Developing Concerns : Video Game Development Lawyers & Attorneys: Reed Smith Law Firm: Intellectual Property, Marketing, Promotions & Privacy Law

It's the day after May Day.  And since there's no good way to make a transition from that into some bullet point topics of interest for games companies, let's just get right into it, shall we?

• EA's declaratory judgment against Textron in the lawsuit over the inclusion of Bell helicopters in Battlefield 3 can stay in California.  Sometimes, it pays to move quickly when threatened with a potential lawsuit.
   
• Speaking of lawsuits, if you're involved in a copyright infringement suit and you're seeking a preliminary injunction against an infringer, then you need to be aware that the "presumption of irreparable harm" may no longer be valid (it depends on your jurisdiction).  Instead, you may need to show evidence of irreparable harm (PDF) if you are to prevail on the prelim.
   
• Developing Concern's own Patrick Sweeney was recently interviewed by Ayzenberg for a feature on developing trends in game finance and monetization.  Great read for those who are interested in how games are getting funding and making money in today's games market.
   
• Amazon settles its digital purchase sales tax dispute with Texas.  Amazon will now invest roughly $200 in capital investments in Texas, and will begin collecting sales taxes on digital goods sold to consumers in Texas.  Read our previous coverage of the issue with collecting sales taxes on digital goods.
   
• The US DOJ has indicted 10 individuals for making and selling mod chips that circumvent DRM technologies.  The indictments stem from "Operation Tangled Web," which was launched in 2008.  As GamePolitics points out, the mod chip issue is being considered by the US Copyright Office as an exemption to the DMCA (the law under which the 10 individuals are being prosecuted).  I have no idea whether the DOJ's prosecution of mod chippers will have any impact on the Copyright Office's rulemaking, but whatever the Copyright Office decides it is unlikely to be of much help to those individuals already in the DOJ's sites.
   
• A Pennsylvania man has sued Ubisoft for copyright infringement.  The man claims that Ubisoft's marquee franchise "Assassin's Creed" infringes upon his novel "Link."  The basis of the claim is that both storylines involve the ability to relive ancestral memories.  Although a lot of fact development will need to occur before any final judgment can be rendered for this case, a quick perusal of the complaint indicates that a lot of the "substantial similarity" may stem not from original expression but rather from the ideas of reliving ancestral memories (there's a device that allows you to tap into those memories, while reliving those memories you interact with historical figures, good battles evil, etc.).  If that's the case, the plaintiff may find it difficult to prove copyright infringement because, as we've said a few times here, copyright law does not protect ideas.
  
  In the meantime, however, the plaintiff appears to be on the receiving end of a lot of vitriol from fans of Assassin's Creed.  Sometimes, legal actions have non-legal consequences (a factor that should always be kept in mind when exploring your own legal options).
   
• EMI filed a lawsuit in New York federal court alleging that Def Jam Records owes UMI for making unlicensed use of EMI's music in Def Jam’s new video game, Def Jam Rapstar.

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Last month the President signed into law the JOBS Act - the Jumpstart Our Business Startups Act.  This bill received broad bipartisan support, and a lot of commentary has been written about it since its enactment.  But you might be wondering, "what does it really mean for games companies?"

Potentially a lot.  Here are my initial thoughts as to the new law's most important provisions for games companies:

1. The ability to sell securities via crowdfunding sites.  This could be a big one, especially as crowdfunding is becoming an ever-more important financing source.  One need look no further than Double Fine's $3.3 million Kickstarter campaign to see how important crowdfunding can be.  If companies are able to sell securities via a Kickstarter-like site, rather than sell tangible goods or simply ask for donations, the result may be more funding going into making a game.  After all, companies won't need to put that money towards making and distributing the goods sold via the campaign, and more people may be willing to pony up some cash to take a cut of the game's proceeds rather than simply donate the money. 
   
   Of course, the SEC is only now beginning the process of rulemaking about this, so we'll have to wait and see how the final details shake out.
    
2. Start ups can now tell the public about their intentions to raise capital (with some limitations).  This can mean more potential investors being aware of opportunities to invest in games companies, which can lead to more money being raised and ultimately more money being put towards the game (hiring engineers, developing new tech, etc.).
    
3. Increasing the thresholds at which companies are required to register under the Securities Exchange Act of 1934.  Currently, registration is typically required for companies that have total assets in excess of $1 million, or that have more than 500 shareholders.  Under the JOBS Act, these thresholds will be raised to $10 million in total assets and 2,000 shareholders, respectively.  This means that companies can get bigger before being required to register with the SEC, which will have an impact on when a company decides to go the IPO route.  Consider, for example, the recent analysis regarding Facebook's timing on its IPO - sometimes, holding off an IPO can be a good thing for a tech company.
    
4. Easing of potential legal costs in going public for "emerging growth companies" - hey, anything that helps you reduce your lawyer's bills is a good thing, right?  With some sources suggesting that the average legal cost to go public is about $2.5 million, and yearly compliance costs running about $1.5 million, the new designation of "emerging growth companies" could be quite important to a young games company.

The bottom line is that the JOBS Act may - MAY - become an important means of finance for games projects, but we will need to see how the final regulations shake out before deeming this the new way to finance games.  After all, what kind of lawyers would we be if we didn't reserve judgment until all the facts are in?

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Blending characters and story lines from two distinct universes has long been a staple of the entertainment industry.  Comics, movies, and video games have all done it.  And with the upcoming Avengers movie and the release of Street Fighter x Tekken, the desire to create crossovers does not appear to be diminishing.

From a legal standpoint, I find crossover projects to be a lot of fun (fyi: when a lawyer says "fun," that probably means "complex, detailed, and time-consuming" - not exactly the same definition as most people would have for "fun").  There are a myriad issues that can fall out from a crossover project, and any company thinking about this kind of game needs to have solid legal representation from the get-go.  Here's but one example.

Let's say that Company A has a well-known character - something instantly recognizable by the masses.  So too does Company B.  These companies have trademarked their respective characters (a process that is not necessarily automatic, nor necessarily possible in all situations - another complexity!), and have been diligent in protecting those trademarks.  The companies are approached by Publisher, a video game publisher who has a great idea for a new crossover game utilizing characters from both companies.  Everyone thinks this is a great idea (new revenue streams almost always seem like great ideas), and so Company A and Company B enter into separate agreements with Publisher.

Fast forward a year or so, and Publisher has fallen on hard times.  Publisher goes into bankruptcy and now the bankruptcy trustee wants to assign the agreements with Company A and Company B to a third party.  Neither Company A nor Company B is comfortable here.  They don't know the new publisher at all, and they are concerned that the new publisher will sacrifice game quality to hurry up production and see immediate return on investment.  As a result, the brands of both Company A and Company B could suffer.

So, what rights does Company A/Company B have to stop Publisher's assignment?  Can Publisher move forward with its plan without either (or both) Company A's or Company B's consent?   Exploration of these questions, and thoughts on how to structure future trademark license agreements to deal with these issues, after the jump.

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Benjamin Franklin is often quoted as saying that nothing in life that is certain except death and taxes.  In light of all of the battles over online sales taxes, perhaps taxes are not as certain as we think.  Consider the state-by-state challenges that etailers are having with various states: Virginia may collect taxes, Texas won't.  Here is a pretty good overview of how various states treat online sales taxes. 

So not even taxes can be said to be certain anymore (at least in the online context).  But to help alleviate some of the confusion surrounding this topic, California has provided a little bit of guidance for online companies of all stripes. 

Our colleagues at the Taxing Tech blog have a great article on what the new California guidance means.  For anyone involved in digital distribution of games, apps, ebooks, or the like, it's a must-read.  And while we won't duplicate the insightful comments of our colleagues here, we thought we would provide you with some of our own thoughts on what the new guidance means:

1. Sales of physical goods by California companies are still likely to create a nexus for California sales tax purposes.  This means you may want to think carefully about whether your business is profiting from sales of physical media - CDs, diskettes, jump drives with pre-loaded software, etc.  If the profit margin isn't as good as you think, perhaps it's time to consider online-only distribution.
    
2. Sales of electronic products (apps, ebooks, etc.) through digital means (Apple's App Store, Android Marketplace, etc.) may not be subject to sales tax collection obligations so long as you do not provide physical back-up media along with the sale.  Personally, I don't know of anyone who does this as a matter of course, but if you do provide backup copies of the software on physical media, you may want to rethink this course of action.

The bottom line is that the new guidance can be a big win for games companies that sell their products online-only.  It can keep the effective cost of your products down, which can lead to greater downloads by consumers, and keep your administrative burdens low at the same time.  You know what we call that?  A win-win.

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For some great insight on what life is like as a video game attorney, read Patrick's interview with IndustryGamers.  Solid advice in there, though I'm disappointed his day-to-day experience isn't exactly like L.A. Law.

If they ever make a revival of the show, I'd vote Patrick to be the next Arnie Becker.

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Though celebrity endorsements have always been a popular means of advertising products, recently there has been an uptick in celebrity endorsements of video games.  Here are two of my favorite examples:

 and

By appearing in ads, celebrities are aligning themselves with your brand, and conversely, your brand becomes aligned with the celebrities.  Many times, this is a good thing. 

Sometimes, however, the brand and the celebrity drift apart. This may be caused by a scandal, by some statements some feel are inappropriate, or simply by a difference of opinion in political or religious belief.  Such is the case with the recent lawsuit filed by Ben Stein (yes, that Ben Stein) against electronics maker Kyocera.

Stein claims that Kyocera backed out of hiring him as a celebrity endorser because of his views on global warming.  Stein is seeking $300,000 for, among other things, breach of contract (which in this case would likely be an oral contract as there does not appear to have been a signed agreement).

Assuming for our purposes that there is an enforceable agreement between Stein and Kyocera, what could Kyocera have done to protect itself from this kind of situation?  More importantly, as games companies become more and more interested in hiring celebrity talent to appear in commercials, what can video game companies learn from this?

Thoughts after the jump.

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Starting the week off right, with some news and notes on items of interest to the games industry:

• HBO has fired back in the suit brought by a former MTV reality personage over use of the phrase "Johnny's Bananas," asking a New York state judge to dismiss the suit in its entirety.  Reasons: 1) no publicity rights in a nickname; 2) the show made no references to the individual, but rather used the phrase in a different way, unaffiliated with the plaintiff; and 3) time-barred by New York's applicable statute of limitations.  Previous coverage of this suit.
   
• Arnold v. Mutual of Omaha Insurance Co. - a California Supreme Court case that explores the differences between an employee and an independent contract.  Particularly useful for games companies as many game development services are performed by independent contractors (especially if you're a small/indy/emerging growth company).  Note the checklist of factors the court provides.
   
• Psystar has filed a petition for cert with the US Supreme Court in its long-running dispute with Apple over Psystar's distribution of "mac clones."  At the same time, Apple lost its bid to keep certain documents related to the litigation sealed, meaning that some information submitted in briefs and contained within decisions will now become part of the public record.  All those interested in copyright protection and software (so, pretty much everyone who reads this blog) should follow this case closely.
   
• Ninjavideo co-founder sentenced to 22 months in prison after pleading guilty to conspiracy and criminal copyright infringement.  Perhaps Ninjavideo's motto should be changed from "this sh*t is ninja" to "copyright law is no joke."
  
  This development will be particularly interesting to keep in mind as the ongoing debates over SOPA/Protect IP Acts continue.  More on SOPA/Protect IP coming, so stay tuned.

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A legal conundrum of sorts for you - are your movements in the real world more or less private than in a virtual world?  The answer may surprise you.  Your movements may be more private in a virtual world, but only if the world operator's privacy policy gives you such an expectation.  So, when was the last time you looked at a privacy policy?  Given the state of the games industry,I'd recommend that both players and world operators do so, and consider how the applicable privacy policies treat movement data.  More on this later, but first, let's review how we got to this odd place.

At the end of December, a Missouri federal judge ruled that police do not need a warrant to attach a GPS device to suspects' cars in order to track their movements (PDF).  This decision comes on the heels of several other court rulings that held the same thing, and about a month after oral arguments in an unrelated Supreme Court case that will decide the future of warrantless GPS searches.

The reasoning behind the pro-GPS decisions is that you do not have a reasonable expectation of privacy in your public movements.  The 4th Amendment, from which all warrantless search issues derive, states:

The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.

The words "reasonable expectation of privacy" do not appear in the text of the 4th Amendment itself, but are an integral part of 4th Amendment jurisprudence thanks to the 1967 Supreme Court case of Katz v. United States.  That case dealt with the government's ability to use electronic monitoring devices to listen in on telephone conversations.  In holding that warrantless monitoring of telephone conversations violated the 4th Amendment, the Supreme Court stated:

One who occupies [a telephone booth], shuts the door behind him, and pays the toll that permits him to place a call is surely entitled to assume that the words he utters into the mouthpiece will not be broadcast to the world.

From this language, the theory of a "reasonable expectation of privacy" has evolved.

Jump forward 15 years, and you find the case of United States v. Knotts.  Electronic monitoring capabilities have become much more sophisticated, and police can install a "beeper" unit in containers (and vehicles) to track their movements on public streets.  In holding that such monitoring did not violate the 4th Amendment, the Supreme Court distinguished the Katz ruling by finding that, unlike telephone booths, people do not have a reasonable expectation of privacy in their movements in public areas.

Other blogs have covered how warrantless GPS searches square with the Katz and Knotts precedents, so we won't cover them here.  Instead, we'll turn our attention to things of massive importance - video games and virtual worlds.

The question of whether the government needs a warrant to monitor your movements in a virtual world will likely turn on whether the world is considered to be "public."  Some cases like Stern v. Sony have found that virtual worlds are not "places of public accommodation," for the purposes of the Americans with Disabilities Act, so there is some reason to believe that virtual worlds are more akin to a private telephone booth than a public street.  Therefore, one could claim a reasonable expectation of privacy in one's movements within a virtual world.

Of course, when there are a lot of other people around, particularly strangers you don't know, that blows your expectation of privacy out of the water.  And in a way, that's what a virtual world is - a lot of people you don't know, mixed with some you do, all being in the same place at the same time.

So, do you have a reasonable expectation of privacy in your virtual world movements or not?  If this issue were litigated, here's how I think it would come out.  The "expectation of privacy" is only "reasonable" if the player has a good faith belief that his movements are not being tracked by the world operator.  In order to establish this good faith belief, the player cannot have any knowledge (actual or constructive) of the game operator's tracking. This question will turn turn in large part on what the world operator's privacy statement says.

This raises some interesting questions for both players and world operators (particularly MMOs).  What, if anything, does the applicable privacy policy say about tracking of movements through the game world?  Are your movements private or not private?  In addition, how does the privacy policy's treatment of movement data mesh with any data mining services you offer (e.g., the Call of Duty Elite service)?  Does the privacy policy conflict with your current offerings or expectations (depending upon whether you are the world operator or the player)?

Why This Matters: As the games industry becomes more and more immersive, the privacy inherent in your virtual world movements will take on additional importance.  Consider the problem of account hijacking and theft of virtual property.  We may not be too far from a place where the government wants to attach virtual GPS devices to your avatars and characters to track their movements through Azeroth, Telara, etc.  This is something that should concern both players and developers, and is best dealt with now, before it is brought to your attention in a lawsuit.

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When it comes to exploration of copyright law in the games industry, one aspect tends to dominate the discussion - works-made-for-hire.  Innumerable agreements permeate the industry that use this model, whereby one person creates a copyrightable work for another, but the commissioning person is treated as the "author."  This is not the only ownership-related model that should be kept in mind, however.  Another ownership model can be just as important, and in some cases, much more tricky.

That ownership model is known as "joint works," in which two or more parties share the copyrights in and to a work.  Why is a joint work ownership model considered more "tricky" than a  work-made-for-hire model?  Two reasons:

1. You must have a clear expression of intent to create a joint work; and
2. Joint works entitle the mutual owners to do certain things without the permission (and sometimes to the detriment of) the other owners.

The importance of the first issue - having a clear expression of intent to create a joint work - cannot be overstated.  Take, for example, the recent case of Malcolmson v. Topps, Inc., Docket No. 2:08-cv-02306-GMS (9th Cir. 2011) (unpublished opinion).  In this case, the court rejected Malcolmson's claim that he was a "joint author" of Topps' Battletech game because Malcolmson could not prove that he was an "author" of the work at issue.

Before you start yelling at the computer screen, let's make one thing clear - there is a difference between a general conception of "being and author" and what the law considers to be "authorship" of a copyrightable work.  There are two ways that one can establish "authorship," particularly in the joint work context.  First, you can have a written agreement making this fact plain.  In the absence of a written agreement, however, establishing authorship can be more difficult as you will have to prove several things.  The Ninth Circuit's decision in Aalmuhammed v. Lee, 202 F.3d 1227 (9th Cir. 2000), sets for a list of non-exhaustive factors to prove authorship in the absence of a written agreement (note: this is my paraphrasing for ease of consumption):

1. Exercise of control over the work - the person who is the "effective cause of the work;"
2. Objective manifestations of shared intent to be coauthors (as compared to subjective intent);
3. The appeal of the work turns on contributions of the putative "joint authors," and the success of the work cannot be apportioned to any one party over another.

In the Malcolmson case, the plaintiff (Malcolmson) did not have a written agreement with the makers of Battletech, nor could he raise a genuine issue of material fact under the Aalmuhammed factors.  Therefore, he could not make out a claim of being a "joint author" even though he made contributions to the Battletech universe by writing a back story for one of the characters.

Even if Malcolmson could have raised an issue of material fact at a pre-summary judgment stage, he may still have had difficulties in proving the allegations, especially in terms of his establishing control over the work. Of course, this inquiry could have been avoided had Malcolmson had a written agreement with the Battletech makers stating their joint work intentions.  Thus, this case underscores the importance of having a written agreement when you intend to create a joint work.   

And to that end (shameless plug alert), you should have an attorney review the agreement to make sure that the agreement does in fact contain an "objective manifestation of shared intent to create a joint work."  All too often, a simple phrase like "we'll create this thing together" can fail the "objective manifestation" test because of the lack of clarity. 

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According to a lawsuit filed on September 30th, the answer is "yes."  Plaintiff Astrolabe, Inc. filed a lawsuit against two individuals for maintaining online databases of historical time zone information.  The plaintiff alleges that it owns copyrights in the software program ACS Atlas, and that the defendant's website, by offering historical time zone information, infringes upon those copyrights.

Let's give Astrolabe the benefit of the doubt and assume that it meant to draft the complaint so that the allegation was that the defendant's websites copied the code or table structure of the ACS Atlas because, as we've said a number of times on this blog, you cannot copyright ideas or facts.  Facts are facts; data is data.  Such things are not protected by copyright.

Copyright does not protect facts, ideas, systems, or methods of operation, although it may protect the way these things are expressed.  United States Copyright Office.

Thus, no infringement of copyrights can occur if the things being infringed are facts and data because facts and data are not copyright protected.

That is not to say the suit is totally without potential merit.  If the alleged infringement is against original expression (e.g., introductory paragraphs and explanations about those facts), or the software code that drives the database, then copyright law may come in to play.  Even the layouts of databases and menus pay be subject to copyright protection.  See Positive Software Solutions, Inc. v. New Century Mortgage Corp., 259 F.Supp.2d 531 (N.D.Tex. 2003) (finding that "data structures" - layout of a database - could be subject to copyright protection).

Outside of the facts/expression issue, there are a couple of additional issues with this complaint:

First, Atlas ACS does not appear to be registered with the US Copyright Office.  A federal registration (or at least a pending application, depending upon your state of residence) is a prerequisite to filing a copyright infringement lawsuit.  17 U.S.C. 411(a).  It is unclear from the complaint whether ACS Atlas has been registered or not.

Second, assuming that the protected expression is the data structures built within the databases, one has to wonder whether the merger and scenes a faire doctrines will come in to play here.  These doctrines are limits on the monopolistic power of copyright law.  The merger doctrine holds that protection is denied to expression that is inseparable from the ideas, processes or facts underlying the expression.  Gates Rubber Co. v. Bando Chemical Industries, Ltd., 9 F.3d 823 (10th Cir.1993).  Similarly, the scenes a faire doctrine, in the context of software, states that protection is denied to those elements of a program that have been dictated by external factors.  Id. at 838.

Both of these issues came to bear in a case brought in the District of Massachusetts (the same court Astrolabe brought its case in) - Baystate Technologies, Inc. v. Bentley Systems, Inc. 946 F.Supp. 1079, 1087 (D.Mass.,1996).  In that case, the court relied on both the merger and scenes a faire doctrines to find that no infringement of software had occurred.

Third, there is a three year statute of limitations when it comes to civil copyright infringement cases.  17 U.S.C. 507(b).  If the defendants can show that they have run their websites - with the allegedly infringing content - for more than three years, then it will be up to Astrolabe to show that it did not, nor could not have known, about the infringement until recently.  This may be difficult to prove, depending upon the facts.

Fourth, the complaint seeks costs and attorneys' fees.  However, these remedies are only available if the work was registered prior to or within three months of registration.  17 U.S.C. 412.  Therefore, awarding attorneys' fees and costs will only be possible if ACS Atlas was registered prior to publication.  That does not appear to be the case.

Finally, there might be a fair use argument here.  The two defendants appear to be employed by the NIH and UCLA, so there may be a strong argument for the alleged infringement being an educational use.  Of course, fair use is very fact-dependent, and the other fair use factors (the cost to license the portion of ACS Atlas that is being infringed, how much of the Atlas is being infringed, and the potential effect upon the work as a whole) may require a certain result.  But at a minimum, from the facts currently at hand, I would say that fair use is certainly a potential defense.

The bottom line here is that this complaint does not look very likely to succeed unless facts not within the complaint are established.  Even then, the chances of success may be slim depending upon what original expression (if any) is being infringed.

What Can We Learn: Here are a couple of takeaways when it comes to copyright infringement lawsuits:

1. Always, always register your work.  Copyright law gives you sufficient incentives to do this, and makes enforcement of your rights a lot harder if you don't.
2. Register your work at the earliest opportunity.  Failure to do so can result in a loss of important incentives - statutory damages, costs, and attorneys' fees.
3. Copyright law is an area full of complexity - understand that not all "infringement" is actionable.  Merger, scenes a faire, and fair use may require that an "infringement" actually be legal.

Ultimately, this may be another example of copyright law being used to monetize underperforming IP assets, which, as we all know from the story of Righthaven, is not necessarily a winning strategy.

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I am, like many other people, a fan of Entourage.  For those of you who did not see the eighth, and final, season, I promise not to write any spoilers.  All you need to know is that one subplot arc for the season was an animated show casting Johnny "Drama" Chase in the lead.  Drama played a monkey, called "Johnny," who was something of a cross between Homer Simpson and Larry David on Curb Your Enthusiasm.  He would find himself in situations that would pique his ire, and hilarity would ensue.  Hence the name "Johnny's Bananas."

Now, HBO has been sued over its use of "Johnny's Bananas" in the show and on merchandise related thereto.  The suit is being brought by reality television personality John Devenanzio on the grounds that he is known by the nickname "Johnny Bananas" and that HBO's use of the phrase in the show and on merchandise related to the show violations his New York state rights of publicity (among other things).  See N.Y. CVR sections 50-52.

Does Devenanzio have a right to "go bananas" on HBO?  Thoughts on his case, and the implication for game developers, after the jump.

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Pick one word to describe the movie Black Swan.  Twisted?  Surreal?  Mind-bending? (it's a hyphen, it counts as one word in the blogosphere).

All of those would be accurate, so it should not be much of a surprise that a lawsuit based on the movie could be described as such as well.  On September 28, two unpaid interns sued Fox Searchlight Pictures (producer of Black Swan) for violations of the Fair Labor Standards Act and New York state wage and hour laws.  The plaintiffs claim that, as unpaid interns, they actually were entitled to payment as employees.  Read the complaint (PDF) if you don't believe me.

Twisted.  Surreal.  Mind-bending (it's still one word).  At least, that's what it probably seems to an outside observer, but there is potential truth in the claim.  Note that I said "potential."  I'm not convinced this case is a slam-dunk winner, but for the benefit of the myriad games companies that hire unpaid interns, it's worth exploring the issue (after the jump).

Ed. note: I'm not an employment lawyer by training, and so anything written herein is a reflection of my imperfect understanding of the law is this admittedly complex area.  Please use the comments to correct, supplement, or distinguish what I have written.  I'll make sure to update the post accordingly as new, hopefully better, information is submitted.

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As it's Friday, it must be time for a Quick Hits/Courtroom Roundup recap post.  So without further ado:

• Anheuser Busch must share the "Budweiser" mark with Czech brewery Budějovický Budvar, at least in the EU.  You have to be impressed that I got all that punctuation in there (no idea if it's correct, but it's in there).
   
• The "sharing is caring" attitude in the EU continues.  Use of trademarks as keywords is "likely" okay so long as the use does not "jeopardize" the mark's reputation.
   
• GoPets Ltd. can't assert an interest in gopets.com because the company didn't exist when the domain was first registered. Thus, only the initial registration of a Web domain counts as a “registration” under anti-cybersquatting law.  Read the full decision here (PDF).
   
• State-based right of publicity laws preempted by federal COPPA law when use of a child's image and likeness is without parental consent?  According to one California judge, it might.  Not sure I completely understand the reasoning.  You can read the complaint here (order granting motion to dismiss not yet available).
   
• Bethesda denied a restraining order in the long-running lawsuit over a Fallout MMO.
   
• FCC finalizes its Net Neutrality rules (if they can really be called "net neutrality," that is).  Effective date: November 20, 2011.

Enjoy the weekend.

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News story today from GamePolitics.com about the South Korean Game Rating Board (GRB) accusing several MMO publishers of obstructing an investigation related to in-game "jackpot items."  The crux of this investigation appears to be that players spend virtual currency for an unknown item.  The item may be powerful, it may be worthless, but players are willing to shell out virtual dollars in the hopes that they will get the powerful item at a significantly reduced price.

I'm no expert on South Korean law, but in the US, this type of activity could well be legally problematic.  Why?  Because, as we've covered on this blog before, every US state has some form of law against illegal lotteries.  And "jackpot items" could very well constitute an illegal lottery.

What exactly is a lottery?  From a legal perspective, three things define a lottery: prize, chance, and consideration.  Prize is usually defined as something of value, and clearly virtual items are "something" that has "value" (if they didn't, no one would spend virtual, or real, currency on them). So we've got prize. Moreover, chance is clearly present.  Some players will get items of value, others will not.  That just leaves consideration.

Consideration in the area of lottery law is something of a term of art.  In can be generally understood as the giving of something of value, but this includes a significant expenditure of time, energy, or attention (this is in contrast to other areas of law, where consideration refers only to monetary value).  Thus, for the "jackpot items"activity to be an illegal lottery, the exchange of virtual currency for a chance to get a great virtual item must constitute consideration.

Leaving aside those circumstances where a player buys virtual currency with real money (there's no question that would be consideration), does this impact every game on the planet, which necessarily involves the expenditure of time, energy, or attention to earn virtual currency, could be subject to lottery liability for "jackpot" items?  

Perhaps, but I see a few problems with this. 

First, most game players spend time with a game as a form of entertainment.  I buy a game to play it, and the earning of virtual gold, items and badges is all part of the experience.  Therefore, at the end of the day, I got full enjoyment from the fruits of my labor - my time spent playing the game, and earning virtual currency, yielded me exactly what I was hoping it would, an experience.  My participation in a "jackpot" item activity is all part of that experience, not the sole reason I played the game (goldfarmers notwithstanding). 

So, if the time I spent in the game was because I wanted the experience, and not because I wanted to earn money for jackpot item drawings, then perhaps the jackpot item activity doesn't have a consideration element. Of course, some argued this in the context of the Deal or No Deal text message cases, without much success.  But unlike the Deal or No Deal cases, where the "experience" lasted a grand total of 10 seconds (or less) while you sent a text, in a video game the experience could be 50, 60, even 100 hours or more.  I think it's hard to argue that the "experience" theory is little more than a cover for the sweepstakes - for me, it's the whole reason I play the game in the first place.

Second, it may be that virtual currency is obtainable without the need to either buy it or grind away earning it.  What if every new player of a game was given 10 at the outset of the game, and was given the opportunity to participate in a "jackpot" item drawing?  In this case, the new player didn't buy the gold, nor did the player spend significant time earning it.  Arguing consideration in this case would be difficult, and made even more difficult if all "jackpot" item drawings were restricted to noobs.

Third, what if you removed the virtual currency element from the equation?  What if you granted every player a "mystery item" upon leveling up?  Sure, the player spent time leveling the character, but I cannot imagine anyone seeing this as a problem.  Furthermore, this would strongly reinforce the "experience" theory espoused above.

The bottom line is that, when it comes to lottery laws, there is a real risk for US games companies.  Not only are lottery laws enforced by federal agencies, they are also enforced by state agencies and consumers.  This is the proverbial litigation trifecta - federal investigations, state investigations, and class actions.  So knowing which side of the law you fall in can be incredibly helpful if you want to avoid significant legal costs and penalties. 

If you have any questions about lottery law, you should speak with someone who is knowledgeable about this area if you have questions - this is not something you want to "take a chance" on (sorry, had to say it).

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