When I started working in the games industry, I made games for the Nintendo and Super Nintendo consoles. Font designs consisted of bitmap fonts, monospaced in 8 pixel squares. Any resemblance to vector fonts was purely coincidental. When I started making PC games, I could create proportionally spaced bitmap fonts by typing out lines in Photoshop using TrueType fonts. The hinting ans smoothing was done manually by pushing individual pixels. The end result bore some resemblance to the original fonts but not much. The bitmap graphic, usually one long string of 2-8 color bitmap glyphs was saved as a RAW file and processed by a custom tool. The custom tool generated code for a font system, designed specifically for that game. Later . . . in the PlayStation 2 days, there were off-the-shelf tools which could automatically convert fonts into bitmap fonts for use in games. I'm not in the games business anymore so I'm not sure how it works now.
Some font EULAs are specific about low res bitmap use while others make no mention of it. My EULA specifies embedding as something which will prevent the unlicensed user from installing or using a font: a proprietary bitmap format would qualify as embedding.
What are the legal limitations for game designers generating low-res bitmaps for use in game font systems? Is there a difference between manually pixel editing a crude bitmap, a smoother medium-res version or a 256 pixel high embedded bitmap font. Have there been cases of game companies being sued for using fonts to generate bitmap fonts for games?
I ask because people have asked me that question often and I honestly don't know.