Game License means a set of rules that publishers must agree to for publishing any game. They can be overall categorized as-
1. Licensing the game to be released on a console (and other platforms)
2. Licensing the intellectual properties for use in the game
Console licensing is necessary to publish games for consoles such as Xbox 360, Playstation 3, etc. Xbox 360, PS3 and Revolution are consoles of companies Microsoft, Sony and Nintendo respectively. They themselves don't have to pay for the licenses, hence they can publish and produce games cheaply. Many people have used Mod Chips which is illegal, and also violates the laws of the license.
Licensing Intellectual property(IP), on the other hand, is optional, especially you are making a small game without copying any intellectual property. IP can be stories, characters, music, brands, etc. Take the example for Need For Speed game series. All cars in the game use names of car brands that actually exist, like Audi, Lamborghini, etc. One cannot just simply use these brands without the consent of the said party, i.e. Audi, Lamborghini, etc. If done, they can be subject to criminal prosecution.
You may get a basic idea here from this, of how a license may be. A typical license should consist various business definitions, including the time of work, holiday numbers, etc.; along with the acceptance of terms and conditions by the licensee; logos have to be used, which the licensor will decide, etc.
Game companies need to be sure that games they create will sell, otherwise they could sustain substantial losses. For this reason, they buy licenses, which may assure more sales for that game. For example, FIFA 2014 (PC Version) is selling for Rs. 2499/- in India. Now imagine if this was not a licensed game, where all players would be using fake/imaginary names, would you have still bought it for the same price? Probably not, especially in India, where people think twice before buying anything.
Copyrights, Trademarks, Intellectual Property and Patents are important when it comes to licensing games. More information is available here.-
Types of Game licenses are-
1. Trademarks protect the brand of any company. Customers are more likely to buy games with a registered trademark, for example EA, Ubisoft, etc. You will never find a game that is developed by someone else and then sold under the name of the Trademarked brand, without a license.
2. Copyrights protect the game contents from being duplicated by different developers. Developers may use the idea or concept of the game, but not its actual contents. For example, Call Of Duty is a similar game to Counter Strike, but it uses different audio, artwork, etc.
3. Patents allow a company to secure any of its invention, be it in the form of IP, or in the form of a new machine. No one can not replicate the product except the patent owner. A patent can not be obtained for old inventions. But obtaining patents can be very expensive.
These are not technically what you would call types of licenses, but they come very close to that-
1. Commercial videogames with freely available source code
2. Creative commons license
3. Freeware license
4. Spyware Licenses
-Some commercial videogames make available the source code of the product for free. Important information like the level design, graphics, audio, etc. are kept private.
Example of games using this type of game license: Duke Nukem 3D
-Creative common licenses allow anyone to freely distribute products of a particular author, but mostly, only to a limited public. For example, a game that has a creative common license, and the author has allowed anyone to distribute the game, but non-commercially, then they can do so. But if anyone is found selling the product commercially, the author can sue.
Example of games using this type of game license: Mari0
-Freeware. As the name suggests, any software or game that is made available free of cost, is known freeware. But not the whole game is made available free of cost. Freeware games have restricted access to the game. Freemake games can be also sub-categorized as DOS-only freeware games, Windows-only freeware games, free online games, etc.
Example of games using this type of game license: Solitare
-Spyware licenses restrict from wrongful collection and usage of client data or information.
Also, games can have an Open-Game License (OGL). Such licenses allow users to work freely on the game, to modify them. However, users are not at liberty to make changes as they wish. They can only modify parts of the game that the game developers have agreed to, in the license.
Lets take an example from the game Dota 2:
^ This is the normal view of the Dota 2 interface. Dota 2 allows various artists (even those outside their development team) to develop new User Interface (UI) for the game. However, Valve, i.e. the developer of the game may decide to use the art in the game. Users can not publish their artwork in the game directly. Here's how a user-created UI in Dota 2 looks like-

Game Companies like to have licenses in order to make sure that their new innovative ideas are not stolen or duplicated by competitors. But imagine if a company has licensed and patented over a first person shooting game. Now, if any other game company wants to create a first person shooting game, but in a whole new way, with different guns, etc. But since the first company has already got the patent for the IP, no other developer may create such a game. In such case, there would not be new games. Keeping this in mind, game licenses have a certain period, after which they expire. Different countries have different timespan allowed for license validity. The timespan in various countries is given here.
To understand more, you can see Rockstar Games' license is as follows.
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