We have the exact same language in our previous kits. If you install the Oblivion Construction set or the Fallout 3 GECK, you’ll see the same language in the EULA. We release modding tools because we want the community to be able to create new content within in our games. While it may seem wrong, this type of agreement is hardly unheard of. Modding tools for Unreal Tournament and Crysis 2 contain similar terms with their EULAs which put strict rules on non-commercial distribution, retaining copyright of existing assets, and banning offensive content.
But both stop short of waiving modders' rights. If you want to use the tools, you've got to give up your rights to claim royalties. The good thing is, the majority of modders do it for the love of the game, not for the money.
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