a risky game that companies might regret playing.


Understandably, there is more to a SAFE form than negotiating the valuation cap and the ticket size. This article touches upon only a handful of potential discussion points, but there are of course other terms, and SAFE instruments come in diverse forms. For founders, a deep understanding of these nuances ensures informed decision-making and sets clear expectations about the investment structure. Always remember, while SAFEs offer simplicity in their design, understanding their implications requires careful attention to detail, and often, some sophisticated negotiation.

About the author

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Côme Laffay, Esq. is a corporate and securities attorney. He is Counsel at KBL Roche, a transatlantic full-service boutique law firm with offices in New York, Paris, and Munich. Côme's practice focuses on capital raising activities in both the private placement and the crowdfunding spaces, with the goal of supporting entrepreneurs and financial intermediaries.

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