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

Gamasutra has a great article on why it makes good business sense to utilize players as developers of new content.  It can be a new revenue stream for the publisher, it can build brand loyalty, it can increase the game's long tail, and it can mean fresh content without having to build it yourself.  So pretty much all positives and very few, if any, negatives.

At least, there are very few negatives so long as you build the legal structure appropriately.  There is a ton to consider when developing a means by which players can build, distribute, and monetize their own content - a typical development agreement between a publisher and a developer can span dozens of pages of dense, legalese print. Is this something you think you can implement in the context of a player/developer relationship?  Doubtful.

So what are the issues that should be considered?  This post will by no means cover them all, but here are a few key highlights:

Intellectual Property

The grand poobah of the issues bucket list.

1. You as the "publisher" (note the use of quotes here, since that distinction is becoming less relevant in this context) need to have in order to distribute and exploit the player-created content.  But there can be a tendancy to take more than what you need in order to "lock down" these rights.  I challenge my clients to constantly ask themselves whether they need all of the rights they are seeking, or whether something less would work just as well, and be easier to monitor.  After all, licenses can be perpetual; grants of ownership may be subject to reversionary rights later in life.
   
   The question of license-vs.-own becomes even more important if you want to take the content and exploit it internationally.  For example, do you know your requirements as publisher for comply with various countries' moral rights laws?  Does the country you seek to exploit the work in even allow you to do what you want to do?
    
2. Consider the kinds of content you are allowing players to create, and whether ancillary IP laws like VARA may apply.  (How this could happen is a fascinating question, but that's another post).
    
3. When players create content, publishers have no way of knowing whether the content is original or not.  There's no clearance process to speak of, so taking advantage of the safe harbor provisions of the DMCA is incredibly important.  For example, have you appointed a copyright agent, or are you at risk for a Righthaven-like troll coming after you?  Do you have an appropriate notice-and-takedown regime in place?
    
4. Aside from copyright issue, have you considered the impact of trademark laws in the player-created content?  After all, the DMCA doesn't apply to trademark issues so how will you handle a situation where someone uses the McDonald's Arches as an architectural work, or the Nike Swoosh on virtual clothing.
    
5. What about publicity rights?  If I put my face on a digital item then distribute it through your player-created content network, can I turn around and sue you for infringement of my right of publicity?  Maybe, maybe not depending on whether there is an implied right to use my name/image/likeness, but why not deal with it up front?

Revenue Share

1. Are you taking an off-the-top fee like Apple does, or is your rev share more complex?  If it's more complex, what kind of definitions for "gross" and "net" are you using?  Keep in mind that there are industry standards with this, so if you depart from that standard, you should have a good reason for doing so (and a compelling sales pitch as to why that departure is good for the player).
    
2. Are you providing access to any sort of dashboard or control panel so players can monitor the exploitation of their content?  What promises, if any, are you making with regard to access to and usefulness of this program?
    
3. What rights, if any, will players have to dispute the revenue share?
    
4. On what kind of payment cycle will you pay players?  Will you keep any of the player's share as a holdback, and if so, how much and when will this be liquidated.
    
5. If you're going international, where does currency exchange fees come into play?

Nature of the Content

1. How will you respond if someone uploads buggy content, or even worse, content that contains malware?  Do you know the extent of your liability?
    
2. Will you engage in a rigerous approval process (a la Apple App Store), or take a more laissez faire approach (a la Google Play).

The above checklist of questions is not meant to be all-encompassing, but as you can see there are more than a few issues that need to be thought through prior to launching a player-created content system.  Moreover, you should seek out an expert to assist with your decision-making and documentation thereof.  Not only will this help you understand the contours of the issues you face, but this will also help you create player agreements that are easy to use and easy(ier?) to understand.

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One of the joys of being a lawyer is that you get paid to think about risk.  Well, not so much "think about" as "eat, sleep, and live" risk.  It's inherent in the job we do.  "Can I do X," says the client.  "Well," says the lawyer, "if you do, there is a risk that..."

And when this speech starts rolling, you can almost feel the business team's eyes rolling into the backs of their skulls.  It's not that the business doesn't care about risk.  Most business people, in my opinion, do care about risk.  They just don't value it the same as lawyers.  The "why" of this is not something I can speak to with any expertise, but I think one contributing factor is a mismatched perception of when a deal has been sufficiently finalized to control for risk.

Take, for example, a fairly typical license deal cycle.  An idea is generated, business people talk to business people, and a tentative arrangement (the "cocktail napkin" arrangement) is hammered out.  Then (hopefully) the legal team is brought into the loop, and sometimes is told something like "we need a term sheet today," or "a full agreement will kill this deal," or "if we don't get something -- anything -- in writing today, someone else will swoop in and take the deal."  So the legal team hammers out a short term sheet with some, but not all, pertinent language in it, and puts a little gem like this at the bottom:

The parties will use good faith efforts to execute a long-form agreement within X days of the effective date of this term sheet.  Until such time as the long-form agreement is executed, this term sheet will remain in effect.

On the one hand, you've got a signed agreement, so the business is happy.  They're excited to start work.  They might even start work on the assumption that any remaining details will be worked out at a later date.  After all, you've "papered the deal," right?

On the other hand, the lawyers know that the agreement you've signed is woefully insufficient at controlling a variety of foreseeable risks.  Not everything can be crammed into four or five pages, and risk mitigation for certain circumstances is often left out in favor of the more salient deal points like timing, money, etc.  And yet there is no obligation to do anything about it on their party - "good faith efforts" is not the same as "you will."

Thus, you've got a split in perception of risk control, and so long as the business thinks the deal's risks have been dealt with, their incentive to push through the long-form will be reduced.  Then attention gets directed elsewhere, and before you know it, you're at the end of the deal cycle and the long-form never got signed.

Fortunately, situation such as this sometimes blow up and stand as a cautionary tale for others to learn from.  Take this one for example: last week, a Swedish company called ProCloud Media Invest AB sued Paramount Pictures for backing out of a licensing arrangement for ProCloud to develop games based upon Paramount's entertainment properties. ProCloud's lawsuit claims that it paid Paramount Pictures $1 million and "fully performed" the dutuies of a "co-producer," but the studio shuttered its digital entertainment division before ProCloud could started producing the subject to the license.  Now, ProCloud is suing Paramount for $10 million.

Digging into the complaint a little bit, one learns that the parties executed a "deal memo" and an amendment to the deal memo, but never executed the full, long-form agreement.  The complaint further alleges that four weeks after executing the amendment, Paramount shut down the digital entertainment studio.

Out the outset of some (brief) analysis, let me be clear.  I HAVE NOT READ THE DEAL MEMO OR THE AMENDMENT.  I don't know what these documents say, nor am I expressing any opinion about what either party should or should not have done in this situation. Rather, having been in situations similar to this, I can tell you that termination provisions in deal memos do not tend to be overly extensive.  It would be a rare deal memo that contemplates a termination provision for a complete shuttering of the business line.  Meanwhile, a full license could (should) include well-crafted license termination conditions. 

So, as a lawyer for a video games company, or perhaps a business development team member who plays a bit of a legal role, how can you ensure that you get the protections of the long-form while facing the inertia of a business that just wants to move forward?  Here are some tips to consider:

1. If possible, set an expiration date on the deal memo.  If you set an expiration on the deal memo or, say, 60 days after signature, this puts a lot of incentive on all parties to come to the table and negotiate the long-form.  It is a much better way to ensure that a long-form gets done as opposed to the "gem" stock language from above.  Of course, this is not something that you can get into every deal, but can be a powerful tool when appropriate.
    
2. Tie specific provisions to long-form execution.  One of my favorites is tying the payment schedule to the long-form execution, as opposed to payment on execution of the deal memo.  Money gets everyone's attention, so even if you can't put a short expiration date into the deal memo, tying the long-form execution to the payment schedule is a way to build a similar incentive.
    
3. Make sure the long-form is in your queue.  All too often, the responsibility for ensuring execution of the long-form falls through the cracks because the business thinks legal is handling this, and legal thinks the business is driving it.  Take ownership of this up front, keep the business people in the loop on its progress.  This will show the business that you - legal - are taking this seriously, which can communicate more about risk control than any conversation you could have with them.  
    
4. Take the time to put license terminations into a deal memo.  Know that even if you follow the above tips, you may find yourself operating under a deal memo for an extended period of time.  Company cultures, industry norms, development schedule - all of these can give rise to a situation where is it not tenable to negotiate out a long-form.  In such situations, even basic "the license may be terminated at licensor's discretion in the event that..." provisions can be lifesavers.

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Those of us who watch legal developments in the video games and new media industries have been following the Xbox 360-related battle between Motorola (now owned by Google) and Microsoft for quite some time.  We at DevelopingConcerns been waiting for a resolution from the International Trade Commission before writing a post, so that we can provide our dear readers with those little nuggets of wisdom we've become (not all that) famous for (as opposed to our atrocious attempts at humor, which of course have subjected us to public ridicule the Internet over).  

Well, waiting until a final resolution isn't going to happen; we're writing this up midstream.  Why?  Because the recent involvement by Capitol Hill lawmakers, and potential impact of the ITC granting an exclusionary order (more on his later), make this a perfect time to jump in.

By way of background, the International Trade Commission is an independent governmental agency which conducts investigations and provides general trade research to both the executive and legislative branches of government. The ITC is responsible for, among other things, investigations under Section 337 of the Tariff Act of 1930 (19 U.S.C. § 1337), prohibits certain unfair practices in import trade, including the infringement of certain statutory intellectual property rights and other forms of unfair competition in import trade to be unlawful practices. A lot of Section 337 investigations involve allegations of patent or registered trademark infringement, although other forms of unfair competition (e.g., misappropriation of trade secrets, trade dress infringement, passing off, false advertising, and violations of the antitrust laws) may also be asserted.

The instant case - the Motorola v. Microsoft Xbox 360 case - focuses on patent infringement issues.  More specifically, it focuses on the use of so-called "standard essential patents" (or "SEPs") in Xbox 360s.  SEPs are those patents that are an integral and necessary part of an industry standard, and typically are shared amongst all players in a particular industry in order to ensure that all devices/technologies within that industry adhere to the applicable standard.  In exchange for contributing the SEP to the standard, the company holding the patent will be paid a license on reasonable and non-discriminatory (or "RAND") terms.  [Note: internationally, the term is often referred to as "FRAND," or "fair, reasonable, and non-discriminatory" - the two acronyms are basically interchangeable). 

In this case, the most important SEPs at issue are those covering the H.264 video compression standard, and the 802.11 WiFi standard.  Theoretically, if Motorola demanded RAND fees, and Microsoft paid them, then Microsoft would have the right to incorporate these SEPs into the Xbox 360, so as to ensure that the device plays nicely with everything else that makes use of these SEPs (wireless routers, Internet video playback, etc.).  And life would go on as normal.

Of course, that didn't happen.  The reason is because Motorola and Microsoft could not come to an agreement on the nature of RAND fees.  The potential reasons for the failure to agree are too numerous to speculate, so suffice it to say that the parties couldn't come to terms, and so an ITC complaint was filed and an investigation was launched. 

That was in 2010 (see 75 FR 80843 for the official announcement of the launch of the investigation).  A lot has occurred since then.  For a blow-by-blow recap, read through the excellent coverage that Florian Muller at FOSS PATENTS has put together - complaint, announcement of initial decision, and the release of initial decision.  Here's what you need to know:

• The Administrative Judge (the first hearing officer at the ITC) has found that through incorporation of the at-issue SEPs into the Xbox 360, and by not coming to terms on RAND licensing fees, Microsoft has infringed upon the patent rights of Motorola
   
• Motorola, however, has appeared to act in ways that are somewhat disingenuous, and contrary to the entire ideal of SEPs.  Specifically, Motorola did not seek "reasonable" licensing fees from Microsoft.
   
• Notwithstanding Motorola's actions, Microsoft did not prevail the equitable defenses, and so the Administrative Judge recommended an exclusion order (an import ban) on Xbox 360s (at least until the parties agree on licensing fees for the SEPs).

Read the full public version (which is redacted in part) of the initial decision (via Wired.com).  The judge has some very choice words for Motorola's conduct, and indeed suggest that Motorola never intended to grant RAND terms.  That's what's really interesting about this case: if a system is built upon all industry members agreeing to a particular standard, what happens when the holder of the patent related to that standard starts acting in ways that are not "reasonable" or "non-discriminatory?"

Fortunately for this blog, lawmakers from both sides of the aisle (or perhaps more accurately, from different parts of the country) are weighing in on this question, and both companies are seeing support from Congressmen for their respective positions.  Predictably, Microsoft is getting support from Washington's Congressional delegation, and Motorola is getting support from Illinois (former home of Motorola, before the Google acquisition).  The Congressmen and Congresswomen are casting the battle as one of public policy versus strong IP protection - of fair play and the American economy over rewarding those who spend time and money inventing new technologies.  Only time will tell which side - if either - is victorious.

In the meantime, does this mean that the Xbox will be banned from the US?  Certainly not in the short run.  Now that the Administrative Judge's initial decision has been rendered, the case will go to the six-member Commission, which can review, modify, overturn, or accept the initial decision.  The deadline for this is August 23rd.  After that, the Commission's decision will go the President, who has 60 days to decide whether to accept or overturn the decision.  Therefore, Xbox 360's won't be yanked from store shelves anytime soon.  In the long run, I'd say it's unlikely that Xboxs will be banned in the US because Motorola's conduct (as reported in the initial decision) suggests it never intended to grant Microsoft a license.  My personal feeling is that, at some point, public policy will come into play (perhaps at the ITC, or perhaps at the administration level), and Motorola's apparent unwillingness to negotiate RAND fees will come back to bite it.  The law may require a different answer, but my gut says that somehow, we'll find a solution to this issue that allows Xboxs to stay on the market. 

Of course, no gut feeling is ever 100% right, so we will keep watching this case (and so should you) as the eventual result could have significant ramifications throughout any industry that takes advantage of mutually agreed-upon standards.  If our legal system can be used to destroy the current status quo of standards-related industries, then either industry will need to come up with a new legal solution (escrowing the IP for blind distribution as determined by a neutral trustee?) or we will find ourselves back to the format wars.  The later is not the most efficient way to progress.  Ask anyone who bought into laser discs over DVDs, or HD-DVDs over Blu-rays, how great format wars are.

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Lots going on in the games industry recently, and with E3 on deck, the flurry isn't likely to slow down.  Here are some key developments in legal issues related to video gaming.  The highlights: an author learns that idea theft cases against games companies can be just as difficult as idea theft cases brought against movie and TV studios; the trades will be devoid of more juicy details from the Infinity Ward lawsuit; rights of publicity cases, now with a pending jury decision; and the future of unlockable content is at stake:

• Ubisoft seeks to stop the copyright infringement lawsuit brought against it by author John Beiswinger.  Earlier, Beiswinger opted to voluntary drop the suit without a settlement with Ubisoft.  Upset by this (and the need to defend itself in court), Ubisoft is now seeking a declaration that its Assassin's Creed games do not infringe Beiswinger's novel LINK, as well as costs and attorneys' fees.
   
• Activision has ended its contract row with former Infinity Ward heads Jason West and Vince Zampella, which comes on the heels of Activision and EA settling their related dispute.  This case is too important to deal with in brief, so a retrospective will be forthcoming (I can tell how excited you are at the prospect).
   
• EA will have to participate in the Bill Russell, conspiracy-related lawsuit the former basketball star has brought against the NCAA.  The crux of this case is EA's agreement to abide by the NCAA's prohibition on compensating student athletes.  This will be another one to watch closely, as it could affect just about every form of video gaming that involves collegiate sports.
   
• No Doubt's publicity lawsuit against Activision for inappropriate use of the band's image/likeness in Band Hero will go the jury.  Look for this case to become a foundation upon which future use of avatars and unlockable content will be based.
   
• Epic wins $4.45 million in Silicon Knights countersuit.  You may recall that the suit began when Silicon Knights sued Epic for $50+ million based on claims that Epic's Unreal Engine didn't live up to the promises made by Epic (thereby forcing Silicon Knights to build a new engine from scratch).  Epic countersues, claiming that Silicon Knights may have infringed upon Unreal Engine code in building the new "from scratch" engine.  Now, Epic wins... epically.  How's that for a reversal of fortune?  Lesson here: resorting to a lawsuit may not always be the best way to resolve your differences.  You could end up owing the company you're suing, which just adds insult to injury.
   
• Social game maker Blingville LLC has agreed to not use the -ville suffix in its games, thereby resolving a trademark dispute with Zynga. 

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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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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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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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Interesting story today on Wired.com and ComicsBeat.com about Marvel's "comics for comics" promotion, which incentivizes comic book stores to destroy copies of DC Comics' Flashpoint series.  If comic book stores rip covers off the Flashpoint books (thus rendering them basically unsellable), and send them to Marvel, Marvel will send the stores a variant edition of Fear Itself #6.  So basically, it's "destroy our competitor's product and we'll send you special editions of our products."  No love lost between Marvel and DC, I guess.

This leads to the obvious (for this blog) question: is Marvel's promotion legal?  Short answer, yes in the case of comic books.  Maybe not in the case of other media.  Reason: different ownership structures.

In the case of comic books (as with other printed works), retailers typically purchase the copies that sit on their shelves.  This means that the books can be kept, sold, or destroyed; it's all up to the store what they want to do with those individual copies.  If a store wants to rip up the copies of books it owns, it can do so.  Therefore, someone who incentivizes the comic book store to destroy its own property is not liable for that destruction.

This ownership issue is not as clear cut in other media, particularly software.  Software tends to be licensed to retailers rather than sold, meaning that the copies of that software that sit on store shelves are not the property of the retailer.  Instead, they are the property of the publisher/distributor, who in effect "rents" shelf space on which to hawk its wares.  If the retailer destroys the software, it is destroying the property of another.  

This is why, in my opinion, you're not likely to see the "comics for comics" idea become "games for games."  Games, as pieces of software, are not typically "sold" to retailers.  In fact, they may not even be sold to consumers (think back to the EULA cases we've covered before, which discuss the difference between sales and licenses).  Best Buy does not necessarily "own" the games it "sells" to consumers. 

So what happens if you incentivize the destruction of another's property?  Answer: Nothing good.  There are any number of state law causes of action (conversion, theft, misappropriation, interference with contracts, even potential criminal charges for theft/vandalism), plus a potential breach of contract action against the retailer depending upon the specifics of the retail sales agreement (for which the retailer may turn around and sue the incentivizer). 

Bottom line: incentivized destruction of competitors' products is not something I anticipate will make its way to the video game industry because the ownership issues involved with copies of software are not as clear cut as they are with print media.

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Regular blog readers (all six of you) have probably noticed a drop in the frequency of posts.  Here's hoping that this post gets us back in to the swing of things.  And now, legal-related games industry news from in and around the interwebs.

• EA buys PopCap.  Looks like EA has Zynga in its sights. 
   
• Louisiana revises its tax incentive offerings.  No more transferrable credits, but those credits are now refundable.  In plain English, that means sales of the tax credits aren't allowed, but if the credit is worth more than your total tax liability, the state pays you.
   
• In other tax incentive-related news, Michigan has limited its interactive entertainment credit to a total of $25 million across all projects.  This is a steep drop from the previously unlimited amount of funding. 
   
• Angry Birds dev Rovio has sued Ideal Toys Direct, Inc. for copyright infringement.  Rovio is alleging that Ideal Toys' "Roly-Poly Birds” and “Roly-Poly Farm Animals” line of products are substantially similar to characters in Angry Birds.  If the allegations are true, then this would appear to be a modern day version of the H.R. Puff n' Stuff case (with fewer cheeseburgers being affected, of course).
   
• Games begetting movies?  First Ubisoft, and now Rockstar.  Care to place bets on whether a Red Dead Redemption game will fare better or worse than Prince of Persia: The Sands of Time?
   
• The "truthiness" behind the creation of a Stephen Colbert-themed video game.
   
• [Shameless plug] Upcoming speeches/presentations by the DevConcerns team to include talks on protection or fictional characters in old and new media, and entertainment-related tax credits.  More information on these talks, and possible presentation notes, to come.

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Tournament play – it’s a stalwart of today’s video game experience. And it leads to some very interesting questions. For example:

• Is it possible to hit drives of nearly 400 yards in Tiger Woods 11? [Answer: it shouldn’t be, but somehow, it happens]
• When is it right to aim for a teammate instead of an opponent? [Answer: only if they owe you money]
• Or is the Golden Tee Online Tournament play illegal gambling? [Answer: sorry everyone - this answer you have to pay for].

Today’s interesting legal question regarding online tournament play is: are online tournaments the sole province of one person or company? The plaintiff behind a recent lawsuit filed against Activision, Blizzard, and Zynga may answer "yes."

The suit at issue was filed by Walker Digital - the parent company of Priceline.com – and alleges that Activision, Blizzard, and Zynga infringed patented technology that allows players to compete in online tournaments. The patent-in-suit - U.S. Patent Number 6,425,828 – is described as:

A method and a system for a distributed electronic tournament system in which many remotely located players participate in a tournament through input/output devices connected to a central controller which manages the tournament.

The method, as described in the patent, includes the steps of:

(a) uniquely identifying a player communicating with the central controller via an associated input/output device;

(b) responding to payment of an entry fee by the player for allowing the player to participate in a tournament occurring within a fixed time window via an associated input/output device;

(c) accessing a database to store in the database player information that is generated as the player participates in the tournament, such information being available for use in a subsequent tournament, which is administered by said controller and in which the player participates; and

(d) awarding the player a prize for achieving a preestablished performance level in the tournament.

The games at issue include some of the most famous titles in online game history – World of Warcraft, Call of Duty, Mafia Wars, 007: Goldeneye, DJ Hero 2, and others.

I’m not a patent lawyer (as I’ve said a few times on this blog), but I have to wonder how this patent is not subject to prior art issues. After all, online tournaments were around long before 2001 (the patent’s application date).

In addition, what exactly constitutes an "entry fee" for the purpose of this patent? The patent itself seems to suggest cash or cash-equivalent, since part of the "user information" is "billing information." But what about virtual currency, or "points." If a tournament accepts entries based upon points accumulated in the game, would that still fall under the patent-in-suit?

We will definitely be watching this case for future developments. Stay tuned.

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Brad Newberg of the Reed Smith Video Games Team has written a further in-depth analysis of MDY v. Blizzard that has been featured by the Washington Legal Foundation.  Previous blog coverage of the case can be found here.  Congrats Brad!  (Even though your analysis is noticeably void of bad puns).

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[Ed. Note: we seem to be having a few technical difficulties with this post.  Hopefully this version will have fixed the problem]

Okay, I don't really like bots. Of course, I don't generally dislike them either. It's just that I can't seem to stop with the bad puns.

Here's my thinking on bots: I've never understood why people would want to use them. Bots play videos games for you - you don't need to be involved with the game in any way other than starting it up. Now, when I play games, I do so because I want to experience what my avatar/character is doing (solve mysteries in the old west, explore alien worlds, save the human race from mutated zombies - you know, those things I would do in every day real life if I wasn't writing this blog). Having a computer play the game automatically takes away that experience, and leaves me with no payoff or sense of accomplishment when it's done.

But for those of you who feel differently, I have some good news/bad news. The good news -thanks to a recently-decided Ninth Circuit case, using (and making, selling and distributing) bots to automatically play games is not necessarily copyright infringement. Bad news: bots may still violate the Digital Millennium Copyight Act's anticircumvention laws.

Analysis of the decision after the jump.

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According to reports, Apple has removed a "jailbreak"-detection API from its latest version of iOS.  The API, which was introduced as part of Apple's Mobile Device Management functionality in iOS 4, would have allowed third party developers to check to see whether the device had been "compromised" (that is, not running as Apple intends - unlocked, jailbroken, etc.). 

While no one is sure exactly why Apple removed the API from iOS, some concerns have been raised that the API opened up a number of potential vulnerabilities in exchange for not much protection (it was theorized that the API could be "fooled" into thinking that a jailbroken device was operating normally, which would render the detection functionality essentially useless). However, I do not think that Apple's decision to drop the API is based on this concern alone. 

Rather, I think the decision reflects both this concern and a broadening attitude toward certain kinds of jailbreaking.  Remember, it was not too long ago that the US Copyright Office completed its Digital Millennium Copyright Act ("DMCA") Anticircumvention Rulemaking.  Through the Rulemaking, the Copyright Office concluded that jailbreaking smartphones to run third party software was not (in many, but not all, cases) a violation of copyright law.  By removing copyright law as a cause of action against certain jailbreakers, the Copyright Office also removed the potential penalties that could be obtained against such people.  This means that device manufacturers like Apple will likely be reassessing how they spend money in relation to the cat-and-mouse game that is jailbreak prevention. 

What can we read from the tea leaves offered up by this decision?  First, I don't think we can expect Apple to embrace the jailbreaking community wholesale.  Jailbreaking can still be a violation of contract law (through the license you agree to when you buy and active an iPhone), and will still likely violate the warranty Apple offers on its iOS devices.  Second, I would not be surprised to learn that Apple is refocusing its jailbreak prevention efforts on its enterprise customers.  These customers are typically much more concerned about rogue devices/software than the everyday user, and so I doubt Apple (or any other device manufacturer) will ignore jailbreaking completely.  Third, I think that in offering the API to all developers, there was an implied incentive to utilize it.  Adding code that is not part of the app's core functionality could lead to bloated, buggy code.  By removing the API (instead of just leaving it alone), Apple effectively kills the implied incentive, thereby helping ensure that apps offered through the App store are more streamlined/less buggy.  It also has the nice effect of keeping app sizes smaller, which may not mean much in individual cases, but in the aggregate, may add up to a lot of space.

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The Grand Theft Auto franchise is no stranger to controversy.  The San Andreas game itself was been the subject of number of legal actions (the "Hot Coffee" and "Playpen" issues are two that come immediately to mind).  Now, Rockstar Games and Take-Two Interactive (the makers of GTA:SA) have been sued for 1/4 of the total estimated profits of the game.  And trust me, those estimated profits are eye-popping.  The lawsuit complaint estimates that the game has garnered roughly $1 billion worldwide, so that 1/4 in damages sought would amount to a whopping $250 million.

Why are Rockstar and Take-Two being sued, and by whom?  The lawsuit was filed by a man named Michael Shagg Washington, and he is suing for fraud, misappropriation of likeness under Cal. Civ. Code 3344, and copyright infringement.  Having read the complaint (made available by IGN here), I have a few thoughts on this lawsuit.  In short, if someone were taking bets on Mr. Washington's bout with Rockstar/Take-Two, I'd put my money on Rockstar/Take-Two.

Thoughts after the jump.

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Video games are escapist fair.  They allow us to be soldiers, athletes, anthropomorphic hedgehogs, and just about anything in between.   I have been known, on occasion, to conquer the world, save princesses, win the Masters, and engage in aerial dogfights with 1040's Messerschmidts, all in the course of a single day.  The reason I spend time in these pursuits is that games allow me to add new dimensions and experiences to every day life.  

Yet adding new dimensions to every day life is not limited to just console gaming.  A couple of years ago, alternate reality games (or ARGs) were something of a rage.  I'm sure (hope?) some of you remember I Love Bees, Push, Nevada (Ben Affleck's marriage of television and ARGs), and Lost Ring (McDonald's ARG that tied in with the 2008 Olympics in China).  Then along game the augmented reality apps, which offered new possibilities for looking at the world.  With a simple touch of a button or on-screen icon, augmented reality apps can provide you with a sensory experience unlike what "real" life provides.  Want to know the location of Twitterers surrounding you, or want to use X-ray vision to find a nearby subway station?  There are apps for that. 

Now, Christopher Nolan, director of Inception, has taken augmented reality apps from minigame-saturated or information-heavy offerings to something that can be better described as a sensory-rich experience.  Here is Wired's overview of the Inception app (they do a better job discussing its feature set and potential than I could).  This is definitely an app I will be checking out.

If this were a blog devoted to gaming news, then this would probably be a great post.  But it's not.  This is a legal blog, so we ask legal questions.  Such as this: what liability does the app maker and distributor take on when offering augmented reality apps?  Here's another, why should augmented reality apps be treated any more differently than more traditional game-based apps?

Thoughts and answers after the jump.

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Fashion and video gaming - two things that are not exactly known to go together.  After all, I don't usually wear "couture" when I'm cruising around the radioactive wasteland of post-apocalypse Las Vegas.

But yesterday saw a marriage of these two usually divergent concepts, thanks to the Senate Judiciary Committee's approval of S.3728.  The bill, which will move on to the full Senate for its consideration, would provide intellectual property protection for fashion designers, especially against knock-offs and counterfeits. 

Why does this matter to video gaming?  Consider what may be the hottest trend in video game IP right now - dance games.  Dance games typically have some on-screen avatar or representation of the dancer who's moves you follow.  If this avatar is wearing clothes that could be subject to protection under S.3728 (assuming it passes), then the avatar (and the game at large) could be infringing unless ythe developer licensed the clothing designs.

Let's put this into a more concrete example: Lady GaGa is known for some original clothing choices.  And the occasional pop hit.  Based on those hits, wouldn't it make sense to use GaGa's music for a dance game?  (I know this has already been done, but bear with me for this example)  And if you're going to do that, you'd probably  want to make use of her name and image as well.  After all, this was the pattern followed by the Guitar Hero/Rock Band genre of games.  But why stop there - why not incorporate her style choices as well?  After all, what's GaGa without a dress of raw meat? 

As it stands today, the game developer in this hypothetical would certainly have licensed her name, image, likeness, and music for the game (right, developers?).  But would the dev have thought to license the original IP in her costumes?  If S.3728 becomes law, it should have.

Couple of interesting things to note about this bill.  First, it has strong bi-partisan support.  Second, it does not speak to tax breaks or funding the government, so if Senate republicans are to make good on their threat, S.3728 should not receive much attention during the final days of the 111th Congress (at least until the minor issues of tax breaks and government spending are handled).

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UPDATE: Last week we wrote about the House passing a version of the Copyright Cleanup, Clarification, and Corrections Act of 2010, and about how this could affect game developers (among others involved in digital and interactive entertainment).  Last Friday (November 19th), the Senate unanimously approved of the House's version of the bill (the version without the language regarding transfers of exclusive licenses).  Now, the bill awaits only the President's signature before it becomes law.  You can follow the bill's status viz. the President's signature here.

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On August 3, 2010, the Senate passed a bill known as "The Copyright Cleanup, Clarification, and Corrections Act of 2010" (S.3689).  This bill provided for a number of technical corrections to the Copyright Act, such as changing the title of Chapter 6 to read "Importation and Exportation" (as opposed to its current "Manufacturing Requirements and Importation."  Of course, a few substantive corrections have been made as well, including clarification that under Section 303(b), distribution of phonorecords (sound recordings) made before 1978 shall constitute a publication of an underlying musical, dramatic, or literary work (currently, the statute's wording is limited to just underlying "musical works," which can create confusion for sound recordings like audiobooks or non-musical plays).

A few days ago - on November 15, 2010 - the House of Representatives passed a version of S.3689 that was very similar to the bill passed by the Senate a few months back.  However, one provision of note that was in the Senate's version did not make it into the version passed by the House.  This provision would have allowed the holder of an exclusive right to a copyrightable work to sublicense that right to another party without the licensor's consent.

To put this into plain English, let's say I'm a studio with a great idea - I'm developing an MMO based on (of all things) developing an MMO (how meta is that!).  I have enough original expression, embodied in enough tangible media, to qualify for copyright protection.  (See our previous posts involving copyright for more on this).  In the process of developing this MMO, I decide to license exclusive publishing rights to Bob's Discount Game Publishing Service (a totally fake entity, as far as I know).  Now Bob's has an exclusive right that is part of the "bundle of rights" that make up copyright.  Can Bob's unilaterally sublicense the publishing rights to another entity without my approval?  What if our publishing agreement did not specify any right to sublicense the publishing rights?

The answer, plus reasons why this may matter to the video game industry, after the jump.

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Gamasutra has a great article, written by Cameron Davis, on how to pitch your project to publishers (onomatopoeia included).  It provides some salient insights on how to best convey your ideas to those who: a) have money; and b) can use that money to market and distribute your game to a wide-ranging audience.

In that same vein, we thought we could contribute to this discussion, but of course, being lawyers, we can't really help but speak to those legal issues that studios and developers should think about when pitching publishers.  As with most things legally-related, there are a million different ways to approach this topic: negotiation strategies, contract pitfalls, dealing with an "Alice in Wonderland"-esque definition of "net profits," etc.  This post, however, will focus on protecting the ideas you bring to the pitch.  Because while idea misappropriate would never happen in this business, chance favors the prepared (all apologies to Louis Pasteur for the paraphrasing).

Why should you care about idea protection?  Because ideas are illusive things, and are capable of legal protection only in certain circumstances.  Without being able to obtain those protections, there's very little to stop someone taking your ideas from a pitch and using them without your consent (or without paying you royalties).   Considering game devs can spend significant amounts of time thinking about a project, protecting that investment can be extremely worthwhile.

Thoughts on protection strategies after the jump.

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Last week Cryptic Studios announced a new feature for its Star Trek Online MMO: a significant user-generated content toolbox.  The new feature, dubbed "The Foundry" will allow users to customize pre-made assets like planets and star systems with their own content (e.g., encounters, objects, and stories) as well as author missions for other players to play.

According to the Foundry FAQ, "players can customize pre-made planet surfaces and star systems with their own encounters, objects, and story. They can also create their own star systems from scratch. More map features are planned for future updates."

"Cool," says the gamer in me.  This seems like a potentially solid strategy for addressing some of the complaints that the MMO has received (according to Gamasutra, Star Trek Online has received mixed reviews as critics cited issues with bugs, a lack of polish, and repetitive missions).  Put "mission control" into the hands of players, and crowdsource aspects of game development. 

"But wait," says the lawyer in me, "there are serious issues of copyright law to contend with here."  Analysis of the copyright law issues after the jump.

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For many gamers, Pacman (or PAC-MAN for the purists) was a critical first introduction to the world of video games.  Even today, the game still has a lot of cache - just ask Google, which recently commissioned a Pacman doodle to commemorate the 30^th anniversary of the game's US launch.

Well, it's to be expected that anything this popular will eventually turn up in a political campaign.  Music, videos, and TV news broadcasts have been used in political campaigns, without permission, often resulting in great legal expense.  Just ask Don Henley, Rush, or Fox News how use of their IP in political campaigns worked out.  So perhaps it's of little surprise that now, video games have been thrown into the mix.

Missouri Congressman Russ Carnahan (D) has developed a Pac-Man themed videogame in order to attack his Republican opponent Ed Martin.  According to GamePolitics, "Hackman" replaces the game's titular star with Martin's head, and has the head chase, and be chased, by four rotating gavels (in place of the traditional red, orange, pink, and white ghosts). 

This raises the question: what legal liability could Congressman Carnahan face for appropriation of the Pacman idea, game feel, and game play?

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A few years ago, one of my clients elected to outsource a PlayStation3 “port” of its current hit game rather than allow its existing publisher to commission it directly. 

The client thought it could manage the project directly. 

Unfortunately, the sub-contractor that was chosen was unable to deliver, putting my client in breach with its publisher. Ultimately, we were able to resolve the situation amicably, but at significant loss to all involved. It wasn’t that the idea of outsourcing the project was inherently flawed. The outsourcing partner was simply not the best team for the job. 

Managing the partner as well as the resulting legal bills and internal distraction from the sub-contractor’s non-performance ultimately killed the port and its potential revenue stream. 

This was a true missed opportunity for all involved, including the eager consumer base that was anticipating the project. 

Despite this particular horror story, outsourcing is often the right solution from a financial and operational point of view. 

However, choosing the right outsourcing partner is a vital consideration at the outset.  

Outsourcing portions of game development is commonly accepted practice.    Virtually all of our games clients engage in outsourcing on some level. But the panacea of pushing the “outsource button” needs to be carefully balanced against the potential pitfalls.

The cost efficiencies of outsourcing are clearly the driving factor for these partnerships. 

However, many times the true COST of outsourcing is not properly factored in.   

Be sure the following considerations are made:

• Internal costs for the proper level of oversight and direction of your outsourcing partner. And
• Potential correction costs or production overruns when your partner doesn’t get it right.   
• Incremental overhead, administrative, insurance and legal costs that may further offset the base savings.

Working with a bad partner often places your own company at risk. Ultimately, your project will suffer. 

Non-performing outsourcing partners may put you in breach of other contracts or obligations, forcing remedial measures out of your own pocket or worse, potential legal exposure.

In most cases, these costs and the risk of legal exposure are still significantly outweighed by the benefits of outsourcing.

To avoid the pitfalls and worst case scenarios that can occur, you need to plan ahead for thorough protections and internal safeguards as well as a sound agreements governing the transaction(s) which will put you in the best position for a successful partnership. 

Get recommendations and shop around for your potential partners. It’s a small and honest industry. People will gladly share their perspectives.   

There is no contractual safeguard that will be more valuable than choosing the right partner. 

In addition, structure your deal according to your corresponding obligations.   Be sure that milestone schedules match up to your own requirements and expectations for the project.   This is equally important whether you have a publisher you are answering to or even if you’re just trying to keep the title on time and on budget. 

Assume that you will have to micro-manage out of the gate. Until you get a sense of your level of cooperation and reliability of your outsourcing partner, expect to spend a lot of time setting your expectations. 

The surest recipe for disaster is to simply assume that once the outsourcing partner is on the job, you can wash your hands of that portion of the development.   It’s possible that you chose a terrific, efficient and responsible team, but you just can’t be sure yet. Let them earn that trust at the start. 

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