Using third-party game intellectual properties (IPs) in arcade machines requires careful attention to legal licensing requirements. The process involves several critical steps to ensure compliance and avoid copyright infringement.

First, identify the IP owner, which could be the game developer, publisher, or current rights holder. Research the copyright status and contact the appropriate licensing department. Most major game companies have dedicated licensing representatives.

Next, negotiate licensing terms covering key aspects: territory (where machines will operate), duration (license period), number of units, exclusivity terms, and royalty rates typically ranging from 5-20% of gross revenue. The agreement should specify technical requirements, quality standards, and marketing restrictions.

Additionally, consider these essential elements: insurance requirements, audit rights for the licensor, termination clauses, and renewal options. Some licensors may require minimum guaranteed payments regardless of performance.

For classic arcade games, be aware that rights might be fragmented between different parties for different regions or platforms. Due diligence is crucial. Working with experienced entertainment attorneys can help navigate complex agreements and protect your arcade business from legal challenges.

Finally, maintain accurate records of revenue and be prepared for regular reporting. Proper licensing not only ensures legal operation but also supports the gaming industry by fairly compensating creators for their intellectual property.