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

Though not all advertisers are aware of it, advertising agencies sometimes receive incentives or rebates from media companies for steering clients in the direction of that particular media outlet?  That is, the people you pay to help you promote your products and services may be paid by the people who are recommended to you as sound media partners.  Potentially problematic conflict of interest?  You betcha.

The practice is less common in the US than in other jurisdictions, but it does happen, as revealed in a recent survey conducted by the Association of National Advertisers and Reed Smith (the firm of yours truly).  The survey found the practice most likely in radio and tv advertising, though still a factor in new media advertising (Internet, social media, etc.).

Why is this an issue?  Because companies that advertise their products or services (in other words, everyone) should expect impartial advice from the people they pay to help promote their products and services.   Or at the very least know when there is a potential conflict and so can assess the agency's recommendations more accurately.  Moreover, for companies with large-scale ad budgets and/or lots of bargaining power, this could mean a reduction in your overall expenditures if you are able to get a pass-through on rebates or incentives.

So what should games companies do about this issue?  Understand how the "dollar flow" goes with regard to their ad spends, and make sure that knowledge is reflected in your assessments of ad agency agreements and recommendations.  Here are some "best practice" tips from to help with this:

• Require your ad agencies to be completely transparent regarding any rebates / incentives offered and received, and make sure that the entire benefit of the rebate goes to you, the advertiser (or if you're willing to give some portion of it to the agency, but either way, state how much you get).
   
• Clearly specify how rebates will be handled.  Do they come back to you within 30 days?  Can they be put into the account as a credit against outstanding fees?  If you don't say, there's the potential for the agency to sit on the rebates for a while, making this an interest free loan to the agency (assuming you get it back at all).
   
• In the case of "global" advertising arrangements, make sure that this language is reflected in both the agency and holding company levels so that leave no stone unturned.
   
• Consider conducting periodic audits to ensure that unauthorized incentives / rebate activity is not occurring.

• Print
• Comments
• Trackbacks
• Share Link

As I read about Rockstar's new strategy for dealing with players who use cheats and hacks in Max Payne 3's multiplayer mode to gain an unfair advantage, I think it's pretty genius.  The traditional options - account suspensions, bans, etc. - don't seem to be working.  They don't have much of a deterrent effect, as evidenced by the fact that hacks and exploits are continually developed for both older and new games.  Moreover, these options are typically "nuclear" in nature, and can backfire unless they are implemented very carefully.  You can't give back a player the days s/he's missed as a result of a suspension, and you may not be able to restore an account that's been banned or terminated.

So a new system needs to be created, and I like what I see of Rockstar's strategy.  I like it because the idea of putting "cheaters" into a pseudo virtual jail and letting them duke it out Hunger Games-style may ultimately create a deterrent against use of cheats and "unfair exploits."  After all, what's the point of using a hack to gain an unfair advantage if the only people you can compete against are using that same unfair advantage?  I also like it because it allows those people to continue to interact with your game, and hopefully continue to drive your bottom line.  In contrast, a permanently banned player cannot generate new revenue for you.

Note: I put "cheaters" and "unfair exploits" in quotes because not all exploit users should be considered cheaters.  Sometimes, people figure out a way to take advantage of the game environment that was not envisioned by the developers, yet is still entirely consistent with the game's reality.  Those people are not "cheaters" in my mind, even if that exploit does give them an unfair advantage over those who haven't figured it out.  At the same time, however, we can all agree that there are a lot of hacks, cheats, and exploits that should be - and usually are - considered "cheating."  So what we have here is a definitional problem, which we'll explore a a moment.

For all of the positives Rockstar's strategy has, backfiring problems are still a possibility.  The first person who is unfairly (or incorrectly) placed into the "Cheater's Pool" will be evidence of that.  (I can see the message board flame wars now).  Indeed, any anti-cheating system that has any form of punishment for players runs the risk of backfiring on the company that implements it.

But potential backfiring problems are not reasons to neglect an anti-cheating strategy altogether.  Instead, consider these tips to help you avoid backfiring issues with your anti-cheating strategy:

1. Define What "Cheating" Is With Clarity and Precision.  As stated above, not all uses of exploits should be considered cheating.  I recommend that my clients consider the question from an in-game perspective.  In an immersive game experience, what would the character-players think about the exploit?  Would it be a manifest "deus ex machina" situation that causes confusion and feelings of unfairness among other players, or would it cause other players to say "man, I wish I had thought of that, that's genius."  The former is clearly a problem; the latter, maybe not as much.
    
2. Make Sure Your Definition of "Cheating" Is Reflected in Your Terms of Service.  All too often, game companies do not take the time to document their intentions in ways that bind players.  Sure, your ToS may prohibit "cheating," but what really does that mean.  As discussed, "cheating" can be a vague, undefined concept.  While having a lack of clarity may be a benefit in certain situations, more often than not having greater clarity in your terms or "house rules" will put you in a decision to make reasonable decisions that you (and your players) can live with.
    
3. Do Your Own Investigations Before Taking Action.  This is especially important if, like Rockstar, you ask players to report examples of cheating.  It is not above some players to abuse the reporting system by submitting false reports of cheating by players they don't like, can't beat, etc.  Make sure you have your evidence before you take any action to punish a player.
    
4. Implement a Reasonable Appeals Process.  Sometimes, even strong factual evidence may be interpreted incorrectly.  Reasonable companies will give players subject to potential punishment an opportunity to plead their case, and will actually consider what the players say.  That does not mean you must wait on a response before taking any action, but make sure your system is fair to the person who is under investigation.
    
5. Give Players a Means of Redemption.  Games are meant to engage as many people as possible in a world that they can share with one another.  Thus, it doesn't make a whole lot of sense to brand a player and restrict how that player can interact with your game forever hereafter.  You don't have to make it easy; just make sure there is some means of redemption.  Otherwise, the player will be incentivized to move on to a new game - probably one of your competitor's - and you've just lost a player (and the associated revenue stream) for good.
    
6. Be Reasonable/Don't Be Arbitrary.  This is by far and away the most important thing to keep in mind.  The "be reasonable" mantra is reflected throughout this post, but the other side of that coin is "don't be arbitrary."  If an action is "cheating" for Person A, it should be "cheating" for Person B.  Moreover, the punishment for Persons A and B should be the same, regardless of outside factors.  Nothing undercuts the credibility of an anti-cheating system like arbitrary action.  To ensure you do not act in arbitrary ways, consider developing SOPs for responses to cheating.  Centralize responses in one team, as opposed to having a slap-dash "whoever is driving the console makes the decision" response system. 

• Print
• Comments
• Trackbacks
• Share Link

Over the last few months, a lot has been written about kompu gacha.  Kompu gacha, or "complete gacha," is a virtual item sales strategy whereby users purchase a virtual item that is part of the set of multiple virtual items.  Once the entire set is collected, the user receives a significant prize.  The catch, though, is that the virtual item that the user gets for his/her purchase is selected at random from among all of the items in the set, and some of the items in the set are far more rare than others.

Here's a great graphic, courtesy of Tyler York's article on Gamasutra, that lays out how gacha works:

Think of it as a cross between buying a pack of baseball cards and the Golden Ticket promotion in Willy Wonka and the Chocolate Factory. 

For a time, kompu gacha was huge in Japan.  Some reports suggested that people (including children) were spending hundreds of thousands of yen a month playing gacha games (100,000 Yen is approximately $1,200 USD at today's exchange rates).  Then, the Japanese Consumer Affairs Agency gets involved. 

News of the agency's inquiry had dramatic effects upon Japan's social game companies.  Some companies took voluntary steps to limit gacha plays, but ultimately this wasn't enough to satisfy the agency's concern.  Ultimately, the agency issued a notice that, as of July 1, gacha games would be considered illegal.

But that's the law in Japan.  What about US law?  Would gacha games be subject to similar legal constraints here in the States?  And what about gacha-variant sales like the "mystery box" - how should US law frame this type of sales activity?

Thoughts on the legality of gacha, and some thoughts on ways that companies can implement blind virtual item sales, after the jump.

• Print
• Comments
• Trackbacks
• Share Link

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. 

• Print
• Comments
• Trackbacks
• Share Link

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.

• Print
• Comments
• Trackbacks
• Share Link

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).

• Print
• Comments
• Trackbacks
• Share Link

[This post was written by Drew Boortz and Julya Vekstein, a summer associate in Reed Smith's Washington, DC office]

When does a work made abroad and published on the Internet qualify for protection under US copyright law?  Or, perhaps more importantly, when does such a work not qualify for protection?  That was the focus of the (somewhat) recent case of Kernal Records Oy v. Mosley.  Mosley is the classic boy-meets-song, boy-takes-song, song-owner-sues scenario.  In this case, Finnish recording company, Kernal Records, claimed that producer Timbaland and musician Nelly Furtado copied the sound recording and musical arrangement of "Accidjazzed Evening" and used it in Furtado’s song "Do It." The controversy began with a single YouTube video claiming to show the similarities between songs.  It ended with a determination that the Finnish song was a "US work," and that the case should be thrown out because the record label did not satisfy the requirements for bringing a copyright infringement lawsuit.

We’ve covered copyright issues here before, but to quickly recap: copyright law protects original expression, and grants to authors certain exclusive rights – the rights to copy, sell, distribute, and make derivative works of the original being chief among them. When a work is taken and copied, sold, distributed, etc., without the permission of the author, the exclusive copyrights of the author are "infringed," and that’s when the lawyers come out to play.

Of course, nothing in the law is that simple, and bringing a lawsuit for copyright infringement is subject to a few constraints. One of the most important constraints is the fact that, in order to bring a lawsuit for copyright infringement of a work created in the United States, that work must be registered with the US Copyright Office. Note that this applies to "works created in the US."  Works created outside the US are treated differently. And based on the facts of the Mosley case, it would seem that the requirement to register a song created by a Finnish artist would not apply. However, the court in Mosley applied the requirement to register and, since the song was not in fact registered, the court threw out the case.

How could a song owned by a Finnish record label (and presumably created in Finland) get treated as a "work created in the US?" Well, the answer takes a bit of mental gymnastics, so click through the jump to read on.

• Print
• Comments
• Trackbacks
• Share Link

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.

• Print
• Comments
• Trackbacks
• Share Link

On June 28, consumer advocacy group Consumer Watchdog sent a letter and complaint to the Federal Trade Commission asking it to investigate Facebook for antitrust violations related to its use of Facebook Credits.  Consumer Watchdog's complaint is premised on the fact that, starting Friday, July 1, 2011, any purchases of virtual goods on the Facebook platform must be made using Facebook Credits.  This means that Facebook members cannot use their own credit cards, PayPal accounts, or other forms of electronic currency to make purchases of virtual goods.

Perhaps you're thinking "so what?"  Is one form of electronic currency materially different from another?  According to Consumer Watchdog, the answer is "not at this time, but eventually there will be significant consequences for consumers." 

In short, Consumer Watchdog sees three problems with Facebook's terms related to the Credits:

1. No other form of digital currency can be used on Facebook;
2. Game developers and virtual goods merchants who have a presence on Facebook cannot offer lower prices outside of Facebook; and
3. Game developers and virtual goods merchants have to give Facebook a 30% cut of any sales for Facebook Credits.

In Consumer Watchdog's view, Facebook is exerting monopolistic control over the digital currency market in order to harm competition.  For game devs and digital goods merchants, this would mean lower profits (they have to pay Facebook 30%) and Facebook-dictated price levels (can't charge a lower price off Facebook).  For end users, this may mean an increase in overall prices as merchants try to make back the cut they pay to Facebook.

Of course, these are just Consumer Watchdog's allegations at this point.  The FTC has not yet made public its intention to either open or deny an investigation.  Moreover, according to news reports, Facebook has not yet commented on Consumer Watchdog's allegations, so it's impossible to know its side of the story.  Therefore, whether this will end up being much ado about nothing, or be a revisiting of the landmark Windows antitrust litigation from a decade ago remains to be seen.  But for anyone participating in the virtual goods space, this will be one to watch.  Stay tuned for more information as it develops.

• Print
• Comments
• Trackbacks
• Share Link

We knew this was coming.  After the Federal Trade Commission announced it would look into Apple's in-game purchase system (as a result of children racking up incredible bills that they're parents had to pay), it was only a matter of time before a class action was filed.  Well, that time has come.

On April 11th, a class action was filed (PDF) against Apple, Inc. in the Northern District of California, alleging that Apple's in-game purchase system:

1. Constituted a breach of contract (Ed note: the contract calls this claim a "breach of contract," though the complaint is better characterized as asking that the contracts be voided);
2. Was an unfair trade practice (pursuant to Cal. Bus. & Prof. Code 17200 et seq.)
3. Violated in California Legal Remedies Act (Cal. Civ. Code 1750 et seq.); and
4. Resulted in unjust enrichment of the company.

The complaint alleges that there are likely thousands of people in the class, and seeks actual damages, punitive damages, attorneys' fees, and costs.  The total relief being sought by the plaintiff is not identified, but is alleged to be in excess of $5 million.

The facts of the controversy are widely available on the web, but to briefly recap:

Apple's app/in-app item purchase system requires an Apple account, a password, and a valid credit card (or positive credit balance through purchases of Apple gift cards) in order to make a purchase.  When an app (or in-game item) is being purchased, Apple asks for the password linked to the account as a means of confirming the purchase (i.e., are you sure you want to do this?).  If the correct password is entered, the purchase is made. 

After the successful purchase of a game or in-game item, the device user had a 15 minute window during which purchases could be made without reentering the password (this has since been changed).  It is the windowing that is the heart of the problem because it (arguably) allowed children to make purchases without their parents' knowledge.  That is, a parent could enter his/her password to allow the child to purchase a game or in-game item, and then the child would have 15 minutes of free reign to make as many purchases as they wished.  As a result of the windowing, some parents have alleged that they received bills for thousands of dollars for items that they (again, arguably) never knew were purchased. 

Each one of the causes of action could be a post in and to itself (and may very well be, so stay tuned).  But here are a few initial impressions, and some thoughts for future app makers:

• It seems to me that class certification may be difficult to obtain because of problems proving commonality (a prerequisite to class action status which states that there must be common issues of law and fact among all class members; see Fed. R. Civ. P. 23(a)).  Every putative member of the class will have different purchases - different games, different in-game items, different quantities, etc.  Moreover, some of those purchases would have to have been authorized by the parents (they had to enter their password to make at least one purchase).  Therefore, it is possible that every class member will be in a different factual position from every other, which could cut against claims of commonality.

• Interestingly, only Apple is named in the complaint.  The individual app devs (who presumably are responsible for creating the in-game items, setting the prices for them, etc.) are not mentioned.  Again, this presents a problem for the plaintiffs as to the unjust enrichment claim since roughly 70% of the damages they incurred would have gone someone other than Apple's coffers.  In addition, to the extent that the unfair competition claim relies on the high price levels of in-game items (see below), Apple may be able to show that it was not responsible for any damage arising therefrom (this of course will depend on the facts that come out in discovery).

• Speaking of facts, there are some problems here for Apple (and for the game devs).  Chief among them are that some items that were clearly directed towards children cost upwards of $100 each.  This is a very, very bad fact, and one that makes the overall in-app system appear more like a prototypical unfair trade practice than it may otherwise be.  Moreover, children are a protected class - legally they do not have the same mental faculties as adults, and are therefore thought to be particularly susceptible to deceptive or unfair commercial practices.  If you are making games or in-game items that target children, you will want to think very carefully about all aspects of the game, including:
   
  • What does the interaction with the child look like?  At what point are you asking for a decision with a monetary impact?  Is it easy for a child to reach that decision point, and if so, how can you assure yourself that you are interacting with an adult, not a child? 
     
  • When selling items related to child-directed games, consider the price relative to both the item and the appeal to a child.  In other words, you should have a really good reason why one virtual item should cost upwards of $100 (that's going to be difficult to do).
     
  • Absolutely avoid exhortative language (e.g., "buy this now," "only 5 left," or "you need X to complete the level") if you know you're talking to children.  Doing so can cause a variety of legal headaches.

• Print
• Comments
• Trackbacks
• Share Link

What do an app game about illegal immigration and a downloadable FPS have in common?  They are both games that were made to get people talking.  They also look to the legal grey area of parody/satire to avoid potential legal issues.  Which brings us to the topic of today's post - where does parody and/or satire (yes, they are separate, though related, concepts) come into play in the games context, and why is this useful.  But first, a bit of background.

For those of you who have not heard of the Smuggle Truck app controversy, here's the basic gist.  A game, distributed on the Kongregate network, asks players to smuggle immigrants across a "fictional border."   So perhaps one may think that a possible message of the game is that illegal immigration is okay. But as the Smuggle Truck story page explains, the game "...was inspired by the frustration our friends have experienced in trying to immigrate to the United States.  With such a troublesome issue being largely avoided in popular media, especially video games, we felt the best way to criticize it was with an interactive satire."  So the game, according to its makers, is not all that it purports to be.

Similarly, a few weeks ago the makers of Bulletstorm (which itself is no stranger to controversy) released a downloadable FPS called "Duty Calls."  Clearly, Duty Calls was intended as a swipe at Activision's Call of Duty franchise - it even says so on the bottom of the webpage - "Duty Calls is a parody. It is not associated with Activision or the Call of Duty games."

One game as "satire," the other as "parody."  What do these game devs gain by self-identifying as parody or satire?  If there are legal ramifications for calling one's game a parody or satire, is that self-identification all that's required?  Thoughts after the jump.

• Print
• Comments
• Trackbacks
• Share Link

This post was written by John Feldman, a partner in the Washington, DC office.

Zynga has joined the trend of using points as the mechanism to purchase items in-game.  Here are a few details, according to GameZebo (who in turn cites Techcrunch, Inside Social Games, and Fusible, who broke the story by tracking that Zynga bought the domain RewardVille.com weeks ago):

• At launch, the participating games will be FarmVille, FrontierVille, Mafia Wars, and Zynga Poker.
• Users will earn zPoints each time they play one of these games, which they will accumulate to level up to a higher zLevel.
• At each zLevel, users will earn zCoins which can be redeemed for exclusive in-game items.

At this point in time, you'd be hard-pressed to find a gamer that wasn't at least a little familiar with virtual curency systems.  But what if Zynga wanted to take its zCoins beyond virtual crops and guns, and wanted to offered participants the option to use in-game currency for a chance to win an incredible prize - a trip around the world, $1 million, what have you.  Would such a system be legal?

The answer will depend on the jurisdiction.  In the U.S., it is very likely that Zynga would need to offer participants a means of obtaining sweepstakes entries that does not require spending points.  Why?  Because in this context, points have value - they are generally redeemable for items in-game, which makes them seem like quasi-cash.  This is, of course, the purpose of the points. 

Under US law, though, you cannot tie the expenditure of cash (even things that are quasi-cash) to obtaining entries in a sweepstakes.  Doing so transforms an otherwise legal sweepstakes into an illegal lottery (again, generally speaking - there are some exceptions to this rule, but we won't cover them here).  To avoid the illegal lottery problem in the US, sweepstakes sponsors typically offer an alternative, free method of entry (e.g. a self-address stamped envelope, an e-mail, etc.).  By offering the alternative method of entry, you are no longer required to spend something of value in order to enter the sweepstakes, and thus the sweepstakes is highly like to be legal (speaking again in broad generalities).

However, US law is not a proxy for international law, and point systems play out differently in various jurisdictions. I won't try to cover the world here, but let's consider one large market for video games: Australia. Australia's law is a bit more complex than the US in that you can require entrants to make a purchase in order to participate in a game of chance, but you cannot require a fee.  Stick with us, because this is going to get a little bit tricky.

A "purchase" means that you spend some form of valuable currency to receive an item of value.  This may be a real-world item or an in-game item - a t-shirt, a key chain, in-game crops, a bulletproof limo, etc.  So long as you couple the sweepstakes entry with a "purchase," the game is legal in Australia.  A "fee," on the other hand, is the payment of something of value for nothing but the sweepstakes entry.  This is prohibited in Australia, even in the face of a "free method of entry" (which would render the game legal in the US).

There are some clever ways to structure your sweepstakes that can avoid this issue.  For example: 

1. As mentioned above, you can couple of the sweepstakes entry with something else of value.
    
2. You can use the point-commerce as a measurement tool - e.g., "accumulate 500 points and get an entry into a sweepstakes," or "every time you spend 50 points, you get a sweepstakes entry."  In this scenario, you do not "spend" your points on the sweepstakes entry.  Instead, you are being rewarded for doing something - accumulating points, spending the points on valuable items (in-game or not), etc.  As long as the points are not "spent" for the sole purpose of obtaining sweepstakes entries, there isn't any payment of a "fee."
    
3. You can create different classes of points. Some points can be used for "purchasing" in-game items; some points can only be used for entering sweepstakes. You can accumulate both classes of points from the same transactions. E.g., "When you accomplish a certain number of kills you will receive 50 Redeemable Points (redeemable for in-game items) and 10 Game Points (redeemable only for sweepstakes entries).

Of course, that is not the end of the story (if it were, the world wouldn't need lawyers - oh, the horror...)There are permit requirements in some states and territories, which can be tricky to navigate in and of themselves.  So the bottom line here is to always check with a promotions lawyer before launching an international sweepstakes.  Laws change and there are many other restrictions and regulations that could apply. But, it's certainly interesting to note that as points become the ubiquitous currency for in-game commerce, there are ways to layer on a sweepstakes that may even permit a required purchase depending on the jurisdiction.

• Print
• Comments
• Trackbacks
• Share Link

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.

• Print
• Comments
• Trackbacks
• Share Link

Yelling “fire” in a crowded theater can lead to a panic.   But people in a different theater will simply enjoy their movie, unaffected by the nearby riot. 

A quick perusal of the trades will reveal that many video games industry watchers seem to be yelling “fire” as a result of soft retail figures. For sure, 2010 was a challenging year for many game companies. Retail sales numbers were generally down as compared to 2009 (with a notable exception for November, 2010 sales).   This follows a weak 2009 (as compared to 2008), making for two consecutive soft years.   So the cries of “fire” may be understandable. But are they justified?

Yes and no. 

Even if we ignore the individual stories contained in these numbers (lucrative launches of Microsoft’s Kinect  and Activision’s Call of Duty: Black Ops, etc), one has to ask whether retail sales numbers really capture what is going on in the industry.   As THQ’s Brian Farrell correctly pointed out last month, NPD sales figures do not track DLC sales, MMO subscriptions or iPad/iPhone revenues.   They also do not track social network game transactions.  

This means that, even if there is a bona fide panic regarding retail sales, the game industry as a whole may not be suffering. They might be standing in a wholly different theater (if you want to extend the metaphor to its breaking point).

Take a look at Riot Games. As reported in the Los Angeles Business Journal, the developer of “League of Legends” is in the middle of significant expansion. How can they accomplish this? By proving that in a year of down retail revenues, new hardware peripherals and concerns about console cycles, compelling gameplay and the right business model will find an audience.   

Game developers are less dependent on traditional, high-cost console development controlled by a few publishers. With the explosion of mobile and social gaming, developers have entirely new spaces (or “theaters,” if you will) in which to create. 

Those companies who have embraced these emerging trends are finding lots of opportunities in this down market and the NPD retail figures are nothing more than a news item to them. 

Of course, it’s not as simple as it seems. There are barriers to entry in the games space, and they are often significant.   But with innovative companies like Riot around, combined with a rise in venture capital opportunities for games companies, the future seems bright, regardless of next month’s retail sales figures.

• Print
• Comments
• Trackbacks
• Share Link

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.

• Print
• Comments
• Trackbacks
• Share Link

Money.  That's what I want.  But is it what you have?

It's a common problem - you've got a great idea, but you don't have the means to turn that idea into the next Zynga.  What are your options? 

• You could obtain financing from an angel (venture capital firm Kleiner Perkins recently launched a $250 million fund devoted to all things social media-esque)
• You could try to obtain government funding or grants
• You could try for a tax credit deal if offered by your state of residence
• You could directly appeal to an established developer or publisher (best of luck with this if you don't already have a "name")
• You could "self finance" (otherwise known as tapping your life savings, begging/borrowing/stealing from every family member and relationship, etc.)

Doesn't seem like a whole lot of promise there, does it?  Well, that's what the folks at Kickstarter.com probably thought.  Kickstarter.com is, according to its website:

...a new way to fund creative ideas and ambitious endeavors.

We believe that...

• A good idea, communicated well, can spread fast and wide.
• A large group of people can be a tremendous source of money and encouragement.

In other words, its a marriage of crowdsourcing and financing.  It works like this - the developer sets a target financing level, and asks the public to contribute money if it wants to see the project developed.  If the target threshold is achieved within the specified number of days, the developer gets the money (well, the money minis Kickstarter.com's cut and credit card processing fees) and can start the project.  If the financing threshold is not achieved, then no money is charged to any person who made a pledge.

Often, in exchange for making a pledge of a certain amount, a project developer will give away premiums or other items (e.g., for $10 you get a virtual high five; for $50 a free download of the game; for $1,000 you get me to come over to your house and clean your rain gutters; etc.).

Some thoughts on this financing model for the video game industry, after the jump.

• Print
• Comments
• Trackbacks
• Share Link

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.

• Print
• Comments
• Trackbacks
• Share Link

In video games-related Supreme Court news that has nothing to do with the Governator or obscenity (so please, try to stay interested), the Court has agreed to hear a dispute between Stanford University and Roche Molecular Systems Inc. over whether individual inventors or contractors retain intellectual property rights to federally funded inventions.

The case concerns the Bayh-Dole Act, which allows institutions such as universities, nonprofits and small business contractors to retain the rights to inventions created through federally funded research.  Check out Patently-O's analysis of some of the confusion surrounding Bayh-Dole.  The question before the Supreme Court is whether the law allows inventors employed by these institutions to unilaterally assign intellectual property rights to a third party.

For the record, I am not, nor do I think I could even pretend to be, a patent lawyer.  So I'm going to tread carefully here.  More after the jump.

• Print
• Comments
• Trackbacks
• Share Link

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.

• Print
• Comments
• Trackbacks
• Share Link

Last week we posted about Pacman/"Hackman," and we discussed the potential copyright infringement liability Missouri Congressman Russ Carnahan could face for the creation of the "Hackman" game.  Today's post will focus on another potential sources of liability - trademark law, particularly trademark infringement and trademark dilution. 

Trademark law exists at the federal, state, and common law levels.  For this discussion, we'll focus just on federal trademark infringement and federal trademark dilution, which stem from the Lanham Act (15 U.S.C. 1114 et seq.). 

As an initial comment, one should remember that trademark law only comes in to play when there are goods or services being offered in commerce.  In the Pacman/"Hackman" situation, Representative Carnahan does not appear to be selling "Hackman" in any way - the game is free to play, and there is no evidence of "Hackman" appearing on products like t-shirts, coffee mugs, bumper stickers, etc.  Without a use of the "Hackman" designation in commerce, trademark law may not provide much satisfaction for Namco Bandai (and make this a very uninteresting post).  Therefore, we'll assume that Rep. Carnahan uses the designation "Hackman" in commerce by licensing copies of the game to other political candidates so they can create "offspring of Hackman."

More analysis after the jump.

• Print
• Comments
• Trackbacks
• Share Link

Follow us on Twitter - @devconcerns - for the latest news and updates.  www.twitter.com/devconcerns

• Print
• Comments
• Trackbacks
• Share Link

On October 11, the Bill and Melinda Gates Foundation announced the Next Generation Learning Challenges Project, a $20 million dollar project to fund "organizations and innovators to expand promising technology tools to more students, teachers, and schools."  This should be of interest to game companies, particularly start ups and smaller studios, that create programs and applications to teach STEM skills (Science, Technology, Engineering, and Mathematics). 

The Gates Foundation said that it will accept applications for initial awards of $250,000 to $750,000 to address at least one of four specific issues:

• Increasing the use of blended learning models, which combine face-to-face instruction with online learning activities.

• Deepening students’ learning and engagement through use of interactive applications, such as digital games, interactive video, immersive simulations and social media.

• Supporting the availability of high-quality open courseware, particularly for high-enrollment introductory classes such as math, science, and English, which often have low rates of student success.

• Helping institutions, instructors and students benefit from learning analytics, which can monitor student progress and customize proven supports and interventions.

The deadline to apply is November 17, and awards will be announced next March. The Gates Foundation plans to fund similiar awards every six to 12 months. 

This is not the first of such grants to be announced in the last few months.  In September, the White House announced the National STEM Video Game Challenge, which is providing prizes for similar actions. 

This type of funding can be a critical means of initial financing for new projects or companies, but applying for grants of this type is both an art and a science.  For that reason, it is worthwhile to think strategically (and realistically) about your product, your company, and your sales pitch (the written, and sometimes in-person, explanation of why you should be a grantee). 

• Print
• Comments
• Trackbacks
• Share Link

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?

• Print
• Comments
• Trackbacks
• Share Link