Law of the Game

Megaupload Shut Down, Provides Basic Lessons on Bad Business

2012-01-24T07:49:00.001-06:00

It’s been a crazy week with many crazy stories. Fears about the Stop Online Privacy Act created a massive online response, thrusting copyright reform into the national conversation. But while people were speculating on the future of intellectual property, the Department of Justice shut down Megaupload. Over the last five years, Megaupload had grown in popularity as an online “cyberlocker”. As broadband use explodes, the value of these companies is obvious. They are a user-friendly FTP where anyone can place files on a central server, to access them from a different locations or share them with others. When use a cyberlocker to store your baby photos or send a song you wrote to friends, there is no legal issue.

There might have been pictures of a two-year-old’s birthday party or basement demos somewhere on Megaupload, but review of the indictment made public this week shows the site knew their bread and butter was piracy. Although they had disclaimers on their site that users could be punished for uploading copyrighted content, the indictment claims that there was little, if any, enforcement. Instead, Megaupload acted to encourage infringement, primarily by creating an Uploader Rewards program that offered cash payments to the users who provided the most popular files. This, along with many more bad decisions detailed in the indictment, made the shutdown seem like an inevitable event.

There are many layers to this situation. It is a fascinating and frequently entertaining story, complete with outsized characters. One of the defendants Kim Dotcom (formerly Kim Schmitz) was living in China and New Zealand, and drove luxury cars with “GOD” license plates. Megaupload had an internal search engine to pluck whatever they liked from the servers, and one exec e-mailed another complaining his stolen copy of the Sopranos was in French. Employees described themselves as a modern day shipping service for pirates. In the wake of the shutdown, many have expressed concerns that this might signal an aggressive stance towards other sites that serve as cyberlockers. While it is unclear if that is the case, there are some lessons we can take to heart.

The federal government is very serious about delivering heavy blows to electronic money laundering, and are out to discourage anyone (including foreign companies) supporting it. Poker Stars, Full Tilt Poker, and Absolute Poker all tried to avoid the Department of Justice by operating offshore, but were sunk last year. The Treasury’s new Prepaid Access rules have enhanced company obligations to verify customer data, collect information, and comply with law enforcement. This is a sustained pattern that has continued with Megaupload, as the third count in the indictment is for money laundering. It appears it has again been proven that doing your due diligence on your customers and making sure that you do not let suspicious transactions go unnoticed will always be a good investment of money and time.

This case seems uniquely egregious, and it may be that worries about a wider crackdown are exaggerated. Most companies are not going to present such an obvious case for prosecution. Megaupload’s border hopping executives built a business model around attracting stolen content by offering cash incentives to users whose uploads produced traffic. They reveled in their criminality and invited the attention of law enforcement. There is a push to address copyright law and make broad, substantive changes, but most companies offering cyberlockers are not going to be waving a giant flag saying “SHUT US DOWN” like Megaupload did.

As we recently discussed on BitTorrent, the struggle of the government and the courts with file-sharing is part of a broad pattern. There is no widespread agreement on how to deal with these issues, as the hue and cry over SOPA proved. But it is hard not to be encouraged by the emergence of technology law in the national conversation. Last week, the two biggest stories were a piece of legislation that had yet to make it to a vote, and the shutdown of Megupload. If it gets people thinking critically on how to help the law catch up with modern technical realities, everybody benefits. Except Kim Dotcom. He is (probably) in big trouble.

Zack Bastian is an official contributor to Law of the Game. A third year student at George Washington University Law, Zack works at the Woodrow Wilson Center's Science and Technology Innovation Program and is a member of the American Intellectual Property Law Association. The opinions expressed in his columns are his own. Reach him at: zack[dawt]bastian[aat]gmail[dawt]com.

The Ongoing Legal Battle Over Bit Torrent Gets More Interesting

2012-01-17T09:08:00.000-06:00

Since the beginning of its existence, BitTorrent has been a lightning rod for controversy. Comcast choosing to slow down or “throttle” the service’s traffic was one of the first shots fired in the ongoing battle over Net Neutrality.

This is not just a problem here in the States. Canadian provider Rogers ”throttles more than any other internet provider in North America”. This issue is not going away. It speaks to many fundamental questions on the future of the internet, and also the future of video games. BitTorrent has exciting, perfectly legal applications. You can use it to quickly and easily transfer a homemade game to a friend, or share your own machinima. The downside is that, thanks to its ample capacity and dispersed load, pirates have thrived, distributing illegal versions of games for free. That bites into already precarious profits and reduces the incentive developers have to make the new games we love.

This profound problem got a new wrinkle when TorrentFreak recently claimed they traced BitTorrent downloads to the Recording Industry Association of America and US Department of Homeland Security. Using YouHaveDownloaded.com, TorrentFreak alleges they found that six unique IPs within the RIAA and more than 900 at DHS downloaded illegal materials from BitTorrent. TorrentFreak is undeniably partisan. The blogger who provided these claims uses an alias (presumably due to fears of reprisal). But, it is not hard to believe that employees at large organizations get copyrighted materials for free. To be fair, we don’t know why these files were downloaded or what was done with them. It’s possible it was for personal use as most coverage of this has implied, while it’s also possible it was downloaded as part of an investigation, which may have even been at the request of the rights holder. All we know is the files were likely downloaded by someone at those IP addresses.

There is no consensus on how to deal with the issue. RIAA abandoned the idea of suing individual downloaders long ago. Not so in Europe, where CD Projekt served settlement offers on Germans accused of pirating a copy of The Witcher 2. Others have chosen to focus on communities like the Pirate Bay in order to make a bigger dent in the infringement. Pirate Bay has been cited by supporters of the Stop Online Privacy Act as proof of how necessary the legislation is. (Legislation which, incidentally, may also ”break the internet.”)

TorrentFreak’s claim they have found foxes in the henhouse is interesting, it does not answer any questions. Is it embarrassing for the RIAA? Yes. Regardless of what the real reason may be here, the publicity’s implications have been negative in a pretty much universal manner. But, it does not solve the unresolved problem of how to confront the clash between copyright owners and the easy sharing the internet allows. Law of the Game will keep you updated of new developments as they become available.

Zack Bastian is an official contributor to Law of the Game. A third year student at George Washington University Law, Zack works at the Woodrow Wilson Center's Science and Technology Innovation Program and is a member of the American Intellectual Property Law Association. The opinions expressed in his columns are his own. Reach him at: zack[dawt]bastian[aat]gmail[dawt]com.

Things to Watch for in 2012: O’Bannon v. NCAA

2012-01-10T21:01:00.003-06:00

Here at Law of the Game, both Mark and myself are big college sports fans, particularly of the burnt orange and white. (Hook ‘em!) For those of you out there with similar obsessions, you have probably played one of EA’s NCAA Sports games and enjoyed coaching your alma mater to (imaginary) glory. You might have used one of the classic teams and enjoyed the golden years of Michael Vick at Virginia Tech, or Julius Erving at the University of Massachusetts. But does the fact that these games do not use player names mean they have the right to make similar characters without paying royalties?

That is the fundamental question asked by UCLA basketball great Ed O’Bannon in his lawsuit against the NCAA. The original filing was back in 2009, and multiple plaintiffs have joined since. They argue the NCAA’s behavior amounts to unlicensed use of their image and likeness. Taylor Branch highlighted the dispute in October. The Atlantic published his exhaustive and powerful article The Shame of College Sports, and some quotes from O’Bannon get to the heart of the issue:

“Once you leave your university,” says O’Bannon, who won the John Wooden Award for player of the year in 1995 on UCLA’s national-championship basketball team, “one would think your likeness belongs to you.” The NCAA and UCLA continue to collect money from the sales of videos of him playing. But by NCAA rules, O’Bannon, who today works at a Toyota dealership near Las Vegas, alleges he is still not allowed to share the revenue the NCAA generates from his own image as a college athlete.

Branch also spent time with Michael D. Hausfield of Hausfield, LLP to get a better grasp of the plaintiffs’ argument. (Also from The Shame of College Sports):

“Let’s start with the basic question,” he said, noting that the NCAA claims that student-athletes have no property rights in their own athletic accomplishments. Yet, in order to be eligible to play, college athletes have to waive their rights to proceeds from any sales based on their athletic performance. “What right is it that they’re waiving?” Hausfeld asked. “You can’t waive something you don’t have. So they had a right that they gave up in consideration to the principle of amateurism, if there be such.”

These rights are lucrative. EA Sports paid $35 million last year to the NFL Players Union to compensate players who appear in their enormously popular Madden and NFL Street franchises. Former collegiate players haven’t seen any money to date. A ruling against the NCAA could mean big changes for the way these games are developed and financed going forward.

The plaintiffs in O’Bannon v. NCAA are seeking an injunction against further use, damages, and an accounting for profits made by the NCAA from the licenses they’ve already sold. The suit has had slow going so far. The latest update is that the case is in Dallas Federal Court over a discovery dispute with Conference-USA. The plaintiffs have managed to fend off attempts at dismissal by the NCAA so far, but we should expect both sides to fight this one as far as they possibly can. An accounting of profits, if a court found the NCAA liable, could be a deep, painful stab at their continued financial viability. It could also be a powerful precedent for current players to sue on similar grounds.

The NCAA’s position is not completely without merit. Their rules, flawed as they may be, have been applied consistently for decades. Among professional leagues, these rights are typically handled collectively (like the NCAA) to simplify licensing agreements. There are arguments for this simplicity, and it is difficult to say what percentage of the license fee paid to the NCAA is for current players versus the retired players. Historic rosters bring value, but to subdivide that by the value of a given year’s team and further separate it by player is difficult. Moreover, the percentage of historic inclusions at the college level is substantially lower than at the pro level since there are many more teams in the NCAA.

This is not the only dispute over player likenesses in the past few years. The Madden franchise has been the target of similar suits discussed previously by Law of the Game. That incident led to a $28 million verdict in 2009, requiring the players’ union to pay the retirees who went uncompensated. Yet another suit was filed in July 2010 over a similar issue, but targeting EA rather than the NFLPA.

We will continue to watch the progress of O’Bannon with a close eye. As gamers and sports fans, it could forever change the games we have enjoyed so much.

Zack Bastian is an official contributor to Law of the Game. A third year student at George Washington University Law, Zack works at the Woodrow Wilson Center's Science and Technology Innovation Program and is a member of the American Intellectual Property Law Association. The opinions expressed in his columns are his own. Reach him at: zack[dawt]bastian[aat]gmail[dawt]com.

Game::Business::Law 2012

2011-12-29T10:03:00.003-06:00

I will be moderating a panel at the rapidly approaching Game::Business::Law 2012 in January. The preliminary program has been posted to the GBL site. My panel is titled "Paying and Playing," and will be in the afternoon of the first day. One of the most exciting additions this year is the funding forum on the afternoon of day 2, facilitated by the Texas Entrepreneur Network.

I encourage anyone interested to check out the GBL site. The event will be January 25-26, 2012, and held at the SMU Dedman School of Law again this year. SMU's Dedman School of Law and Guildhall, in conjunction with The Center for American and International Law, always put together a great program.

Hope to see many of you there in a few weeks!

A short Joystiq post

2011-12-28T09:10:00.002-06:00

Many of you likely saw that Christopher Grant is leaving Joystiq. Many of you also likely saw that Justin and Griffin are following suit. From the time I have spent both reading Joystiq and writing LGJ, I can say without reservation that Joystiq is losing three truly great people. Of those, I spent the most time interacting with Chris, who really is a great person to work with. There has already been some speculation about what the future holds for those three, but I'm sure they will do well in their future endeavor.

Which brings me back to Joystiq. While this is a major loss, the team now in place is a really strong one. I know Ludwig is more than capable of taking the reins, and the others who remain that I have worked with are all very capable. I have probably had the most interaction with Alexander and Ben, both of which are very good at what they do. In short, I wouldn't worry about the future of Joystiq.

From Law of the Game, best wishes to all of you in your various new roles.

A Step Forward for Law of the Game

2011-12-23T15:05:00.000-06:00

As I’m sure many of you have noticed, the amount of time I’ve been able to dedicate to Law of the Game over the past few months has diminished greatly. Between a new professional role and some other publication opportunities I’ve had presented, there simply hasn’t been time for Law of the Game content.

A long-time friend and reader contacted me about this very predicament, and I think we’ve come up with an exciting idea for 2012. He will be writing some content which will be posted on Law of the Game, starting in January.

I wanted to take this opportunity to introduce Zack Bastian, a third year law student at George Washington University Law School in Washington, D.C., and the first official outside contributor to Law of the Game.

Happy Holidays from Law of the Game

2011-12-23T10:19:00.001-06:00

Happy Holidays to all of my readers from Law of the Game.

I know the second half of 2011 has been relatively quiet for a number of reasons, but I have some exciting things in store for 2012. Stay tuned!

LGJ: On On Brown v. Entertainment Merchants Assn.

2011-07-05T11:04:00.002-05:00

On this LGJ, commentary on the recent Supreme Court decision.

Read on!

LGJ: Morrowind Mod Mayhem

2011-01-24T10:45:00.001-06:00

The latest LGJ takes a look at the dust up over the Morrowind 2011 mod pack that surfaced briefly, only to be taken down.

Read on!

Games and Stroke Rehabilitation

2011-01-20T13:59:00.004-06:00

Despite the continued attempts of research to introduce tenuous links between negative behavior and gaming,* it never ceases to amaze me how gaming can also do a lot of good. It's often in the ways I don't expect that gaming actually shines brightest. Not too long ago, a relative of mine suffered a mild stroke which primarily affected language and number processing. Upon entry to rehabilitation, a substantial part of the process came as quite a surprise to me: play games.

You see, exercises like sudoku and crosswords, along with memory games, word games, and even some grade-schoolesque math exercises helped repair that part of the brain that was damaged. While the prescription was primarily for pen and paper activities, a few iPod and iPad apps were also in the mix along with Lumosity. Of course, as soon as I saw the treatment, I immediately started thinking about just how many video games would also fit the bill, and how they might even make for better tracking of progress. Sudoku and crossword apps were obvious, so I thought I would take a minute to share some of the less obvious choices that occurred to me. I don't have any data to report on how successful any particular game is, nor the background to make that kind of analysis or any medical claims, but these games do fulfill the essential functions of their analog counterparts.

Everyday Genius: SquareLogic (Steam, App Store) - I list this game first because it was the first that came to my mind, and because I would imagine more stroke victims own iPads than DSs. The game is a logic game of sorts, like the offspring of sudoku grids and math puzzles. But, it presents both the components of the simple math used in rehab as well as the sudoku puzzles. Possibly the most important factor is that the difficulty scale is pretty linear and consistent.
Brain Age - What else needs to be said? The game, especially, the math game, is exactly what is being done on paper, but tracked over time.
Super Scribblenauts - I disregard the initial entry in the series because the controls were frustrating, to say the least. But the second is, in essence, a giant word puzzle. I've played through quite a bit of the game, and because of the game's huge vocabulary and multiple solutions working for most puzzles, this to me seemed like another potentially ideal candidate.
The Professor Layton series -My love for the Layton games notwithstanding, a good chunk of the brain teasers presented are either word puzzles or math puzzles. Perhaps the difficulty makes this more appropriate for later stages of the program, but certainly, it's one of the best brain puzzle games on the market.

I'm sure there are dozens, if not hundreds or thousands (counting apps on all platforms), of examples of games that could be used in this context. Given what I have seen so far, it appears that Apple hasn't had to make any effort to market apps for this kind of rehabilitation, but with the DS library being in many cases so well suited to this kind of recovery program, it makes me wonder if Nintendo should be doing more to reach out to the professionals who work on rehabilitating areas of the brain. After all, the DS is a relatively inexpensive platform, and the games, while not as cheap as apps, are still relatively inexpensive and tend to have a much more robust feature set than comparable apps. In fact, you might be purchasing $30 in apps to get the same number of features or replayability as a an average DS game. With as much attention as has been given to the Wii with respect to rehab, I'm surprised more attention hasn't been paid to the DS in the same regard. I don't have any statistics on the instances of strokes that only impair cognitive function versus those that impact motor function, and perhaps the latter are far more prevalent and thus receive more attention.

In short, should any of you experience the truly unfortunate event of a stroke in the family, and the rehabilitation scheme sounds similar to the one I've described, it may be time to loan that family member a Nintendo DS or point them to some new apps to help them through their rehab process.

*As a note to the above article, I find it far more probable that the depression caused the excessive gaming and low grades, rather than the gaming being the cause of the other two.

LGJ: Blizzard, Cheating, and Copyright Infringement

2010-11-09T16:36:00.003-06:00

This LGJ looks at Blizzard's latest use of copyright infringement to thwart cheaters.

I did want to note, after a few comments about this, that I unfortunately haven't had a chance to play StarCraft II (other than the beta), so I didn't talk specifically about the cheats built into that game. The end is more a big picture analysis of inclusion of cheats, not a condemnation of Blizzard as some have taken it.

Read on!

LGJ: Are game resales at risk?

2010-09-16T10:30:00.002-05:00

This week's LGJ looks at the Vernor v. Autodesk decision and how that may impact not only PC games, but potentially all games on all platforms.

Read on!

LGJ: Where's my refund?

2010-09-01T10:52:00.002-05:00

This week's LGJ talks about DLC, digital distribution, and refunds. It's been a bit of a hot topic with so many downloads impacting the original game or other games.

Read on!

LGJ: The 'Kinect' story, a case study in international trademark trickery

2010-08-03T12:40:00.002-05:00

This week's LGJ is about trademarks, international trademarks, and the Kinect.

Read on!

Questions for Me? Come to SGC!

2010-06-02T10:51:00.004-05:00

I mentioned a while back that I would be likely back at SGC this July, but I didn't provide many other details. Now that the preliminary schedule is up, I can say with some certainty that I will be back at SGC with a panel on July 3 (Saturday). While this year won't be another epic debate, it should still be a lot of fun. The session will be "The Law and Our Digital Life," and the focus is on you. After all, there are a lot of legal issues facing simple internet dwellers as well as those with aspirations to publish content, whether those be videos or games or other material.

If you're not going to be at SGC this year, don't lose all hope. To make this session as big and diverse as possible, I've also started a thread on the ScrewAttack forums asking for more input on what people want to hear about. My plan is to get through as much of that thread and as many of the audience questions as I can in the time I have. So if you've got a question and can't make it, be sure to head over to the ScrewAttack forums and get the question in the thread.

See you all at SGC!

LGJ: EA's Online Pass a ticket to FTCville?

2010-06-01T13:19:00.001-05:00

In the latest LGJ, we take a look at the Online Pass and some potential unwanted consequences.

Read on!

Speaking at UTD on April 18

2010-04-15T16:27:00.002-05:00

This Sunday, April 18, 2010, I will be speaking at the Game Engineering Conference at UT Dallas from 3:30 to about 5 pm. More information can be found here. The topics to be covered will be the iPhone Developer Agreements and a mini-primer on derivative works.

I hope to see some of my readers out at the event.

LGJ: Does PS3 Firmware 3.21 come with a refund?

2010-04-15T16:25:00.005-05:00

On this week's LGJ, we talk about the interesting refund issue that has accompanied the PS3's loss of Linux support. Be sure to note, though, this is basically an advertising issue, not a discussion of Sony's EULA.

Read on!

LGJ: Dawn at the Great Pyramid (Scheme)

2010-03-22T13:14:00.003-06:00

The latest LGJ looks at how the current referral systems could easily evolve into something that could actually land game companies in hot water: pyramid schemes.

Read on!

Game::Business::Law 2010 Video

2010-03-17T12:11:00.002-06:00

I just wanted to take a moment to link to the video of the panel I moderated at Game::Business::Law 2010 back in January.

In unrelated news, GDC10 last week was a great conference, and thanks to anyone who I met there who may be checking out the blog. Some of the discussions I had have given me some great ideas for piecess both on Law of the Game and Joystiq, so look forward to seeing some new articles very soon.

LGJ: Dante's Infringement (or lack thereof)

2010-02-16T10:23:00.001-06:00

This week's LGJ addresses the ongoing forum debate on whether Dante's Inferno actually infringes on God of War.

Read on!

LGJ: Wait, it's not a derivative?

2010-01-29T10:12:00.003-06:00

This week's LGJ takes another look at NBA Jam and examines a rare example of a sequel potentially not being a derivative.

Read on!

Will Currency Hedges Be Key in the Global Microtransaction Model?

2010-01-28T11:03:00.007-06:00

I was chatting with Zack Karlsson and Stephanie O'Malley Deming at Game::Business::Law last evening, and the topic of currency hedging came up. The discussion was certainly interesting, but unfortunately short lived, and I thought it might serve as an interesting point to examine. While hedging has been going on to mitigate risk in the global market for quite some time, the broader question may well be how currency analysis may be the next big step in managing a global micro-transaction model. It may very well already be going on, but among those of us in the discussion, no one was aware of an example of it.

For those not familiar with hedging, there are literally dozens of articles available online to describe the basics, but in short, it's a method to mitigate the risk of a fluctuation of currency values, but can also be a means to make money should good decisions be made on hedges. Similarly, by holding currency and trading it over time without hedging, it may be possible to make more from the transaction than its initial value, which can be compounded if you're accruing interest on the held currency. This is all relatively well known use of currency s an investment.

The reason hedging in particular makes for an interesting proposition for a micro-transaction game is that the lifecycle tends to be longer and that the cash flow can be less predictable than a traditional retail release model. More importantly, these transactions tend to be direct, whereas a game published through Xbox Live Arcade, which may have a long tail through expansions or DLC, may not have the ability or opportunity to hold other currency over time by virtue of the arrangement with Microsoft for global distribution.

The very fact that these discussions are coming up just shows how large and global the industry has become, if there was any remaining doubt. Definitely, there is already complex business modeling and risk structure within the industry, but given the rate of innovation, there may be places where some of these models, as used in other industries, are adopted and applied to these newer business models.

Law of the Game on Twitter

2010-01-27T10:51:00.002-06:00

I'm pleased to announce that Law of the Game is now on Twitter at http://twitter.com/LawoftheGame. While I don't expect the feed to be extremely active, it will contain short thoughts from conferences as I attend them and links to the latest Law of the Game and LGJ content, which may be more convenient for some than following via RSS or e-mail subscription.

Speeches Galore in 2010

2010-01-20T16:12:00.003-06:00

There are quite a few speaking engagements already lined up throughout 2010. Here's a quick overview if you're hoping to catch up with me at an event this coming year.

Game::Business::Law 2010 - January 27-28, 2010, SMU Law School, Dallas TX
I will be moderating a panel in the afternoon on January 27. More details are available on the conference site as well as on Law of the Game.

Business of Animation Part II: Legal and Financial Advice - January 30, 2010, Collin County Community College, Dallas, TX
I will be on a panel sponsored by A Bunch of Short Guys, a Dallas-based animation guild.

GDC 2010 - March 9-13, 2010, San Francisco, CA
I will be presenting two sessions at the GDC Summits this March, and information on both sessions can be found here.

SGC 2010 - July 2-4, 2010, Dallas, TX
Yes, it sounds like I will be returning to SGC. For those hoping for another big debate, I hope you're not being let down, but this year's session will probably just be me. More details are forthcoming.

International Bar Association Annual Conference - October 3-8, 2010, Vancouver, Canada
I'll be participating on a panel about the nexus between the leisure industry and technology that should be very interesting.

While this year is already looking pretty busy, I'm sure additional events will come up as the year progresses. As I have more information about these and other conferences I'll be speaking at, I'll be sure to post that information on Law of the Game.