What should I know about copyright? in Design Philosophy
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Sadly, many good projects over the years, BYOND and elsewhere, have been shut down because they run afoul of copyrights. Large game developers have the right and the need to protect their intellectual property, but one must wonder whether a small fan project is really a threat. But that is an entirely separate discussion...
I intend to develop a game that is its own game (i.e. not a sequel or directly related to any other game), but I would like to know just how much material and what material, e.g. graphics, sounds, music, story elements, etc., I could incorporate from a commercial game before I run the risk of a nasty letter from the legal department. If anyone knows a good guide to this issue, I would greatly appreciate it.
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Technically, copyright (at least in the US) covers any kind of art medium, so that includes music/sound, graphics, storyline. This even includes 'likeness', so theoretically you could make a 32x32 pixel version of some Anime Mechanoid and it'd still be copyright infringement.
Storyline wise, any use of characters, places, objects of interest that is the same also falls under copyright, so for example you couldn't take all the places characters and objects from Lord of the Rings and put it in your game. That means no Frodo Hobbit, no ring of power, no Mordor.
There is obviously a line, any copyright material is almost always taken from something pre-existing, and either bought a licence for the material or are using non-copyrighted material.
You can make a game about Dwarfs, one might be called Frodo, they might forge magical rings there and that will be completely legit. Almost all games use folklore for example, even games based in space. For example, Golems come from Jewish folklore, fairies come from European folklore, wolf/lunar/etc spirits come from American folklore, 'Shinigami' (Death Gods) come from Japanese folklore. Just because something like Bleach has Shinigami, doesn't mean that concept is copyrighted.
My strong advice to you would be to invent something new, you'll have more fun with it and it'll be a greater personal achievement.