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While the artwork for my game is being finished, can I use cracked assets for internal prototyping or testing? I am not going publish anywhere outside my company. Does it attract any legal issues?

By "cracked assets" here I mean extracting embedded graphic assets like images and .swf files from a browser cache or an encrypted URL.

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Ask a lawyer. We cannot tell you what will happen in the future, but in general I'd like to say... For legal questions, if you have to ask "Will I get in trouble for doing this" and you can continue what you are doing while not doing it, just don't do it. –  Noctrine Feb 1 '12 at 7:36
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Also it's almost the same question as this: gamedev.stackexchange.com/questions/23047/… –  bummzack Feb 1 '12 at 8:41
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@bummzack definitely not the same: using it "internal-only" is very different from distributing it as a demo (even if that demo is for a single customer). –  Lohoris Feb 1 '12 at 14:48
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Why bother taking the chance? Just whip up some assets. They're for development; they don't need to look good. They just need to be functional. –  Nicol Bolas Feb 1 '12 at 17:46
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I second @NicolBolas here. You want temporary assets that scream "I AM TEMPORARY" specifically so you know that they get replaced in production. If you have to ask for legal advice about something it's probably best that you don't do that something, needing advice should be a warning sign. –  Patrick Hughes Feb 1 '12 at 22:48
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up vote 7 down vote accepted

I have worked for a company which accidentally shipped unlicensed assets that had been used during internal development. These assets were not ever visible in the shipped game, but they had been overlooked and were accidentally still present amongst the game's data files, and were uncovered and reported upon by the media, and this caused some major legal/licensing issues for the company.

Using assets that you don't have the rights to use -- even exclusively for internal-only development -- is very dangerous. It's far too easy to forget to remove those assets before shipping. It's much, much safer to only use assets that you can legally ship, just in case something gets overlooked in the rush to release.

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Your best (and probably only sane) option to consult with your company's legal department or, if your company does not have a legal department, talk to a lawyer outside the company.

As others have said, just use temporary assets. It's safer, it should be trivial to do, and it's not like you need to impress anybody if it's for internal use only anyhow. It will also help make sure you remember to get the assets replaced with the final ones.

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If the company has a legal department, it surely also has a graphics-team.. where some quick assets/mockups could be produced for prototypes. –  bummzack Feb 2 '12 at 17:21
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