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Brands names are protected in America by copyright, trademark, and intellectual property laws.  These draw their power from the United States Constitution (Article 1, Section 8, Clause 8).  In order to use a trademarked name, a game developed must obtain a license from the trademark owner.  This is difficult and often costly, so many games simply create their own fictional car brands. 
 

Reasons

Public Perception Concerns

While one would think that many car brands would enjoy the free advertising associated with having their brands featured in a game, there wide variety of in game uses causes concern.  For example, it would probably not be good advertising is a car with a Toyota trademark was seen on a nightly news segment in GTA running over pedestrians.  
 
Additionally, in the automobile industry, it is widely considered bad practice to ever show cars damaged in any way.  A rare exception is the series of Volkswagen television ads showing the cars getting into accidents, while the occupants remained unharmed.   Due to this, games that do use real car brand licenses typically do not show car damage.  For example, Gran Turismo licenses many car brands, but does not have car damage modeling, even if it allows for car damage to affect performance. 
 
Additionally, the trademark holder may be concerned that their licensed vehicle may appear in the game in a manner inferior to the real model.  For this reason, licensed vehicles have to be painstakingly programmed according to real world specifications, and most license agreements are subject to the trademark holder's final approval. 
 
Therefore, it is common for games that wish to show cars either damaged or performing illegal activities (such as street racing) to simply avoid licensing troubles and invent their own car brands.   
 

Costs 

Licensing deals are generally expensive.  First of all, there are high transaction costs.  Both the developer and trademark owner will need to hire legal support to negotiate and write a proper licensing agreement.  There may also be costs associated with the use of the license, and in a medium such as a videogame where the number of appearances can vary widely, this may be difficult to establish. 
 
More costs may be incurred in the time spent programming and finalizing all the licensed vehicles.  The trademark holder will almost certainly want to review the final implementation prior to publishing, and this will add time and work hours to the development cycle.  Also, programming the licensed vehicles will require the designers to meet the vehicles real world specs.  For example, a real car may have a specific side mirror that is difficult to properly render.  In a fictional car brand, the artist can simply change the design, if the car is licensed, either the entire car will have to be scrapped or additional resources may be needed to implement the design.
 

Creative 

A game designed may want to avoid licensed vehicles for a variety of creative reasons.  As mentioned above, they may to reserve the freedom to create designs that are easy to implement into the graphics or physics engine, or to work with existing or simple art assets. 
 
Fictional car brands may be a creative decision designed to fully immerse the player into the game world.  For example, in Grand Theft Auto games, the fictional car brands have fictional logos, and occasionally appear in fictional billboards or radio ads.  Rather than spending time licensing the car brand for use as a car, but then not being able to use the brand logo elsewhere, the designers are able to create a more immersive world. 
 
Another creative design consideration is the use of the fictional car brand.  As mentioned above, most trademark owners do not wish to see their logo on a game screenshot when the car is being used illegally.  In games such as Saints Row, most of the activities the player will engage in are illegal in many parts of the world where the game will be sold.  Rather than completely change the gameplay, the developer chooses to make fictional car brands that can be used in any manner. 
 

Realism 

Most fictional car brands are modeled closely after real world car brands.  For example, in Grand Theft Auto 3, it was possible to assign a real car make and model to all the in game designs.  In some cases, the names are slight variations of the real world name.  The " Stallion" in Grand Theft Auto 3 was a dead ringer for the Ford Mustang.  In this way, the player misses little by having a fictional car name.  Almost any user playing the game would recognize such a design as being associated with a fast muscle car, and pick it accordingly.  The player can then use the car as he or she wishes, since the design is fictional and unlicensed. 
 
Game developers could open themselves up to litigation by making their designs too realistic, however a game such as Saints Row could probably avoid this by claiming fair use as parody.  At this time, there is little evidence of trademark infringement litigation from car brand owners. 
 

Major Examples 

As noted previously, the Grand Theft Auto series is one of the most prolific examples of fictional car brands.  It is highly unlikely, given the poor public perception of the game as a "murder simulator" that any manufacturer would want their brand in the game.  Instead, Rockstar, as developer, has created both fictional makes and models of a full range of vehicles.  Additionally, many models show up in different games, and in different time periods, as variations of the same car, much like a long lasting brand.  
 
A much earlier example would be Rally Cross for the PSX.  This game had significant damage modeling, and therefore chose to loosely base the car designs off of Group B type rally cars. 
 
As a counter example, Gran Turismo strives to use only real brands and models.  Gran Turismo famously has pages and pages of licensing and trademark notices including in the game manual, and lacks damage modeling. 
 

Trivia 

  • Ferrari and Porsche are two manufacturers who generally refuse to license their vehicles for any games.   EA was able to secure the Porsche and Ferrari licenses for their Need for Speed games. The first game to contain Ferrari cars from EA was Need for Speed: SHIFT, as a downloadable content dedicated entirely to the Italian marque.
  • Gran Turismo was able to include Porsche cars by licensing cars through RUF.  RUF take stock Porsche models and heavily modifies them, enough to satisfy trademark requirements as a vehicle manufactured by RUF.
  • The Getaway used the same practice as Gran Turismo with the RUF cars, except using Mercedes-Benz vehicles. Instead of using the Mercedes model cars, they used Brabus models. Brabus modifies Mercedes cars to an insane extent, and unlike AMG, is not controlled by Benz themselves. This allowed the car to appear, though Brabus vehicles are incredibly rare.
  • Many fictional car brands are satirical takes on real world car brands. For example, the 'Maibatsu' group in Grand Theft Auto III can be taken as a nod to the Zaibatsu organisation in GTA 2, or as a play on the Japanese Daihatsu company.

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