Gamer/Law

The latest on the Infinity Ward lawsuit

noreply@blogger.com (Jas Purewal) — Wed, 30 May 2012 20:15:00 +0000

The Infinity Ward lawsuit - the epic games industry lawsuit between Activision, EA and the founders of Call of Duty creator Infinity Ward - was meant to go to trial yesterday. It hasn't...but it's still rumbling on. In fact, it's been pretty busy. I thought I'd summarise quickly some of those recent developments:

#1: Acti and EA make friends:

The biggest development by far is that Activision and EA have settled with each other, leaving this primarily a lawsuit between Activision and the Infinity Ward founders, Jason West and Vince Zampella. Apparently it didn't involve much money (i.e. a 'drop hands' settlement as litigators call it).

The settlement was always a possibility - 9 out of 10 cases settle prior to trial typically - but I have to admit that the fact the fight had got pretty personal between the two companies had made me begin to think it might go all the way betwee them. Apparently not.

#2: the 'creative control' argument has come to the fore

One of the points I made way back when the lawsuit kicked off in 2010 was that West and Zampella are seeking 'creative control' of the Call of Duty: Modern Warfare series - a relatively vague concept that could be extremely lucrative to them if the court ever ruled in their favour. Now that trial is approaching, that issue has come to the forefront of the case.

#3: Activision's relationships with developers came under scrutiny

As I understand, part of the West and Zampella legal argument is that they agreed a lesser deal with Activision than they could have, in order to secure that "creative control" I mentioned above. As part of that argument, they were able to obtain disclosure of at least one other development agreement between Activision and another developer. As interesting as this is, my understanding is that Activision successfully applied to have the document sealed (i.e. made private to the litigation), so I shouldn't link to it. Still, the point is, other high profile developers indirectly were mentioned in the case.

#4: Infinity Ward was paid well for its work (predictably)

#5: West and Zampella gave a pretty frank (and I'd say unwise) interview to Game Informer about their thoughts on the case

#6: Trial has been delayed briefly to June 1st, due to jury difficulties.

So there you have it - a few interesting developments in what still seems likely to become one of the highest profile games industry lawsuits of recent times...there'll be more from me on this as the trial rolls on...

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20 Contract Questions: how do I get to the contract stage?

noreply@blogger.com (Jas Purewal) — Wed, 30 May 2012 19:57:00 +0000

This is the second of my series of posts called 20 Contract Questions, addressing some of the most commonly asked contract questions I'm asked as well as the key matters I think you need to know to help you negotiate and manage a contract successfully.

So, we talked last time around about what a contract actually is. Now we're going to discuss about how you get to the contract stage in the first place. Obviously, this being a legal guide, I'm going to focus on what this means from a legal perspective and less about the more businessy question of finding the right opportunity in the first place (try somewhere like GamesBrief instead) or more general business advice (try e.g. Both Sides of the Table).

You know from my first post that in order for a contract to exist you need to meet some legal requirements: in particular, you need to have made a specific offer which is specifically accepted, and there needs to be an intention to be legally bound on both sides. Bear that in mind now as I go through some key steps on the way to getting to the contract stage.

(1) Get your head together:

Firstly, think about what you want from this contract but also what do you think you'll get? Equally, what does the other guy want and what you are prepared to give him? Obviously, those two are not necessarily the same: how close you can get to your ideal position is down to your negotiating skills, which we'll come back to on a subsequent post in this series. To begin with, you'll want your offer to set out everything what you want (or close to it, depending on your negotiating technique - more on that later).

Think about any practical steps you need to take, e.g. to get any information/assets/deliverables etc you might need when it comes to negotiating the contract. Basic example: if you're pitching services to a prospective client, what info will you need (e.g. pricing) to get the contract in place? Sounds basic, but you'd be surprised how many people sleepwalk into a contract without really thinking about what they need on their side before they even start talking to anyone else.

Do you need to talk to a lawyer about this deal? Marshall these resources beforehand, or at least know when you'll need them (if at all). My advice: it isn't just about them telling you how to do something (or not to do it) or for them to help you write the contract. It's also about asking their advice about market conditions, what's doable and what's not, what the other guy is thinking: in other words, to help you get a good deal. That's the kind of advice good lawyers are there for (hint, hint).

(2) Ensure the offer and acceptance is set out in writing:

Like I said before, contracts don't have to be in writing but 9 times out of 10 you'll be better off if they are. Ditto with the offer that you make to the other guy in order to get the contract process going. You need to be precise and clear about what your offer is when you write it down: ambiguity will seldom help you because it's likely to be misinterpreted by the other guy (usually in the way most favourable to him). Try structuring it by reference to key considerations like:

Work to be done

Fees to be paid

Resources required

Timeframe

Allocating risk

Termination

Equally, if you get an affirmative response back from the other guy, make sure that acceptance is set out in writing (although usually that won't happen until we're a fair bit along the negotiation path). Email, letter or whatever - makes no difference, as long as you have a record for future reference.

(3) The early steps towards writing up the contract

Before we have an offer that's been accepted formally, often you'll see some legal-ish documents appearing. They have different names and different formats, e.g. Heads of Term, Memorandum of Understanding, Letter of Intent or Term Sheet (the last one is for financing rounds), but they all serve the same broad purpose: to document the commercial deal that's being agreed by the parties in a non legally binding way.

Why would you want to do this? Because sometimes it's helpful to record what the parties intend to give each other, say because the parties want something to work off when it comes to writing up the formal contract or because they want to finesse some commercial details once it is in print, BUT they don't want to be bound to what they write down. Usually (hopefully) it's because they'd rather rely on the formal contract once it's been written up.

So, practical advice: use documents like Heads of Terms, Memoranda of Understanding, Letters of Intent or Term Sheets when it suits your interests to have a record of the commercial deal as it's done, but remember you cannot rely on them legally usually.

The exception is where the parties have expressly agreed that the document is legally binding (this tends to happen slightly more with Heads of Terms than the others) - but in practice there needs to be language about that specifically written into the document for you to stand much of a chance of enforcing it.

As a result, if the other side is only willing to enter into one of these kinds of documents with you but nothing more, then they're just offering you words without legal force. Always go down the legally binding contract route if you want to enforce what the other side has agreed to.

(4) "Subject to contract"

Another possibility is that you might receive a contract which is marked "subject to contract". As I mentioned briefly last time around, that's used as shorthand for "I don't yet have the intention to be legally bound by this contract yet, so I'm just sending this FYI or just chatting with you about it right now". So, treat it as such: a contract which might even look like a 'proper' contract but is marked 'subject to contract' isn't usually legally binding. Make sure that phrase comes off before you sign up to anything or start relying on the contract.

(5) Negotiate!

By this stage, depending on how complicated your contract is, you might either have gone straight from offer to acceptance or (more likely) you're boxing around each other trying to work out the best deal - this might involve things like Heads of Terms, maybe not. Basically, this is getting us into the negotiation stage (also known as the "??? = Profit!" stage of contracts). There'll be a whole post on that topic next week...

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20 Contract Questions: What is a contract?

noreply@blogger.com (Jas Purewal) — Wed, 23 May 2012 11:02:00 +0000

This is the first of my series of posts called 20 Contract Questions, addressing some of the most commonly asked contract questions I'm asked as well as the key matters I think you need to know to help you negotiate and manage a contract successfully.

Alex Chapman of Sheridans is also writing some useful tweets about a contract walkthrough, which you can check out here.

What is a contract?

A contract is a legally enforceable agreement between two or more people settting out what they're going to give each other and on what terms. Example: I'm going to develop some software for you, for which you'll pay me.

The five things you need for a contract to exist and be valid:

1) A specific, identifiable offer

2) Acceptance of that offer

3) 'Consideration' (a legal concept basically meaning you both offer each other something of value)

4) Intention to enter into a legally binding contract

5) Compliance with any legal formalities

Let's go through them quickly.

There needs to be an offer: you need to tell the other guy what you are proposing. It has to be sufficiently precise for him to understand your offer- a vague or incomplete offer may not cut it. In other words: don't be lazy or cute when setting out your terms: better to be clear and definite. Ask yourself whether a reasonably intelligent man or woman on the street could understand your offer.

There needs to be acceptance: a communication of some kind expressing that your offer is agreed. That is usually (and best) written confirmation, like signing a contract (but it can be verbal- more on that later). In some cases acceptance can be shown by the other guy just doing what was agreed (called 'acceptance by conduct'). However, if you can't point to a definite acceptance of your offer, don't assume you have a contract because, in law, SILENCE IS NOT ACCEPTANCE: if you don't get that acceptance of your offer in some verifiable way, no contract exists.

Everyone who's negotiated a contract knows offers and then counter-offers are exchanged, sometimes repeatedly, before agreement is reached: that's why the law says no contract exists until a specific offer has been specifically accepted (otherwise you'll never have certainty on which offer became the contract) (we'll come back to this in a later post when we discuss 'the battle of the forms').

There needs to be consideration: you need to offer each other something. I won't get into detail here because it's a relatively arcane legal requirement in practice. Three simple points should suffice: (1) make it clear what you're giving each other in the contract; (2) if one or both of you aren't giving each other anything, execute the agreement as a DEED to ensure it is enforceable (there'll be another post on this soon, so watch this space); [UPDATE] some countries may not have consideration as a legal requirement at all - e.g. Scotland doesn't.

There has to be an intention to be legally bound: you can have an offer, acceptance and consideration but if you don't actually want to contract with the other guy = no contract. Example: if your discussions are made "subject to contract" it normally indicates you don't yet have an intention to be legally bound and therefore no contract exists. This is a double-edged sword: it can protect you for entering contracts before you want to...but it also means your negotiations have no legal force until you both agree they do.

Legal formalities: just be aware that some contracts, like guarantees or contracts for a land sale, have certain legal formalities you must comply with. Have a chat with your lawyer about them.

Does a contract have to be written to be valid?

NO. A contract can be made verbally just as validly as it can by writing. BUT, 9 times out of 10 it's far more advantageous to have a written contract, because it allows you to be more specific about the deal and to create a permanent record of that deal in case of disputes down the line. Verbal contracts tend in practice to be a lawyer's or businessman's weapon of last resort essentially because they don't have those qualities of thoroughness or certainty that a written contract does.

Practical advice: if you absolutely have to, you CAN legally rely on a verbal contract, but that should be your last resort. If humanely possible, get a written contract - it can repay serious dividends down the line.

If it wasn't clear enough already, here's some examples why you should use written contracts:

Alan and Bob think they've agreed a software development deal for a contract by telephone. A month later, neither of them can agree what they'd agreed the revenue share between them would be: PROBLEM.
Dave and Sue want to make a game together but they've not set out clearly how they're going to own the IP in the game between themselves: FUTURE PROBLEM.
GreatGames Limited used to employ Steve, who made them a game without telling anyone he had created it using stolen code from BigGames Limited. BigGames sues GreatGames. GreatGames didn't have a contract with Steve: PROBLEM.

These are all anonymised real-life examples of contract problems that people have told me about or sought my help on. You get the message, hopefully: there are virtually no circumstances in which it is OK to not get a written contract of some kind in place.

Exceptions: the only times when a verbal contract or no contract at all could be OK:

(1) You're in a position of extreme trust with the other contracting partner (and even then a contract would help) or

(2) The matter in question is so small that you don't really care if there's a problem down the line.

Rarely should that be good enough for you, so as soon as you can, get a written contract in place.

What does a written contract look like?

Generally speaking, there are no particular formalities. Contracts can be entered into as:

Exchanges of emails or letters
A single letter signed by both parties
Signing someone's T&Cs
A short form contract
A full length 'traditional' lawyer-drafted contract

Legally, each is as valid as each other. In practice, you need to balance the fact that detailed contracts are nearly always most protective against the cost and hassle of getting them written up. Sometimes you can live with something rather shorter, but sometimes you'll need to go the whole hog on a matter that's important to your business.

In other words, while my advice is to get a written contract in place whenever you can , that doesn't necessarily mean spending £££, $$$ or €€€ on it - far from it. But it DOES mean you should know your way around a written contract, which is what the next parts of this series will turn to. Next up: how do I get to the contract stage?

Postscript: I'm really, really keen to get comments from you about this series of posts. Is it any good? Too long/short? What would be most useful to you? Please let me know via comments below, Twitter or email -thanks!

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Introducing 20 Contract Questions...

noreply@blogger.com (Jas Purewal) — Wed, 23 May 2012 10:59:00 +0000

Contracts are pretty important in any games or tech business (or any business at all for that matter). I spend at least half of each working day working on contracts or answering questions about them, in fact. But they can be complicated: lots of time and money is spent getting them right as well as fighting over them when they go wrong. Just as importantly, in my experience a lot of time that SHOULD be spent on making a contracts work isn't spent on it at all, with consequences for the contract and the business down the line. Unfortunately, the games and digital media industries aren't immune to this: in fact, being such a young industry, contract problems come up all the time.

So, I thought I'd write a series of posts specifically about contracts, which I'm going to call "20 Contract Questions" (with a hat-tip to Nicholas Lovell here, who started me thinking about a series like this after I saw his 50 finance/VC questions series together with Nic Brisbourne, as well as to Will Luton of Mobile Pie for some recent tweets about the importance of contracts). I'll publish a post around every week or couple of weeks.

Anyway- the first few posts are going to be about contracts generally and the remainder will be about specific legal issues you'll commonly come up against when dealing with a contract. Here they are:

What is a contract?
How do I get to the contract stage?
What contract do I use - mine or hers?
How do I read a contract?
How should I negotiate a contract?
I don't understand what this clause means?
How do I change or renew my contract?
Understanding IP and contracts
How should revenue sharing work in my contracts?
How do I keep things confidential?
Allocating risk part 1: representations and warranties
Allocating risk part 2: indemnities and limitation of liability
What are boilerplate clauses?
What do I do if someone breaches my contract?
How do I terminate a contract?
What does governing law mean?
What is dispute resolution?
Contracts you need, part 1
Contracts you need, part 2
So what were you trying to tell me? A contracts checklist

Some thoughts about gacha

noreply@blogger.com (Jas Purewal) — Mon, 21 May 2012 17:00:00 +0000

There's been a lot of talk about something called 'gacha' or 'complete gacha' this month, after the Japanese government announced that they intended to regulate it - which directly affected the share price of Japanese social/mobile gaming giants like GREE and DeNA. So, what is it and why did the Japanese government decide to regulate it?

What gacha is

Rather than give you a long explanation, I encourage you to read this Quora answer which does so very well.

In a nutshell, gacha is a game mechanic by which you pay real money in return for a random (physical or virtual) item - if you collect a complete set of particular items you get bonuses in the game (hence the phrase "complete gacha"). Historically you could play complete gacha using a vending machine, but increasingly these days it's all done online. I understand it's pretty popular in Japan and constitutes a significant proportion of some companies' revenue streams.

What happened?

The original story came via the Yomiuri Shimbun newspaper, which you can read here. It reported the Japanese Consumer Affairs Agency had decided to investigate the matter after a number of consumer complaints about the amount of money being spent on complete gacha. The inference from their statements (at least as recorded in that newspaper) seemed to suggest this was being investigated as a gambling law issue.

The Agency invited companies involved in the activity to stop it, which several duly did. I've since seen reports the Agency has decided to press ahead with regulation anyway (though I can't verify those reports just yet).

Some commentators have speculated on the impact that this could have on businesses profitting from complete gacha (example here) - I'll leave that to them. (To my mind, complete gacha was such an unknown concept in the West until this matter became public, I'm not sure speculation on it could really be that informed).

Some thoughts on the legal position

I can't comment on the purely Japanese legal issues here, but speaking more generally this does sound like one of the first high profile examples of games and gambling law colliding here. Games lawyers have known for some time that this would happen, as have those parts of the gambling industry who're interested in games (quite a bit) and those parts of the games industry who're interested in gambling (not quite as much) - but no one expected it to be complete gacha that started it off.

Why is complete gacha an example of games and gambling law colliding together? Because, in my view, there's a reasonable argument that complete gacha would be regulated under gambling law under at least some (if not most) Western jurisdictions, while at the same time being a very lucrative game mechanic.

For example, in the UK we have the Gambling Act 2005. The Gambling Act defines three kinds of gambling activity which all require legal authorisation before you can offer them publicly: "gaming", "betting" and "lottery".

"Gaming" means "playing a game of chance for a prize". A person plays such a game if (i) "he plays a game of chance and thereby acquires a chance of winning a prize"; and (ii) "whether or not he risks losing anything at the game". So, if you take part in a game of chance that offers you the chance to win a prize - even if you don't actually pay anything to participate - you're involved in gambling. I think this could cover the complete gacha mechanic in principle.

"Betting" broadly means making "making or accepting a bet on— (a)the outcome of a race, competition or other event or process, (b)the likelihood of anything occurring or not occurring, or (c)whether anything is or is not true." Complete gacha probably isn't betting since it doesn't involve betting on an outcome.

A lottery involves "persons required to pay in order to participate in the arrangement" and "in the course of the arrangement one or more prizes are allocated to one or more members of a class" (a "prize" includes "any money, articles or services"); and "the prizes are allocated by a process which relies wholly on chance" (or, if this is a more complex lottery) "the first of those processes relies wholly on chance". There's a reasonable argument that complete gacha could constitute a lottery, too.

In other words: in my view, there at least two avenues under which complete gacha could constitute gambling under UK law, in which case from a purely legal perspective anyone offering complete gacha would require authorisation from the Gambling Commission. Other EU countries and the US may take a similar approach and potentially reach a similar answer.

HOWEVER, that's a real oversimplification of the position: any meaningful legal analysis would need to look closely at the game and the legal provisions of the relevant legislation (in other words dear readers: don't automatically assume complete gacha = regulated in the West). For example, you need to have servers based in the jurisdiction for a start. It's also worth bearing in mind that requiring authorisation isn't the end of the world at all: it simply means you need to seek a licence from the national gambling regulator, or seek a way to restructure your game so that it doesn't fall under the legislation.

The point of this brief analysis is more to demonstrate that, at least from a UK/EU perspective, you can see how regulators could decide to slot complete gacha or similar games mechanics into their regulatory outlook. Of course, one vital ingredient which is missing of course from most national regulators is familiarity with games and how games work - they're not necessarily the same as say a fruit machine or a casino and therefore maybe shouldn't be treated like them from a regulatory perspective.

Mind you, the return argument to that might be that, even if games are sometimes different to 'gambling games', they could both involve addictive play and therefore potentially could both be regulatable. Which gets us to the most difficult question of all: should game mechanics which involve varying levels of addictive/repetitive play be regulated by the law? I'm aware this argument has at times excited a lot of vigorous debate in the games industry, but in the meantime Japan is blazing a new path regarding it - watch this space...

Could the Xbox 360 be banned in the USA?

noreply@blogger.com (Jas Purewal) — Thu, 10 May 2012 15:06:00 +0000

It's common knowledge there are a range of patent wars ongoing in technology right now (which I've previously written about here). One of those patent wars is between Motorola and Microsoft over the Xbox 360 console - and boy, it's getting hot. My friend Florian Mueller of Foss Patents told me about it and it seems so interesting I thought I'd write a quick summary based on his hard work.

The story so far:

The origin of the patent battle between Motorola and Microsoft is lost in the mists of time beyond 2010, but for our purposes it started with Motorola filing a complaint against Microsoft at the US International Trade Commission complaining of alleged infringement of Motorola patents by Microsoft in the Xbox 360. Florian has the details, but the key point is this: if the ITC upholds the complaint, it has the power to import ban Xbox 360s.

While that was rumbling on, Motorola became involved in a whole further series of patent infringement complaints with other tech companies. The European Commission grew unhappy with these activity (following complaints from Apple among others) and in April 2012 it announced it would comence two antitrust investigations into Motorola.

April 2012: the ITC made an initial ruling that Microsoft has infringed four Motorola patents via the Xbox 360. Microsoft seemed almost certain to fight against that initial ruling.

May 2012: the ITC has now asked for public input on how any Xbox import ban would affect the public (with submissions due in by 8 June 2012). In the meantime, both Microsoft and Motorola have both apparently been making further submissions to the ITC on the matter.

One brief addition: there is also a related battle ongoing as to whether Motorola can ban the Xbox 360 being imported in Germany.

(That's a very brief summary of a complicated matter and I recommend you read Foss Patents for more detail.)

Thoughts:

We're still at a relatively early stage in this matter and there is still a way to go before there is a formal decision. BUT, it's clearly a serious matter for both Microsoft and Motorola, because even the possibility that the Xbox 360 could be even temporarily import banned in the USA would be enormously important in their legal fight, as well as for the wider games industry.

It might never happen of course: we simply don't know whether ultimately the ITC or a court would rule on Motorola's or Microsoft's side. Or maybe they'll settle. But it's worth bearing in mind this isn't unprecedented: LG was able to obtain a partial import ban on the Sony PlayStation 3 in Europe last year (even though it didn't last). We'll have to sit tight and see what happens...

In the meantime, the case just emphasises again the importance of patents, and patent infringement lawsuits, to the wider games industry (I've written a quick guide to patents in games here). Like them or loathe them, they're here to stay for the foreseeable future...

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Are second hand software sales legal?

noreply@blogger.com (Jas Purewal) — Tue, 08 May 2012 23:22:00 +0000

The second hand sale of software excites lots of emotive debate: is it a good thing for consumers by giving them choices at more flexible price points, or is it killing publishers? Both? While that debate continues to rage, a couple of recent legal cases have got me thinking: are second hand software sales actually legal? Interestingly, one is a US case and the other is a European Union case, so here's the Transatlantic perspective...

What the EU thinks so far: second hand sales are legal BUT can be banned.

A very interesting German case about second hand software sales is currently before the European Court of Justice and is going to shed some light on the issue. Quick facts: a company called usedSoft sells second hand digital licences to software, including Oracle software, which licences the consumers then use to download the software from the publisher directly. Oracle didn't like this - they sued usedSoft in Germany arguing that that the sale of its used licences for software is illegal. The German courts referred the matter to the ECJ, asking it rule on whether as a matter of EU law a company can sell second hand digital licences for third party software to consumers.

The ECJ has yet to issue its formal judgment but, as is standard practice in ECJ cases, there has been an opinion very recently issued on the case by the allocated Advocate General -you can read it here. Usually AG opinions are a good (but not necessarily conclusive) steer on which direction the ECJ will head in. Here's my summary of the legal points discussed in his opinion:

The EU Computer Program Directive gives a publisher copyright protection in "the expression in any form of a computer program". Typically, this includes the exclusive right to distribute the software (specifically "any form of distribution to the public, including the rental, of the original computer program or of copies thereof"). BUT, generally that right of distribution is 'exhausted' following the 'first sale' of the software in the EU "with the exception of the right to control further rental of the program or a copy thereof".
In other words, if you make software then you have exclusive rights over how it is distributed in the EU up until it actually enters the EU market. Once there has been a 'first sale' of the software in the EU, you can't then have exclusive control over the distribution: otherwise you'd have a monopoly of distribution forever and, the EU says, that would be against its principles of free movement of goods and services.
So, does that mean that once Oracle or any other publisher has released its software in the EU, it cannot then keep controlling how it is distributed - meaning it cannot stop the sale of digital licences over its software?
Advocate General Bot (and this is a very potted summary, folks) held that publishers can lose the right to stop second hand sales, but essentially it depends on what the licence terms say. If the licence terms grant the original software purchaser the right to redistribute or reproduce the licence, then it can sell the software second-hand. BUT, if the licence terms reserve the right of redistribution or reproduction to the software publisher, then the original software purchaser can't sell the software second-hand.
I'll just say that again for clarity's sake: if the licence terms say that the publisher retains the right to reproduce the software, then you cannot sell it to a third party.
(For those interested, this is what the Advocate General said specifically on these points: "While the simultaneous resale of the downloaded copy by the first acquirer, together with its use, falls within the ambit of the right of distribution, the assignment of a user licence such as that issued by Oracle to its customers involves the exercise of the exclusive right of reproduction, since it allows a new copy of the program to be made by download from the internet or by reproduction from a copy already held by the use...It follows...that the principle of exhaustion relates exclusively to the distribution of a copy of the computer program and cannot adversely affect the right of reproduction, which cannot be impaired without adversely affecting the very substance of the copyright".)
The Advocate General knew that this ruling would heavily curtail what can and can't be done with second hand software, but decided (apparently with some reluctance) that the wording of the EU legislation doesn't leave any leeway here. If there is to be second hand sales of software, it has to be either due to market forces (publishers changing their licence terms) or due to new legislation.

It's just the Advocate General who has issued an opinion on this, as I said, so we'll have to wait for the ECJ full judgment to be sure of the legal position. More on what this means in a moment, but let's have a look at the US position first.

What the US thinks so far: some of us think it's illegal, but some of us haven't made our minds up yet.

As I understand it (though I'm not a US lawyer, so feel free to correct me my American friends), there isn't yet a consensus on how second hand software sales should be treated across the USA: different courts have come to different views and there hasn't yet been a proper, unifying decision from the US Supreme Court. A couple of developments we've seen recently though:

In late 2010, the US case of Vernor v Autodesk (more on that here) came to essentially the same practical result that usedSoft v Oracle seems likely to reach in the EU: i.e. if the publisher's licence terms prohibit reproduction/redistribution, then second hand sales are prohibited. That case involved a businessman selling used copies of AutoCAD online, which Autodesk weren't very happy about. Again, the court there recognised the difficulties that the ruling imposed, but found that they didn't have any leeway unless Congress steps in.
UPDATE: my friends at Developing Concerns have reminded me that if software is outright purchased by someone (and therefore with no EULA attached to it), then they can sell it on. If there is a licence attached to the software, then it gets a bit more complicated as I said above. For more info, they've referred me to this useful article: http://www.lacba.org/Files/LAL/Vol34No6/2843.pdf. The problem as I see it is that pretty much all modern software is 'sold' to consumers and businesses under a EULA and therefore these first sale issues arise.

More recently, the US Supreme Court is set to hear an appeal which will give them the opportunity to reassess the 'First Sale' doctrine in the modern age. The case involves a US citizen importing textbooks from abroad for resale in the US, which the publisher argues constitutes copyright infringement. So again, it sounds like this will set up a legal fight about the central tension in second hand sales cases: the freedom of businesspeople to resell products once they've already been put on the market, against the rights of publishers to control how their products are used - including the right to control (or at least be paid) for future resales of the product.

This means second hand sales might be illegal, right? So what?

We still have a way to go before we know the full legal position here: we need to see the full ECJ and Supreme Court decisions. Even once those decisions have been made, there are a whole range of complicating factors that could get involved: what local law says in the US States or EU Member States; the potential for lawsuits in different directions to implement or challenge any decisions that are made; and, above all, what the markets and consumers actually think about this.

But let's assume that both the ECJ and the Supreme Court follow the tracks that have already been put in front of them and rule that publishers have the right to control second hand sales via their licence terms. What would that mean for software (and games) second hand sales? There's two answers:

Legally: as long as a publisher drafts its End User Licence Agreement carefully, it could prohibit second hand sales. This will heap greater pressure on lawyers to ensure that EULAs are properly written, since a great deal of money could rest on whether their wording actually stops second hand sales.
In reality: it's too early to tell whether a ruling against second hand sales really would make any difference. Technically, publishers of all kinds could try using this kind of legal precedent to go after major distributors of second hand software (e.g. auction sites or retail chains like GameStop) to force them to stop. But that would involve expensive litigation and time to achieve results. Even if those lawsuits are won, will it really help? Proponents of second hand sales would argue that actually the economic arguments are much more nuanced than "second hand sales = I lose my preferred sale price = I lose out".
Besides, if people want to sell their games second hand, arguably they'll find a way in practice no matter what happens - and they'll be angry you tried to stop them. In the most extreme case, the only way to stop second hand sales is to pursue the consumers themselves directly - which could raise a whole host of practical and legal issues.

So it's more complicated than just the law

There you have it. Based on the developing caselaw on both sides of the Pond, there is an argument that publishers can stop second hand sales of their software - and that law will be clarified in the course of the next year or so. But equally, it's open to debate whether that really will help in the long-run, given the hold that second hand sales of all kinds of software, from enterprise software to console and PC games, have already got on consumers and businesses.

Image credit: latestvideogamecheats.com

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Games Law Update: April 2012

noreply@blogger.com (Jas Purewal) — Sun, 06 May 2012 16:06:00 +0000

Hi everyone - here's your dollop of games law news over the last month, curated by yours truly...

Lawsuits:

The big daddy in games lawsuits approaches: the Infinity Ward/Activision/EA lawsuit apparently has a trial date set of May 29th 2012. Regular readers will know I've been following this lawsuit with great interest for some time. Get ready for a settlement soon or (more likely, in my view) some serious fireworks...
An author is suing Ubisoft for allegedly plagiarising his novels in creating the Assassin Creed series of games. Unfortunately, regardless of the legal merits, this has resulted in a small disaster for the author - including being Amazon bombed. It's a useful reminder that the fallout from a lawsuit isn't just legal - it can hurt you in the PR department just as much.
Ubisoft is facing a patent lawsuit over the technology in Rocksmith. Speaking of patents...
The Lodsys patent wars continue, but with a new twist: Apple has been granted permission to directly intervene in Lodsys lawsuits against iOS developers. In other words, Apple can bring some BIG GUNS to bear where the developers might not...
...and yet more patent troubles: Worlds, Inc is suing Activision Blizzard and others for alleged software patent infringement. Worlds, Inc claims it owns a number of patents relating to virtual worlds interaction. Cue gamers and devs pouring scorn on them for even thinking of trying to patent such a clearly unpatentable invention...
A group of US parents have won an initial skirmish in a US class action lawsuit against Apple over their childrens' access to freemium games. Rather than argue the toss on this one, you should instead just read Rob Fahey's very smart analysis of the issues involved in kids and freemium games.
At the same time, a similar parent class action lawsuit is being pursued in California against Facebook. As Gamasutra reports: "Facebook is facing legal action from the parent of a teenager who claims that minors are able to purchase Facebook Credits for use in games on the social network, and that this goes against California's consumer protection laws."

Second hand sales and the law:

Are grey imports legal or illegal in the USA? The US Supreme Court is set to rule on this issue after accepting the appeal of a a Thai-American man sued for copyright infringement after he bought textbooks from overseas and sold them in the USA. The defendant is argued that he is protected by the first sale doctrine, which holds that a rights holder loses its rights to control distribution of a product once it has already been put on sale in a country. On the other hand, the publisher is arguing that the sale of its products without authorisation constitutes copyright infringement which it is entitled to stop. As I understand it, the case will come down in part to analysis of the relevant US legislation, which is unclear on the matter. At the same, in the EU there has just been an opinion released suggesting that rights holders can control resale of their products using their IP rights: in other words, rights holders can stop second hand sales of their products. I'll be writing about this separately soon, so watch this space...

Apple, antitrust and ebooks:

The US Department of Justice is making moves towards suing Apple and ebook publishers over price fixing. This is interesting for a number of reasons:
(i) There have been very few examples of governments using antitrust powers over digital content - this is one of the most high profile.
(ii) It illustrates how quickly a monopoly, or at least dominant distributors, can begin to build in digital content distribution
(iii) The consensus seems to be so far in favour of Apple and the ebook publishers settling with the DoJ pretty soon if not straight away - this won't be a protracted lawsuit. As a result, in the near future it will be interesting to see what measures this will lead to the ebook publishers accepting and therefore what impact it has on both price and access restrictions. Which is a long way of saying: maybe this is the beginning of the end of expensive, walled garden ebooks?
(iv) In case it wasn't obvious where I was going with this: what will this mean for the games industry? Publishers have very wide control over price and access of digitally distributed games - could these kinds of moves weaken that control? Will any of the games distribution platforms themselves come under a regulator's eye in the way Apple has? I think so, eventually...

And the rest...

Jonathan Newth of Tenshi writes a very savvy feature about the evolution of indie funds and whether really they're just publishers by another name.

Johnny Minkley asks the (provocative?) question about how seriously the UK government is taking child safety in games, given its continuing failure to implement the PEGI age rating system.

As a result of the settlement of a Californian class action lawsuit against Gamestop, there will now be DLC warning labels placed on second hand games in Californian Gamestop stores warning consumers that DLC for the game may not be available (due to its second-hand nature). Speaking personally, I feel rather divided about this decision. On the one hand, it's a victory for any consumers who were genuinely misled about what they were buying as well as for the Californian class action system generally. On the other hand, publishers ofc aren't particularly keen on second hands sales since it savages their profit margins. At which point, cue the debate about whether second hand sales are good or bad...

Zattikka, a UK games fund/publisher, went public - it plans to use monies raised from its flotation to set up a portfolio of investments and acquisition in studios worldwide - you can't fault their ambition. Will this provoke more games businesses to think about going public...?

Ars Technica has an interview with Kevin Dent of Tiswas about the dark side of Kickstarter - an interesting read if you want to hear about some of the downsides of crowdfunding. I think that Kevin's absolutely right - there are a lot of things to get right with crowdfunding and a lot of things that can go wrong. Sooner or later, lawyers are going to get involved to ensure that financial regulation and consumer protection laws are being observed. Even so, there's a few nasty shocks coming that risk bursting the optimism around crowdfunding, as awesome as it is...Here's one example already, where fans found that a Kickstarter project was actually a hoax using stolen concept art.

Project finance and public funding in games

noreply@blogger.com (Jas Purewal) — Mon, 30 Apr 2012 16:24:00 +0000

UK games industry body UKIE invited me to speak at their inaugural Thursday@3 series of events last week. This first event was on the subject of funding games, so I decided to talk about two areas of games finance which have been much underrated recently: project finance and public sources of funding.

Have a look at my slide-deck below (which newsletter recipients can see here). Both topics (project finance especially) could easily eat up several hours of discussion on their own, but hopefully this gives you a brief idea about how they work and how they could help...

Project Finance and Public Funding for Games

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Game cloning: recent legal developments

noreply@blogger.com (Jas Purewal) — Thu, 19 Apr 2012 13:02:00 +0000

My employer, Osborne Clarke, held its biannual Interactive Entertainment Legal Forum (a networking event and training session for inhouse games lawyers from UK and Europe) last month. I spoke about the difficult topic of game cloning, non-literal copying and recent legal developments regarding it. What actually is the law about game cloning in the UK and EU? Is it right that there's no real legal recourse for cloning?

Have a look at my slide-deck below for my thoughts on this. For those of you receiving this via newsletter, here's the direct link.

Game cloning: recent legal developments

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Games Law Round-Up: February and March 2012

noreply@blogger.com (Jas Purewal) — Mon, 02 Apr 2012 16:07:00 +0000

Sorry - this is two months' worth of games law news updates, since GDC got in the way of finalising the February update. Still, what a couple of months it's been! Here we go...

Lawsuits:

Microsoft has had to commence proceedings at the US National Arbitration Forum for the transfer of fake site "Halo4beta.net" to it.

The SABAM decision has been handed down by the European Court of Justice, holding that: "The owner of an online social network cannot be obliged to install a general filtering system, covering all its users, in order to prevent the unlawful use of musical and audio-visual works"

In the UK, the High Court has ruled that the Pirate Bay involves copyright infringement (thereby bringing it a large step towards being effectively shut down in the UK). A further hearing is due later this year.

The lawsuit between DeNA and GREE continues, with DeNA apparently ordered to pay GREE $2.9m in damages for copyright infringement.

Justin Bieber is suing over a game featuring a character called "Joustin Beaver" [yet another celebrity rights of publicity lawsuit then...]

New patent troll Gametek is suing Facebook, Zynga and Playfish among others over patents allegedly held over virtual currency monetisation methods.

Developer and indie darling Mojang has settled its trademark dispute with publisher Bethesda [I wrote about the spat more here].

The oncoming juggernaut lawsuit between Activision, EA and the former founders of Infinity Ward is rolling on, with a recent interlocutory skirmish involving in some fraud claims being jettisoned. Expect trial later this year...

EMI is suing the developers of Def Jam Rapster, claiming that it failed to obtain sufficient rights over its music before including it in the game. [This is interesting, since it's the first time I'm aware that a music label has sued a games developer. The issue at the heart of the dispute - licensing music for a game - is reasonably common but not commonplace at the moment, so it's worth keeping an eye on]

Regulation:

Google changed its approach to privacy by implementing a single privacy policy to cover all its data collection/usage. It has since come under attack, including claims that it breaches EU privacy law.

I'm still getting queries about data protection so, for those who didn't see it recently, here's Osborne Clarke's quick guide to the new EU data protection proposals.

Insolvencies :(

Game Group, the UK's only remaining nationwide high street games retailer, went into administration in March. Some good news so far - its UK operations will be spun out into a new business. No good news for its international operations yet though. [I wrote this quick Q&A guide about what this means legally: What does Game's Administration Mean For You?]

UK developer Dark Energy has entered administration. Spellbound Entertainment has gone under too.

A miscellany of interesting things:

The UK government unexpectedly announced it would grant the UK games industry a tax break. I wrote about the opportunities and challenges of a UK games tax break - expect more about this in the next few months.

Here's an interesting Gamasutra feature comparing how Sony and Valve coped with hacking attacks

Microsoft has raised some interesting questions about whether the Microsoft Office licence covers access to the software via cloud gaming platform OnLive. [The legal issues surrounding cloud are being debated more and more in tech generally, but have yet to really penetrate in the games industry - that's slowly changing though, as this example shows]

In a touching display of dedication to the cause, a US congressman has proposed a law mandating cigarette-style health warning labels for games - a proposal he has already put forward at least six times without access.

More writings by Jas:

IP laws and the games industry: what's next? on www.gamesindustry.biz

My Edge column for March 2012: Playing the Funding Game.

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Timegate beats Southpeak in Section 8 lawsuit

noreply@blogger.com (Jas Purewal) — Wed, 28 Mar 2012 11:08:00 +0000

Timegame Studios, developer of the Section 8 first person shooter, has just won an interesting lawsuit against publisher SouthPeak Interactive (via Houston Press and Courthouse News). The case is a useful reminder of both the strength and weaknesses of arbitration, as well giving us some useful practical tips for drafting good publishing agreements (skip to the end of the post for that). I’ve written a summary of the case below.

The facts: developing Section 8.

Timegate entered into a publishing deal with Gamecock (then an independent company), under which Gamecock would advance $7.5m (apparently this turned into $8.29m at some point) for Timegate to develop Section 8. Timegame would put in $2.5m of its own money. As with most publishing deals, the Gamecock development advance was non-refundable but recoupable and had priority: i.e. Gamecock would be paid first from any Section 8 sales revenue until it got its development advance back, after which (presumably) there’d be a revenue split between them. There was an express contract term that Timegate would own the Section 8 IP (this is always important but turned out to be absolutely crucial to Timegate’s eventual victory – more on that later).

The release of Section – stormclouds gather…

Fast forward to Section 8’s release date: it didn’t do very well [I thought it was a good game, though]. At roughly around the same time, Gamecock was acquired by Southpeak, meaning that Southpeak stepped into Gamecock’s contractual shoes effectively. From this point on, things seem to have got increasingly nasty on both sides. Southpeak argued that:

It was Timegate’s fault that the game was a “flop”: it lacked quality and had been released against Halo (said to be a fairly similar game).
Timegate had failed to contribute its $2.5m share of the funding and had not used the $7.5 Southpeak funding for the purpose of developing the game.
Timegate had published a PC sequel and PS3 version of Section 8 without paying revenue to Southpeak.
Timegate had made false representations to induce Southpeak into the contract and had acted fraudulently.

Timegate argued that:

Southpeak was in breach of the agreement because Gamecock had actually gone insolvent at the time it was bought up by Southpeak (typically, if a contract has been properly drafted then the entry by one party into insolvency gives the other party an immediate termination right).
Southpeak had been manipulating revenue reports so as to withhold payments to Timegate and keep the money itself [a very serious allegation].

The arbitration

Timegate therefore decided to terminate the contract. Southpeak commenced legal action in Texas, which was referred to arbitration (since there was a binding arbitration clause in the publishing agreement). [Quick arbitration 1.01: arbitration is basically an alternative form of dispute resolution to court action, which is meant to be just as binding but allows parties to have much more influence on who adjudicates their dispute, where, under what law and on what terms and conditions – it’s quite popular in medium-high value cross-border deals.]

Now this is where it gets interesting. The arbitrator found in favour of Southpeak and ruled that:

Timegate had wrongfully terminated the contract and therefore were in breach of contract itself.
Timegate had fraudulently induced Southpeak into the contract in the first place.
Southpeak should be awarded $7.3m in damages from Timegate.
The publishing agreement would be amended to give Southpeak a permanent licence over the Section 8 IP, including the right to make sequels.

Timegate, understandably, were unhappy. They therefore challenged the arbitrator’s award in court [in the US, like in the UK under the Arbitration Act 1996, you can challenge an arbitrator’s decision under certain very limited circumstances]. So, the whole matter and the arbitrator’s decision ended up before a Texas district judge.

The judge’s decision

The judge has ordered that the arbitrator’s decision be “vacated” – i.e. declared invalid. This almost certainly means that Southpeak doesn’t get any damages and doesn’t get the permanent licence rights over the Section 8 IP. Without getting into the detail too much, the judge’s reasons for this decision were:

(1) Arbitrators under Texas law have the power to void and effectively rewrite contracts in the right circumstances provided that they don’t act contrary to express contractual provisions.

When it came to testing whether the arbitrator’s decision actually fits with what the contract says, the judge didn’t seem too impressed: he found arbitrator’s decision in some respects was quite clearly contrary to the actual contract terms. In particular, the arbitrator awarded a permanent and very wide licence to Southpeak when the contract was clear that Timegate retained all the IP. On that point, the judge found that “It is beyond question that this portion of the arbitration award is in conflict with at least …two provisions of the parties’ contract.”

The judge also found that the arbitrator acted contrary to the contract’s express provisions by awarding damages to Southpeak that included the $8.29m in development advances it gave to Timegate because Southpeak couldn’t actually claim that $8.29m back under the contract (because it was non-refundable and recoupable only under specific circumstances, which hadn’t been met).

(2) BUT, arbitrators also have the power to void and effectively rewrite a contract provided that it is “rationally inferable from the parties’ central purpose in drafting the agreement.”

Very basically, Southpeak argued that it didn’t matter whether the arbitrator’s decision contradicted what the contract actually says, because he has the power to rewrite the contract anyway. This seems to have been quite an uncertain issue under Texas law [I can understand why – it would give arbitrators a very wide power], but essentially the judge found that an arbitrator DOES have that power provided that it is used in a way that is “rationally inferable from the parties’ central purpose in drafting the agreement.” In other words, the arbitrator can’t just make up any old thing and shove it in the contract – he or she has to have regard to what the parties were actually trying to do with the contract.

(3) The arbitrator’s decision had to be voided because in some respects he had failed to have regard to “the parties’ central purpose in drafting the agreement”

Having decided that the arbitrator could void and rewrite the contract as long as he had regard to the parties’ “central purpose”, the judge had to decide whether that had actually happened.

On this key issue, the judge decided that: (i) the arbitrator hadn’t acted wrongly by awarding the $8.29m in developer funding back to Southpeak and (ii) hadn’t acted wrongly by awarding it consequential damages either.

BUT, the judge said that the arbitrator HAD acted wrongly by giving a permanent and wide IP licence to Southpeak, which he found could not be “rationally inferable from the parties’ central purpose in drafting the agreement”. This is what he said on that point:

“The arbitrator’s creation of a perpetual license is another matter. The Court cannot conceive of a way in which a perpetual license, which violates at least two provisions of the parties’ contract, and is inconsistent with the fundamental purpose of the contract, is rationally inferable from the contract itself. The provision takes what was a temporary licensing agreement, which required collaboration and coordination between the parties, and expands it into a permanent contract under which the parties are able to develop competing products. The contract is turned on its head by expanding the rights of Defendants to allow them to actually create sequels, ports, and add-ons related to the Game, without any obligation to pay the Game’s developer, TGS, royalties. Ultimately, the Award gives Defendants rights far beyond what even they requested, and awards those rights in perpetuity.”

So, by this stage the judge has decided that the arbitrator’s decision was defective due to the IP licence he awarded to Southpeak. In those circumstances, under Texas law the judge could vacate (i.e. void) the arbitrator’s decision or modify it. The judge decided to void it:

“The Fifth Circuit has explained that, where an arbitrator exceeds his contractual authority, vacatur or modification of the award is an appropriate remedy. Delta Queen Steamboat Co. v. Dist. 2 Marine Engineers Beneficial Ass’n, AFL-CIO, 889 F.2d 599, 602 (5th Cir. 1989). The Court concludes that it cannot modify the award while still preserving its intent, and acting consistently with the essence of the parties’ contract. The award therefore must be VACATED.”

What this means for Timegate and Southpeak

Although it was not spelt out in the judgment, the implication of that decision is that Southpeak would receive no damages, no IP licence and no further rights in the Section 8 IP – all of which Timegate would keep. Normally this would need to be spelt out in a further court order/filing, but I’ve not seen it yet. It’s of course possible that this isn’t the end of the story though, as Southpeak may file an appeal.

Practical tips from this case:

Make sure your publishing/development agreements are well-drafted and thought out. A key component in Timegate’s victory here was having a good contract. Clauses that Timegate included in its contract (and so should you):
(1) exactly how funding is to be paid and when it is recoverable
(2) limitations on liability
(3) exclusions of certain kind of liability
(4) some kind of clause about dispute resolution (including arbitration if you want – but see below)
(5) give yourself the right to terminate if the other party goes insolvent
(6) OWNERSHIP OF IP – it’s absolutely critical you are 100% clear about that before you sign up to any contrac
Monitoring actual revenue flow is key. Having a good revenue clause in a contract is one thing, but making it work is another. In this case, Timegate alleged that Southpeak was manipulating the revenue clause so as to keep revenue for itself. Whether that was right or wrong, it shows that watching what happens to the revenue and the revenue clause is the key to getting paid.
Arbitration is good but not perfect. As I said earlier, there a number of advantages to arbitrating disputes instead of litigating them – but remember that, even if you win an arbitration, the other guy might still challenge you in court (which is what Timegate did).
Arbitrators have very wide powers: the judge was prepared to agree here that the arbitrator could, if acting properly, basically rewrite the parties’ contract. That’s a very wide power indeed – so it pays to keep your eyes open about what could actually happen at an arbitration before you include arbitration clauses in your contracts or propose an arbitration to the other side in a dispute.
Stick to your guns: sometimes you have to keep spending to win a lawsuit. Timegate must have been pretty disappointed when they received the arbitrator’s decision originally, but they decided to fund a court challenge, which turns out to have delivered them a sizeable win.

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Game Group going into administration

noreply@blogger.com (Jas Purewal) — Sun, 25 Mar 2012 15:44:00 +0000

Game Group, the UK's last remaining high street retailer dedicated to games, filed papers to enter administration earlier this week. Although this has been predicted for some time, it has still had a real impact on the UK games industry already - if only to renew debate about physical vs digital games retail.

I spoke with Gamesindustry.biz about What the Game Group Administration Means For You, which explains what administration is as well as what is happening to Game Group, and separately I was quoted in the Financial Times. Thought you might like to have a look at those articles for more information about this unfortunate development...

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The UK games tax break: opportunities and challenges

noreply@blogger.com (Jas Purewal) — Wed, 21 Mar 2012 13:33:00 +0000

The UK government has just announced that it will grant production tax breaks to the games industry. This was a bit of a surprise: the previous Labour government had agreed to grant tax breaks, but the new Tory/Lib Dem coalition government had frowned on it until this announcement.

This is ofc great news for the UK games industry and I'm sure there'll be a LOT of discussion about it in the coming days. There'll need to be: there are a number of challenges to overcome over the next several months before games businesses can take advantage of a UK games tax break. I wrote about those challenges the last time a games tax break was approved, and they still hold true now:

Challenge 1 - EU approval

The government will need to overcome EU legal issues regarding state aid. In a nutshell, EU Member States cannot take action to favour their domestic industries over other Member States' industries unless they have EU clearance to do so. One of the main grounds on which this clearance can be obtained are 'cultural' grounds - which is how we saw the UK films tax credit being cleared when they were introduced (more on that below). It could potentially take months for this EU approval to be obtained.

Fortunately, there have been suggestions quite recently from the EU that they might be willing to review how a games tax break is regulated at the EU level, but as I understand it they remain just that - suggestions. It would still require legal reform for the games tax break to be freed from the current EU legal restrictions - and that will take both political will and time.

UPDATE: it seems as though the government has acknowledged this is an issue and that therefore it'll take at least a year to get the tax break off the ground from an EU and practical perspective - I agree.

Challenge 2 - the structure of the games tax break

The announcement of a games tax break is good, but implementation will be everything. Turning the tax break into reality raises a host of important questions, which will have to be dealt with through government consultation with the industry:

What form will the games tax break take? Will it be based on the film tax break or somethng else? The TV industry is being given tax breaks too - will they have a different format the gamesindustry can follow? In any case, how will this be tailored to the unique features of the games industry? Just as importantly, what lessons can be learned from the implementation of the films tax credit?
Given the EU legal considerations (see above), the key test for obtaining the tax break will probably be whether it would promote "culturally significant video games that might not otherwise be made in the UK". The government will need to set out guidance as to what that means for games.
That said, it does not just mean "GTA: Weston-Super-Mare"! A wider definition of 'culturally significant' has become widespread in the films industry and the same logic could be applied to games. For examples, maybe games which reflect European culture (e.g. Creative Assembly's Empire: Total War) could qualify, or games which are just made in the UK (and thereby could be said to reflect UK culture even if they don't specifically refer to the UK). In other words, the test could be whether the game is sufficiently linked to the UK and therefore to UK culture, not whether the games are about UK culture. In reality of course we just don't know at this stage how that particular challenge will be resolved, but it will boil down to the government trying to tread a fine line between complying with the law while still making the tax relief useful. With the films tax credit, the government has adopted a points-based system when assessing this cultural question , which they could also do with games.
Who will benefit from the tax break? There is a good case for arguing that both games developers and publishers based in the UK and overseas (provided the game is made in the UK) should be entitled to benefit so that the relief encourages both inward investment and the UK indigenous games industry to achieve its aims.
How will games be defined for tax break purposes? Clearly, games must be defined broadly enough to encompass the myriad of games currently available (across an array of platforms) and those developed in the future. How will social and mobile games fit into it? There's previously been lots of talk about how difficult this could be, and clearly a lot of thought will be needed - but it's by no means impossible.
How much will the tax break be worth? It needs to be high enough to encourage continued game development in the UK by existing players and new companies to start making games here, but not so high the Treasury balks at it.
Lastly, what types of development spend will qualify for tax relief? How will this interact with the research and development tax reliefs?
Who will administer the tax break? Will the government set up a new body or use an existing body? There was previously has been speculation that the Film Council could step in to adminster the games tax break, for example.

No doubt we can expect further details fairly soon from the government regarding how it proposes to tackle these issues, so more news soon I hope. All of these matters can be resolved through sensible consultation between the government and the games industry, but it is going to take real games industry involvement to turn this tax break into reality. Let's get to work...

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Is Australia getting grown up about age ratings?

noreply@blogger.com (Jas Purewal) — Wed, 22 Feb 2012 17:39:00 +0000

This is a guest post by Lachlan Kingsford, an Australian games scholar and the brains behind Nerdy Gentleman. I asked him to tell us a bit about the latest state of play regarding Australian games classification, which I've written about previously.

There is something rotten with the state of gaming in Australia. Unlike other entertainment mediums, games can not be given an R18+ rating or classification. This has two practical effects: Games that are deemed too mature (generally due to violence or sexual references) are banned, making their sale illegal, their importation illegal and in Western Australia, their possession illegal. Other games that have been generally rated R18+ equivalents in other markets (such as The Witcher 2) are downrated to MA15+ to get them through the system.

In Australia, all games sold must be rated by the Australian Classification Board, eschewing the voluntary nature of (for instance) the US ESRB rating system for games. Comparably to most ratings systems. media rated M is “recommended for mature audiences”, MA15+ is restricted to people over 15, or those under 15 accompanied by an adult guardian and R18+ is completely restricted to people over the age of 18. The ratings system fall within the gamut of the state (rather then federal) powers, and as such the ACB itself is governed by the attorneys-general of each state – though is bound by the Commonwealth Classification Act. Assuming that the states want to retain the consistency of the system, decisions need to be unanimous. The rules of importation fall under Commonwealth law. What I hope I'm beginning to get across, is that getting any level of agreement between all of the involved governments (or at least their representatives) is no mere feat – a fact which has delayed the introduction of an R18+ rating for a significant period of time. It is worth noting that there remains some possibility of inconsistency between states, as evidenced by the X rated content being banned from sale (not import) in every state and territory other then the ACT and Northern Territory.

There have been rumblings of discontent with the current situation for quite some time, and rumours of change for almost as long. Supporters argue that the R18+ rating for games should exist to allow adults to play games intended for adults, and to avoid censorship of a kind that does not apply to other media. Furthermore, supporters argue that the R18+ will assist in preventing children from accessing mature content through sending a “clear, unambiguous message to parents that the game is unsuitable for minors”, and by preventing the misclassification of games (as discussed before). Dissuaders of the R18+ rating have largely focussed on protecting children from the effects violent games (and in some cases, from games in general). The Final Report on the R18+ rating produced by the federal Attorney-General's department in November 2010 provides an excellent summary of the arguments and statistics on submissions at http://www.ag.gov.au/Documents/FINAL%20REPORT.doc.

In its comparatively recent history, no R rating has been forthcoming despite a majority support of the governing attorneys-general owing to the requirement of unanimity in their decision making. Michael Atkinson, the now former South Australian attorney-general was unwavering in his opposition to the rating during his almost 7 year tenure (concluding in March of 2010). However, Michael Atkinson is now out. In December 2009, the Minister for Home Affairs, the Hon. Brendan O'Connor released a discussion paper on the R18+ rating for games, which led to almost 60 000 public submissions indicating overwhelming support (amongst those surveyed) for an R18+ rating. The attorneys-general voted on the R18+ rating again in July 2011 with unanimous support save for the abstinence of the the new New South Welsh attorney-general – who has since agreed in principal to the changes. (source: http://www.abc.net.au/technology/articles/2011/08/10/3290150.htm).

Finally, there has been significant movement at the station which may indicate a chance of actual change. On February 15, a bill was introduced at the Commonwealth level to amend the Classification Act and Broadcasting Service Act to create an R rating of games and legalise their importation. The bill proposes that the R rating will be introduced on the January 1, 2012. It is likely that the bill will successfully pass through both houses of parliament, although there is a possibility of delay following its having been called to an inquiry by an investigative standing committee. Finally, to be effective the changes will need to be implemented on a state level. So those of us who support the rating are cautiously optimistic.

Why am I cautiously optimistic? Draft guidelines for the R18+ rating were released last year. (http://www.classification.gov.au/www/cob/classification.nsf/page/informationcentre_proposeddraftguidelinesforr18+computergames) They allow for drug use, nudity and realistic simulation of sexual activity – none of which is surprising. They will also allow violence permitted, except for “high impact violence, that is, in context, frequently exploitative and offensive to a reasonable adult will not be permitted” (p12, Proposed Draft Guidelines). We can not yet know whether this will continue to cause “Refused Classification” ratings to be given to games such as “Mortal Kombat”, and likely will not until the board starts classifying R-Rated games. Despite this, those of us who are keen on a bloody round against a foe from the Outworld for the fate of the very Earthrealm itself have cause to hopeful after these recent events...

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Games Law Round-Up: January 2012

noreply@blogger.com (Jas Purewal) — Sun, 05 Feb 2012 21:32:00 +0000

There's so much going on these days in games law, I don't have time to write about everything sadly. So, I thought that every month or so I'd do a round-up of the notable developments. Here's the first one - let me know what you think...

It has been a BUSY start to the year in the world of games law. Here's the highlights from January, in no particular order:

(1) BETHESDA AND INTERPLAY SETTLE THE FALLOUT LAWSUIT

I've been writing about this lawsuit since way back in September 2009 (latest post here) and now it is finally over. The essence of the lawsuit was that Interplay used to own the rights to the Fallout series of games, sold them to Bethesda but kept the rights to make a Fallout MMO under certain conditions, which Bethesda claimed Interplay had failed to comply with - and therefore the rights reverted to Bethesda. Now, after a fairly bruising and long-running lawsuit involving a number of skirmishes, it seems that the parties have settled on terms favourable to Bethesda. Specifically, Interplay has given up any rights to the Fallout MMO and in return Bethesda agreed to pay USD 2m to Interplay- it's not clearly exactly what for (anyone know? legal costs maybe?) Overall, I think this is a real victory for Bethesda and a monument to its tenacity in litigation despite preliminary setbacks. Fingers crossed this does no longterm harm for the Fallout series (or Interplay).

(2) MONUMENTAL GOES INTO ADMINISTRATION

UK developer Monumental went into administration early in the year - a sad start to the year. Unfortunately, I don't think that's the only developer collapse we're going to see this year either. For those who are interested are affected by this, here's some more information about administration.

(3) CODEMASTERS EMPLOYMENT ~~LAWSUIT~~ COMPLAINT

A UK games programmer has taken legal action against his former employer, UK publisher Codemasters, over a series of allegations regarding crunch and overtime. UPDATE: @gamecounsel has pointed out that actually it's not a lawsuit he's pursuing, but rather a complaint to "the relevant government bodies"

(4) US PATENT REFORM

Two of my legal brothers wrote this article on Edge about the impact of US patent law reform on the games industry. Personally, I'm unconvinced: patents are important to the games industry but I don't think these particular laws are going to do a great deal of note as far as the games industry is concerned (apart from maybe making life a bit harder for patent trolls). Anyway, check it out if you're interested.

(5) SOPA

You all know what I'm talking about. Here's what I thought about it.

(6) MEGAUPLOAD

The USA is going medieval on Megaupload's ass it seems. US federal prosecutors have charged its founders with a number of criminal offences, are seeking to extradite to the USA and have taken Megaupload itself offline. Clearly, it's all about allegations that Megaupload is involved in facilitating content piracy. This has the strong potential of becoming another Pirate Bay lawsuit. It's also unlikely to be particularly helpful to those calling for stronger anti-piracy laws, given that the Megaupload operation took place just days after the latest setback for SOPA (arguably demonstrating that stronger laws aren't needed). Personally I don't think it's as simple as "Megaupload = no stronger laws needed", because I'd imagine the action being taken here is very complex and expensive, and therefore not easily done many times a year.

(7) POPCAP CLOSES BAKING LIFE - WHAT HAPPENS TO THE VIRTUAL GOODS?

Popcap decided to close down its poorly performing social game Baking Life and made it clear to their ~750,000 monthly average users that they wouldn't have any further access to the game after 30 days, including to any virtual goods/currency they'd bought. It reminds me Zynga's decision to close down Street Racing (another social game featuring virtual goods which was shut down), which my friend Nicholas Lovell wrote about here. The closure of both Baking Life and Street Racing raised questions about the legal ramifications of shutting down users' access to virtual goods.

(8) Mega Bloks and Lego are having a legal fight over the importation of Halo Mega Bloks toys into the USA

(9) NCSOFT V BLUEHOLE

NCsoft are suing Bluehole, the developer of MMO Tera (and made up of former NCsoft employees), alleging that Tera is made up of trade secrets and proprietary material taken from NCsoft without authorisation. Sounds like a fairly straightforward commercial dispute, albeit one that would dictate whether Tera is released or not - I'll keep an eye on it for you. Aren't I nice?

(10) ESA finally gets some legal costs back after that silly violent games case

(11) SPRY FOX SUES LOLAPPS OVER GAME CLONE

Here's the basic details and here's some thoughts from Kevin Dent on the case. So Spry Fox made Triple Town, LOLApps entered NDA'd discussions with them regarding publishing it, then LOLApps broke the discussions off and released its own cloned version of Triple Town, Yeti Town. Spry Fox decided they weren't going to take that lying down and commenced proceedings against them. I await the outcome of this case with great interest. If it was to progress all the way to trial, it would bring two very important legal issues before a judge: (1) whether copyright law permits game clones; and (2) the extent to which a NDA in general terms protects disclosure of information regarding a game, particularly when that information is then misused to create a competing game. I'm going to be writing more about game clones soon so I shan't say more on that subject right now. What I will say though is that, right now, the position doesn't seem great for LOLApps. Still, it's early day: we'll know more ofc if/when LOLApps' legal defence is published - until then, we only have Spry Fox's version of events.

(12) 3D printing: a new front in content piracy?

(13) GOOGLE'S NEW PRIVACY POLICY

Google has done something really quite interesting: they've unified all of their 60+ historic privacy policies into a single document, which attempts to set out in one place how Google will treat the privacy of its users. As fellow games/media/tech lawyers will know, how large companies approach data protection and privacy is an increasingly important and complex subject, given both the increasing use of data as well as the lack of common standards across the key global markets (even the EU is pretty fragmented although that is changing). Some companies go for a country by country approach, but that's really very cumbersome for more than a few countries. Others try a regional approach, e.g. USA and then EMEA etc. But Google is one of the first to try a single policy for all its products. Not everyone like it - Microsoft seems unhappy, for example. I suspect pretty much everyone interested in privacy, including the world's privacy regulators, will be looking at it closely too. I'm sure we'll have more on this during the year.

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A quick guide to the EU data protection proposals

noreply@blogger.com (Jas Purewal) — Thu, 26 Jan 2012 11:43:00 +0000

This week the EU proposed a major overhaul of its data protection. As the largest trading bloc in the world, what the EU thinks about data matters. Here's a summary that my firm, Osborne Clarke, prepared:

All organisations hold and process personally identifiable data – not least about their staff, customers or suppliers, or all three. In Europe how this data is handled has been regulated by data protection laws since the early 1980s. Those already complex laws are set to be shaken up by the European Commission (EC) which on 25 January 2012 announced a radical overhaul of the Data Protection Directive.

If adopted the changes will have a huge impact on all organisations with European facing operations, as will the suggested penalties for those who get it wrong. Large fines (up to 2% of global turnover have been proposed) are being lined up for local regulators to impose on non-compliant organisations.

In short, the new laws will:

increase the regulatory burden on organisations with European operations
increase the amount of time, money and personnel required to achieve compliance
raise the stakes, in terms of potential fines and brand damage, which could arise from non-compliance

Once the EC's proposals have passed through the European parliamentary system, because they are in the form of a "Regulation" they will have direct effect in every EU Member State with minimal further scope for debate, or rationalisation. While a more harmonised data protection regulatory landscape sounds appealing, the uncompromising approach taken by the EC's draft Regulation is a cause for concern for business.

Key points proposed by the EC's draft Regulation include the following:

(a) Fines – national data protection regulators will be given the ability to impose significantly higher fines of up to 2% of global turnover where basic knowledge/consent obligations or requirements to adopt good policies and procedures are not followed.

(b) Data Protection Officers (DPO) – private sector companies with more than 250 employees, or whose core activities involve regular monitoring of individuals, as well as public authorities will all be required to formally appoint a DPO. The DPO must be empowered by their organisation to act as an independent assessor of its compliance with data protection laws and report to the board of directors in doing so. The Regulation specifically requires the DPO to co-ordinate data protection by design and privacy impact assessment initiatives (see below for more details on both) and to be responsible for data security initiatives generally. Responsibility for training staff is also mentioned as important. In short, the DPO must ensure that his/her organisation has adopted good data governance policies and procedures.

(c) Audits, data protection by design and privacy impact assessments – organisations will be required to demonstrate that they have undertaken regular data protection audits and privacy impact assessments (PIAs) using recognised industry standards (such as ICO's PIA criteria). Key will be demonstrating that new processing systems and activities have been only introduced after privacy compliance and risk mitigation steps have been implemented. A key role of an organisation's DPO will likely be co-ordinating such privacy by design initiatives. Regulators can designate processing activities in respect of which organisations should always proactively run a PIA before processing commences. The Regulation sets out a starting point list which includes any activities using data about an individual's "economic situation, location, health, personal preferences or reliability of behaviour".

(d) Security breach notification – organisations will have to notify data protection authorities within 24 hours of establishing that they have suffered a data breach or explain why it is not possible to provide full details of the breach. Slick internal procedures will therefore be required to verify suspected breaches and establish what has been lost or subject to unauthorised accessed.

(e) Expanded consent requirements – the EC's proposals include a radical overhaul of the level of consent that is required before organisations process data. At the heart of this change is the requirement that consent to use personally identifiable information should always be obtained in advance and on an opt-in basis before it is used. Thankfully the EC has pulled back from requiring parental consent to be obtained from under 18 year olds, as required by an earlier draft of the Regulation leaked in November. The bar is proposed at 13 in the draft Regulation published in January.

(f) Data portability – individuals will be given the right to demand that an organisation should transfer any or all information held about them to a third party organisation in a format which the individual determines. This increases the control that individuals have over data which identifies them and makes it easier for them to transfer business or employment relationships. It remains to be seen who will be required to cover associated costs of such an exercise, but it seems very likely that the transferring organisation will be expected to do so.

(g) Jurisdictional reach – the new laws will apply to anyone processing data in the EU as well as those outside Europe who offer goods or services to EU citizens. For a multi-national organisation, the location of its European HQ will determine which EU Member States' laws bind it, and which regulatory authority will have jurisdiction over it. That said, individuals will be given wider ranging powers to bring action personally against an organisation (either in the country where a non-compliant organisation is located or in the individual's local courts). Trade associations will also be empowered to bring class actions on behalf of their members. For the first time data processors will share equal responsibility and liability for compliance with the new laws raising the stakes for IT service suppliers.

(h) Data transfers – Europe's painful data transfer laws will be relaxed in that more options will be made available to enable organisations to share data with non-European third parties. Specifically, the policy implementation known as Binding Corporate Rules will be formalised as a mechanism enabling data transfer compliance, which is good news for multi-site, multi–national businesses.

(i) The right to be forgotten – individuals (children, defined as under-18 year olds, are mentioned in particular) will have the ability to demand that information published about them online is deleted and is not republished. Organisations which receive such a demand must take all reasonable efforts to inform other website operators of the existence of the complaint which they have received. The right, which is particularly relevant to social media businesses, is subject to some exemptions. These including one benefiting journalists publishing stories in the public interest, raising the question is a blogger or someone who posts an opinion on a website a journalist? But questions remain about how practical the regulation is and who would bear the costs of complying with it.

For more information about the proposed amendments to Europe's data protection laws or for a copy of Osborne Clarke's guide to complying with them please contact James Mullock (james.mullock@osborneclarke.com) [Jas: you can read more about what James thinks about the new proposals here, here and here]

What does this mean for the games industry?

If/when these proposals become EU law, in theory they will apply legally to the games industry in the same way they apply to any other industry. In practice though I suspect these laws could be a particular headache for games businesses because:

(1) the modern games industry is built on data collection and use more than any other creative industry;

(2) the games industry hasn't historically worried too much about data protection (except maybe when something like the Sony PSN or similar hacks happen); and

(3) these reforms will in principle affect every business in the games industry, from indies through to the largest publisher. Yes, they'll hit the publishers hardest because they're the most substantial in size, but it's not publishers alone who would have to comply with these laws.

Example: most publishers would be obliged to appoint a Data Protection Officer since they have a headcount of >250. Indies don't and therefore wouldn't have the same obligation. BUT, both publishers and indies would have the same obligation to, for example, notify regulators of data breaches within 24 hours or give users the 'right to be forgotten'.

As a result, many commentators have already pointed out that these reforms have the potential to add a big layer of red tape to small businesses of all kinds in the EU. Whether that remains the case once this becomes law we'll have to wait and see - but any way you cut it, you need to know what's coming up for the future of data protection if you're involved in exploiting data.

In the meantime, if you want to understand how data protection law works at the moment and therefore what your legal obligations are right now, read this guide to data protection I wrote on gamesindustry.biz.

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Crowdfunding is amazing

noreply@blogger.com (Jas Purewal) — Mon, 23 Jan 2012 13:33:00 +0000

I've been thinking about crowdfunding for a while, and I was generally aware from industry stories and client experiences that it is an interesting way to get funding for games. Besides which, I'm interested in how best to make it work legally (more on that later). Then I was asked today to look into some notable examples of crowdfunding for games. 5 minutes into a Google search on the subject blew me away and I felt I should share some of what I found with you. Here's just a few examples:

Warballoon Games (USA) raised $20k in 5 days for “Star Command”
Zero Point Software (Denmark) raised over $125k for “Interstellar Marines”
Six to Start (UK) had a target of $12,500 for “Zombies, Run!” but actually raised $73k
Rik Falch (USA) had a target of $13,000 for his “D-DayDice Board Game” but actually raised $172k

It's not just about record-breaking statistics either. We should bear in mind games like The Indie Stone's Project Zomboid, where devs are able to make a game via alpha-funding. The best example of alpha funding though is probably Minecraft (don't think I need to say anything more than the name there - you get what I'm talking about!) Plus, there's some pretty ambitious crowdfunding projects. Slightly Mad Studios have launched their World of Mass Development for example, then you've got games like Nexus 2 (as of the date of this post, it has Euro 110k in funding but Euro 290k to go...)

All this is amazing, especially when you consider the sheer amount of time and energy that goes into every other form of fundraising for a games business, like bank lending or angel or venture capital investment. Sure, crowdfunding alone won't fund many businesses, and I'm sure there's plenty of failed crowdfunding proposals, but it's clearly a serious option to consider when making your next game.

That said, because this is a legal blog, I'll have some legal suggestions to make about what to bear in mind when crowdfunding your next game - it's an awesome funding channel you should be making use of, but it's not free money either. More on legal tips for crowdfunding soon - watch this space...

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What happens when a game with virtual goods closes?

noreply@blogger.com (Jas Purewal) — Mon, 23 Jan 2012 12:17:00 +0000

This is a post by Jas and Jonny Mayner.

As reported last week (see here and here) casual game developer ZipZapPlay (owned by PopCap since April 2011) will be putting up the “Shop Closed” sign at Baking Life on 31^st January 2012. The Facebook game reportedly once attracted 6.7 million users per month, but at present only around 760,000 users are rolling their virtual dough each month.

Speaking of virtual dough, in a statement on the game’s Facebook page, ZipZapPlay have told users that “All virtual currency (Zip Cash) and virtual items will be lost after January 31st. Any remaining Zip Cash (even if it was purchased and unused) is not transferable between or among different games or applications and is not redeemable for any sum of money or other monetary value.”

This has led to familiar grumblings on forums and news sites about the legality of cutting off access to virtual worlds, including virtual goods and currency that gamers have invested time and real money in accruing. So we thought we'd think about this: what are the legal implications if a game which sells virtual goods closes?

The legal bit:

Gamers' relationship with the developer, including regarding virtual goods in a game, is typically set out in T&Cs, which as a rule are pretty clear about who owns what. For example, in the ZipZapPlay T&Cs, the very first paragraph is headed “Limited Licence to Use; Ownership” and reads:

"Unless otherwise specified, the Baking Life App, virtual currency, virtual items, all content, text, graphics, logos, button icons, images, audio clips, digital downloads, data compilations, and software contained on the Baking Life App (collectively the "Materials") are the property of ZipZapPlay, or their suppliers, ... You may access and use the Baking Life App and the Materials only for your personal and non-commercial use”. (underlines added)

In other words “we own all this stuff but you can play with it”. There are plenty of other examples throughout the Terms whereby ZipZapPlay are pretty clear that money paid for virtual currency is non-refundable and that they can deny access to the game for any reason. This is pretty standard in the games industry: pretty much any game which uses virtual goods/currency will say something like it.

So, legally, what could consumers do about it when a game closes down and shuts off their access to virtual currency/goods?

(1) Argue that they have property rights in the virtual goods

The main problem is the absence of a proper cause of action or legal basis for a claim. As discussed on Gamer/Law previously, issues of virtual property and virtual currency have to date been considered to be matters of contract law (although any alternative view has not been tested in front of a court so we don’t know their legal status for sure). The relevant contract in this instance is the Baking Life Terms of Service which users accept before they can access the game and which incorporate the End User Licence Agreement between ZipZapPlay and each user.

So, a developer in this situation would point to the contract and says that resolves the matter entirely: gamers have no rights in virtual goods, end of case. But the gamer would need to persuade a judge that the contract alone cannot be the answer – the fact that the gamer has been sold virtual goods means that he/she has acquired some kind of additional property rights, meaning the game can't just be shut down. At most, they should have continued access to the game and at the least they should get compensation. But that would be a tough argument to run, given the lack of any legal precedent. Still, sooner or later, we're likely to see something like it being run…

(2) Argue the contract is unfair

Many countries have consumer protection laws which make certain contracts with consumers void in certain situations. EU law in particular has a powerful consumer protection regime, which among other things makes contract terms that cause a "significant imbalance" in the supplier/consumer relationship void unless they are "reasonable". This could apply to a term in game T&Cs that allows the developer to close the game just like that.

Would that convince a judge? We don't know, since it's never been tested and – more generally – the application of those consumer protection laws to digital products is pretty untested too. That said, there's at least a fighting chance that it could work.

(3) Other legal means

There may be other legal means that a gamer could pursue, for example to claim that the advertising/marketing of the game was unfair/illegal if in fact access to virtual goods could be shut down at any time, or possibly to argue that the developer made some sort of misrepresentation to encourage him/her to agree to the T&Cs. If ZipZapPlay somehow represented to users that they would in fact have property rights over their virtual goods and virtual currency held on account (and there’s no evidence of that), and if users relied specifically on that representation when deciding to accept the Terms, play the game and hand over real money, then those users might have a claim in misrepresentation. So that’s a few “ifs” adding up to a “might”. Tenuous stuff.

What does all this mean?

It means that, at the moment, developers could close down a game and all access to virtual goods in it, at any time and without offering any compensation, and any legal challenge against it would be difficult. But it is only difficult because there is no precedent – it is entirely possible that someone could mount a test case against this kind of thing at any time. In fact, tests cases have previously been started but not finished: similar issues were raised in the Evans v Second Life case in the U.S. and we’ve not heard anything about that for a while.

Sooner or later, the games industry is going to have to tackle the issue that they are promoting the purchase of virtual goods and currency without actually giving much legal comfort to consumers against them. Clearly, exactly how far that protection should go can fairly be debated and will depend on the kind of game and virtual good – but it still needs to be discussed. Otherwise, we might find judges and regulators getting involved.

In the meantime, expect more game closures and more complaints. Sometimes that might lead to the developer making offers like Zynga did when it closed down Street Racing, sometimes it might just fizzle away – but sometimes it might lead to a legal fight. [Jas: personally, I suspect that would be a legal fight in the form of a class action lawsuit by lots of people affected by the loss of their small-value virtual goods, like if a game closed, or possibly by a single person affected by loss of access to a very high value virtual good – e.g. the $330k value Crystal Palace Space Station in Entropia Universe)].

Would this really happen? These days, I don't even bother with people asking me whether virtual goods could really ever be the property of a user. I just point them to this case of a UK man being JAILED for stealing Zynga Poker chips.

More generally, think about this: given that a big part of the appeal of these titles is the creation and control of an ongoing world (be that a bakery, kitchen, farm or something else) how many customers will be motivated to spend any more time in that world with a closure date looming? Baking Life players are being directed to other PopCap titles, but there are bound to be a lot of customers out there whose disappointment at the loss of a favourite game will be compounded by the nagging sense that investing time and money in social games might just be a waste of both. If these sorts of title sunsets occur with any regularity will customers move away from buying virtual goods altogether?

[Postscript by Jas: I realise of course that this definitely isn't the first game featuring virtual goods to close down - even in the last few years, the social games giants have killed off plenty of underperforming games featuring virtual goods. Our thinking behind this post was more to show what the arguments would be if there was a legal fight over such a closure, as well as to suggest more generally that we think the time is coming when there will be more of those legal fights than we've seen so far. That will very intimately be bound up with how virtual goods themselves are being used ofc - as we've noted before, social games virtual goods have been treated different to virtual worlds virtual goods for example.]

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Some thoughts about SOPA

noreply@blogger.com (Jas Purewal) — Wed, 18 Jan 2012 16:57:00 +0000

I don't need to tell you all what the US Stop Online Piracy Act is about, because the Internet has talked about nothing else for the last few days (or at least, those parts of the Internet which haven't been closed in protest against SOPA). It caused a great, great deal of controversy, far more than the UK's Digital Economy Act ever did. Now it has been put on ice until "consensus" can be reached.

This is a short post with some thoughts from me about SOPA. For anyone who might be in doubt, I was opposed to SOPA, for the reasons I set out below. That said, I thought it might be helpful to actually read SOPA and give you some legal comments about it. Here goes...

How SOPA would work:

The stated objective of SOPA was to tackle websites which are "dedicated to illegal or infringing activity", but which are outside the USA's legal reach (i.e. they're based outside the USA geographically). Based on my reading of the draft legislation, it would work something like this:

(i) A rights holder (e.g. a movie studio or games publisher) and/or the US government identifies a site involved with illegal or infringing activity.

(ii) It can then notify the support network around that site – e.g. ad networks or payment providers but also ISPs – to cease supporting the site.

(iii) The support network then decides whether to cease supporting the site and/or sends a notification to the site.

(iv) The site can then send a counter notice explaining why it objects to the original notice from the rights holder (i.e. why it shouldn't have support withdrawn).

(v) The rights holder can then sue for a court order banning anyone assisting the site. If the rights holder wins, then in practice it can shut down or starve out the site.

(vi) The site's main protection is that it can sue for damages if it is "knowingly misrepresented" to be involved in illegal/infringing activity.

My main (legal) problems with SOPA are these:

(1) it circumvents due process, by effectively encouraging the support network around a web site to withdraw its support and then deal with the consequences later - rather than testing it out in court.

(2) there are already legal mechanisms in place to deal with websites that in any way involve or encourage content piracy - I've not been persuaded, nor seen any evidence, that additional powers are needed.

(3) The actual wording of the draft legislation was far wider than its stated objectives. I'd encourage that anyone interested in this point actually reads the draft legislation rather than relying on press reports/commentary about it. You can find it here: http://www.opencongress.org/bill/112-h3261/text.

I deal with legal wording all the time and I can see that the draftsman tried to cut down the ambit of the legislation somewhat, principally by peppering the key clauses with the phrase "an Internet site dedicated to theft of US property", which it defined at length as follows:

"Section 103:

1) DEDICATED TO THEFT OF U.S. PROPERTY- An ‘Internet site is dedicated to theft of U.S. property’ if--

(A) it is an Internet site, or a portion thereof, that is a U.S.-directed site and is used by users within the United States; and

(B) either--

(i) the U.S.-directed site is primarily designed or operated for the purpose of, has only limited purpose or use other than, or is marketed by its operator or another acting in concert with that operator for use in, offering goods or services in a manner that engages in, enables, or facilitates--

(I) a violation of section 501 of title 17, United States Code;

(II) a violation of section 1201 of title 17, United States Code; or

(III) the sale, distribution, or promotion of goods, services, or materials bearing a counterfeit mark, as that term is defined in section 34(d) of the Lanham Act or section 2320 of title 18, United States Code; or

(ii) the operator of the U.S.-directed site--

(I) is taking, or has taken, deliberate actions to avoid confirming a high probability of the use of the U.S.-directed site to carry out acts that constitute a violation of section 501 or 1201 of title 17, United States Code; or

(II) operates the U.S.-directed site with the object of promoting, or has promoted, its use to carry out acts that constitute a violation of section 501 or 1201 of title 17, United States Code, as shown by clear expression or other affirmative steps taken to foster infringement."

I don't think it needs a great long legal analysis from me of the meaning of that passage above for us to see that, in fairness to the drafters of SOPA, they made an effort to cut down the scope of the Act. Clearly weren't intending some kind of Wild West scenario where they can take aim at any web site they like - they were trying to focus upon sites which are basically built for content piracy and nothing else. BUT, the big problem is that the wording is still too wide. Worse, if it became law, the interpretation of the wording would pass to rights holders (who would actually take action first) and then pass to a judge only if the web site objects and forces the rights holder to take legal action.

In other words, my problem #3 re the wording with SOPA is this: it wasn't as bad as some folks made out, but it was still bad enough to cause a real problem.

[It's also worth noting that other opponents of SOPA would add two more problems with it: (4) that it restricts free speech; and (5) legal action is not the solution to piracy. As to (5), as readers will know, I've defended the right of rights holders to take legal action to defend themselves if necessary but equally I think that's just ONE option that we can take - there are lots of other, better routes we should follow too, like better technological/business models]

Anyway, as I said, SOPA has been killed off for the time being. Its US Senate cousin, PIPA, may or may not be put on ice as well - let's see what the next month or so brings.

How does this matter?

Clearly if SOPA had come into being then it would have handed a new and powerful weapon to rights holders, which could quite possibly have been misused in the wrong hands. The setback to SOPA is clearly a victory for its opponents - but SOPA and its ilk aren't dead yet. On the contrary, the tide of legal change over the last year or so has very much been on the side of those in favour of piracy laws. For example, the Digital Economy Act passed in the UK back in 2010 gives the UK government the power to take steps very much like those in SOPA - but it hasn't activated them yet. In the meantime, rights holders have taken to court action - such as the successful attempt to force BT to block access to Newzbin. In France, as another example, the government has pressed ahead with its controversial HADOPI legislation. There have recently been similar attempts or an ongoing process in countries like Canada and Australia, too.

They, and laws like them, won't go away anytime soon. That said, as I set out in my 2012 predictions earlier this month, I'm hoping that this year marks the high water point for the kind of attitude that thought wide-ranging laws like SOPA were ok, and instead we see a new approach which combines an evidence-led approach to piracy combined with an understanding that legal action is just one of many options (and possibly the action of very last resort). We also need laws that balance the interest of large rights holders with those of small rights holders, consumers and others in the Internet ecosystem. Piracy is important, and it needs to be dealt with, but worrying about piracy alone and only taking legal action over it can't make good content and it won't make for a good business, either.

To round off, I thought I'd quote my favourite of the high profile responses to SOPA, that of Jimmy Wales of Wikipedia, who I thought was closest to my thinking regarding SOPA and the legislative approach it represents:

"Proponents of SOPA have characterised the opposition as being people who want to enable piracy or defend piracy...But that's not really the point. The point is the bill is so over broad and so badly written that it's going to impact all kinds of things that...don't have anything to do with stopping piracy."

What is administration?

noreply@blogger.com (Jas Purewal) — Tue, 10 Jan 2012 15:18:00 +0000

Last week I wrote my ten predictions for the games industry in 2012. One of them was that we would see more developer collapses in 2012. Sadly, that's already taking place, with news today that UK developer Monumental Games has gone into administration.

I thought you might find it useful to know a little about administration, which is the most frequently seen form of insolvency proceedings for businesses in the UK. Here's what I said when speaking with Gamesindustry.biz back in 2010:

Q: What is administration?

Administration is a legal process which comes into play when a company finds itself in severe financial difficulties - and specifically when it finds it's no longer able to pay its debts and continue as a going concern.

In those circumstances either the creditors or directors of the company - or the courts - can appoint an administrator. This is a licensed professional, usually an accountant, whose job it is to take over the trading of the company.

There is then a hierarchy of objectives that he or she then has to try to attain. The first is to try and rescue the company - to take control of it, find out where the inefficiencies and problems are, and turn it around.

If, however, that's not possible then the administrator has a duty to look into trying to achieve the maximum possible return for the creditors - either by way of selling the company on and paying them out of proceeds or breaking the company up, and again, trying to make the most out of it.

In the worst case scenario there could be a fire sale, to sell anything you can in order to make money to pay those people owed. In those circumstances the process changes from administration to liquidation.

Q: How does a company decide when it's necessary to enter administration?

There are two key legal tests - the first is whether the company is able to pay its debts as they fall due (creditors, supply partners and so on); the other is whether its assets have become less than its liabilities, ie taking the company as a whole, is that still lower in value that the amount it owes to other people?

In reality there's a great deal of investigative work that needs to be done with your accountants or lawyers to work out whether or not the company can continue or not.

Q: And who does the administrator actually work for?

Although they can be appointed by different interested parties - perhaps a substantial creditor or the directors - the administrator answers to the court. They have responsibilities to both the court and the creditors of the company as a whole.

What that means is that when appointed the administrator has to put together proposals for what it wants to do with the company - and they then have to be voted on by the creditors or representative committee.

So they're not acting for themselves, or necessarily for the person that appointed them - they're acting for everybody that who is involved with the company.

Q: In terms of timescale for wrapping up administration proceedings, are we talking days, weeks, months or years?

It really does depend upon what kind of deal there is on offer for the company. Sometimes you see administrations being turned around extremely quickly if there is a buyer who's standing by to take over the whole of the company. That does happen sometimes, in a matter of days.

However, if there isn't already someone standing by then it can take quite some time, both for the administrator to work out what's going to happen to the company going forwards, but also to liaise with the creditors to make sure that the people who need to be paid can be paid - and that includes creditors as well as employees.

It can take days, but sometimes it can can months or years. It really depends upon the company in question and how valuable an attraction it is for the market.

Q: What sort of rights do employees have in terms of unpaid wages or benefits?

There are certain legal minimum amounts that the employees will be entitled to, but that depends on their exact employment status, how long they've been with the company and factors like that.

But those minimum amounts are protected by law, in that if the company isn't able to pay them then the employees will have a limited right to effectively seek those amounts from the government.

Q: What happens if a partner or supplier enters administration?

If a partner or supplier of your business faces financial difficulties or even insolvency proceedings (of which administration is one type), it's vital that you consider your legal position regarding them as soon as possible. This will usually focus upon the contracts and documentation in place as well as your trading relationship with them. In particular, well-drafted contracts will contain provisions setting out the procedure to be followed if one party is likely to or actually enters insolvency proceedings.

You should also consider carefully the asset position - ie what stock or monies of yours do they hold (or vice versa), what impact could this have on your business and what do you do about it? These can raise complex legal matters, so you would be well recommended to seek legal advice as soon as possible in order to protect your position.

You can read more about insolvency (for companies) and bankruptcy (for individuals) in the UK at http://www.bis.gov.uk/insolvency.

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On piracy

noreply@blogger.com (Jas Purewal) — Mon, 09 Jan 2012 11:20:00 +0000

About this time last week I wrote the second of my monthly columns on Edge, this time about defending the rights of developers to take legal action against pirates of their games. You can read it here. The genesis of the post was me reading about CD Projekt, developer of The Witcher 1 and 2, deciding to take legal action against pirates of its games, as well as some recent appalling statistics published by Torrentfreak about piracy of PC and console games in 2011. This made me decide to write about two things: (1) my views that the arguments opposing legal action vs pirates aren't actually that good; and (2) that I feel really sympathetic for developers like CD Projekt and Crytek, whose bottom line has been savaged by piracy. Anyway, so I wrote the column. Then the Internet got a bit excited for a day or so.

The Escapist wrote a nice piece here; Kotaku wrote a pretty negative piece here. My friend Will Luton of development studio Mobile Pie wrote his rejoinder to me here. And there was a lively discussion on Twitter, some useful extracts from which I thought I'd set out at the end of this post (see below).

Clearly everyone has different views about piracy and how to reduce it: the purpose of my Edge column was to point out that legal action is one, valid route, and that the arguments against using it don't really stack up in my view (although equally the way it's been deployed to date haven't been great either). On the other hand, as I've said time and again on this blog, generally legal recourse is one important option open to games businesses BUT it can't build a good business for you - only you can do that. That's why technological solutions and innovations in business models should be the real focus, supplemented by the law when necessary.

Anyway, enough from me. Read what others said (for those of who you were engaged in these Twitter discussions, thanks and I know the below only has a fraction of what we talked about - but hopefully it's some of the helpful bits for other people):

Gamer/Law's ten 2012 predictions

noreply@blogger.com (Jas Purewal) — Mon, 02 Jan 2012 13:27:00 +0000

You’ve guessed it: I thought I’d jump into the it’s-a-new-year-let’s-make-some-predictions business for 2012. And, like all forward-looking predictions, I’ve mixed a few safe bets with some slightly more “punchy” predictions (which FYI is lawyer-speak for taking a massive bet on something!) Here goes, in no particular order:

(1) At least one celebrity will win substantial damages against a publisher

Consider the field. Back in 2008/2009 a whole bunch of US football players won about $28m in damages from EA over their unauthorised appearance in John Madden football games (reduced on appeal) and there’s still other celebrities either considering or taking legal action over their appearance in sports games – including an ongoing class action lawsuit brought by former college atheletes. Axl Rose is suing Activision over Slash’s appearance in Guitar Hero. No Doubt are also suing Activision over their appearance in Guitar Hero. A Cypress Hill rapper sued Take Two over his alleged unauthorised appearance in a Grand Theft auto game. Lady GaGa sued Mind Candy over their release of a song by Moshi Monsters character Lady GooGoo.

The games industry is realising the power of brands, especially celebrity brands. Celebrities are realising the power of games as a revenue generator and promotional tool. Sooner or later, this is going to lead to a big problem. The examples above are largely near misses or still-brewing problems: I think one of them, or another like them, is going to lead to a serious collision in 2012.

(2) The Infinity Ward lawsuit will go to trial and be ENORMOUS.

Read this interview with me here for details. The trial will likely take place sometime around mid-late 2012 I’d guess – assuming it doesn’t settle first. My totally speculative bet is that, given the amounts and issues at stake, it really should settle – but it won’t, because of the personalities and personal comments that have become involved. Then again, as I’ve said many times before, lawsuits are a real rollercoaster so who knows what will happen...

(3) The legality and ethics of free to play will be a big issue in 2011.

I’ve been influenced by my friend Nicholas Lovell of Gamesbrief on this issue – read his post here. I’m going to be speaking and writing about this a fair deal more in 2012, so watch this space. In the meantime though, the short version is: the more that f2p focuses on influence/compulsion mechanics to get player to cough up dosh, the greater the legal and ethical risks it can raise – including the potential for regulators to start getting involved. Stories like a UK child running up £900 in debt on Farmville for his mum or a US child running up $1400 on Smurfville don’t really help.

(4) There will be more class action lawsuits...and no one will care.

There have been lots of class action lawsuits over the last 2 years or so in the games industry. There was the Madden lawsuit I mentioned earlier (and there’s other class action lawsuits over Madden ongoing atm too). There was the Other OS class action lawsuit (since dismissed in Sony’s favour). There has since been another class action lawsuit against Sony following the fallout from the PSN outage this year. There were class action lawsuit over Facebook and Zynga over privacy issues. And so forth.

This is what they all had in common: no one really cared, apart from the defendants of the lawsuits. This is a shame: whether you agree with these class action lawsuits or not, they’ve clearly had an impact on a wide number of players in the games industry and it’s a pity there hasn’t been more attention drawn to them (both to those lawsuits which raise legitimate grievances as well as to those which are just money-grabbing). So, I wanted to use this prediction to both show that there will be more such lawsuits in the industry in 2012 – and that most people will ignore them.

(5) Data privacy will continue quietly to become one of the biggest issues in the games industry...and again no-one will care.

People are really motivated by data privacy protection. We’ve seen that with the problems encountered by the search engines and social networks regarding their use of data harvested from their users – Facebook above all. The modern games industry, especially mobile and social games, is built on constant data collection. With a few honourable exceptions, the majority of the games industry doesn’t care a great deal about protecting that data. This is going to be a problem.

In fact, it’s already a problem, but it’s going largely undetected in public so far. Behind the scenes, savvy games developers and publishers will be looking at how they use and protect user data in 2012, but the majority won’t. At some point, this is going to blow up – possibly worse than it did for the search engines/social networks.

(6) Virtual goods will creep towards full legal status, but won’t get it (yet).

In 2011, a man was successfully criminally prosecuted in the UK for effectively stealing virtual goods. This involved recognising that virtual goods are property (I called it at the time the “first virtual goods crime”). Similarly, in a lawsuit in Holland a court was invited to accept that virtual goods are property and therefore capable of being owned by players.

As this blog has argued previously (see here and here for example), there is a real issue over whether virtual goods should be considered goods (i.e. property) or just services: Gamer/Law’s views are that they are at least capable of being property, which would have huge implications for how virtual goods are treated in games at the moment. The examples given above are good indications that this question is slowly being answered: I expect to see more of this in 2012, but we’re still some distance from any kind of authoritative answer.

(7) Multiple developers (possibly even publishers) will go into insolvency – leading to a renewed focus on insolvency law.

There was a lot going on in the developer world in 2011. Several developers told me they expected life to be hard in 2012 and that some of their competitors would not make it. I agree, sadly. Hard economic times, aa lack of games funding, developers focusing on the wrong kinds of games and the sheer amount of competition all mean that times are going to get tougher for developers next year. Publishers aren’t immune either: there are several mid-level publishers who are already in trouble.

As a result, my rather sombre and sad prediction is that we’ll see more insolvencies and layoffs from developers and possibly even publishers in 2012. As a result, there will be renewed interest in legal matters arising from a company going under, not paying its employee or its debts and what happens to its valuable assets (like its IP). On the plus side, I’d also expect to see a number of new studios arising out of their ashes, as has happened over the past couple of years.

(8) Indies will both cooperate and fight more with each other.

The market pressures I outlined above will also weigh heavily on developers who have the stamina to keep trading. As a result, I’m already seeing a whole range of different moves by indies to collaborate more with each other, from networking events to formal joint ventures. Equally, I’m beginning to see a rise in developers having legal fights with each other, either because the collaboration didn’t work out or because of freestanding issues like IP infringement. Expect more in 2012 – possibly even some high profile lawsuits between the new generation of successful developers.

(9) Games industry unionisation won’t happen...again.

Remember all that furore over the working conditions at Team Bondi and the various recriminations over it? There was various talk about whether developers should have a representative body to defend them in these situations – effectively, a union. Well, nothing happened. Nor has anything happened really with previous problems of this kind – check out for example this BBC article back in 2006.

So why is this worth a prediction? Because actually I think there’s something to be said for a representative body of that kind – whether it be an actual union or different national bodies (like TIGA or UKIE in the UK) taking on some of those responsibilities. Excessive crunch and other unsatisfactory working practices clearly do go on in the games industry, and a body with collective bargaining powers would be useful in bringing them to an end. But, for various reasons, nothing has happened so far in the games industry despite it being fundamentally similar to the film or music industries (both of which ofc are heavily unionised). Answers on a postcard why that’s the case and whether/when that might change...

(10) The high point of pro-film/music film IP laws will pass...but the games industry won’t be involved.

It’s fair to say that the majority of changes to IP law over the last decade have been far more influenced by the music and film industries than any of the other creative industries – including the games industry. This is ofc despite the sharp rise in the games industry’s size and profile relative to music and film over the last few years. This is a shame: the games industry has just as much to gain from a well-crafted set of IP laws worldwide as music and film do. But it just hasn’t got its act together.

In the meantime, I’m predicting that history will show (heh, what a pretentious phrase) that 2011 was the high point of pro-music/film IP laws (by which I mean IP laws which focus more upon protecting the interests of large IP rights holders rather than consumers or small IP rights holders) and 2012 was the beginning of a move towards a more balanced approach. For example, in the UK 2012 will mark the quiet shelfing of large portions of the aims of the Digital Economy Act 2010 and (hopefully) its replacement with a more sensible evidence-led approach (see my friend Jonny Mayner’s summary of the latest proposals following the UK Hargreaves Review here). In the USA, I’m (maybe rather boldly) predicting that the likes of SOPA will either be watered down or lawmakers will finally become aware that the majority of consumers don’t actually want laws like them. It’s just a shame the games industry had nothing to do with these changes.

So those are my ten predictions for 2012. Let’s see how right, or terribly wrong, I will be this time next year...

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What does UK IP reform mean for the games industry?

noreply@blogger.com (Jas Purewal) — Sat, 31 Dec 2011 16:50:00 +0000

This is a guest post by my friend and fellow lawyer, Jonny Mayner. IP law is pretty important to the games industry, since it governs the stuff that games are (legally) made of. Being a clever IP expert as he is, I thought I'd ask him to explain what the UK government is doing to update IP law...

Earlier this year the UK Government tasked a chap called Professor Ian Hargreaves with the unenviable job of reviewing the state of Intellectual Property law in the UK. The key question posed by the Government was "Could it be true that laws designed more than three centuries ago with the express purpose of creating economic incentives for innovation by protecting creators’ rights are today obstructing innovation and economic growth?".

Professor Hargreaves' answer ran to around 100 pages plus annexes, glossaries and extensive footnotes, but as he helpfully stated in his foreword "The short answer is: yes." [Jas: plus you can add to that the various shouting going on around the music, film and tech industries about whether IP law is fit for purpose anymore- like Larry Page's alleged claims to UK Prime Minister David Cameron that Google couldn't have been made in the UK due to its antiquated IP laws]

So what to do? Well, helpfully Professor Hargreaves made some recommendations on that front and in recent months the government, mostly through the agency of the Intellectual Property Office (IPO), has issued various consultations and reports on proposals for reform.

Read on for a summary of the current state of play and what they might mean for the games industry:

Copyright:

(1) Establishing a licencing and clearance system for orphan works – so that old IP can be put to further commercial and non-commercial use (orphaned works are copyright works where you can't work out who the owner is after a "dilligent search").

How useful is this going to be for games? We really don't know, but it seems less likely to be useful for games than it will for e.g. music or film. The reason for this is that, when it comes to an IP which could be turned into a game (eg a great classic book or a film) we'd guess you'll usually be able to work out who the owner is - so no issue of orphaned works arises. Plus, it's important to distinguish orphan works from abandonware: just because a title is no longer being commercially exploited (i.e. abandoned) by its copyright owner does not mean that it has been orphaned.

That said, maybe we're wrong. If any of you devs have wanted to make a game from an existing IP but couldn't find the owner, email us!

(2) Creating a private copying exception in copyright law – so you can e.g. carry on burning your CDs to iTunes without fear of being sued for it. Given that games tend to be platform-specific, allowing for format shifting of this type is not likely to impact the games world too much. That said, depending on how broadly the reform is drafted it may provide consumers with wider rights to copy their games than before. With that in mind it may be important for the games industry to make its voice heard in the consultation period lest the new law bring any nasty surprises.

(3) Creating a parody exception in copyright law – so that po-faced rights owners who can’t see the joke can’t sue under copyright law (at the moment, if you create a parody of a copyright work, you can be sued for copyright infringement even though you're trying to make a point for parody value, not actually copy/make money from the original). That always seemed like a silly state of legal affairs, but this reform should sort it out.

This reform will be good news for comedians, but I'm not sure if it will have much impact on the games industry- mainly because games don't really involve much parody. Still, it's worth knowing if you did decide go incorporate parody into your game that- eventually- it'll be legally ok in principle (though, as always, there'll probably be legal complications, eg you might intend a parody by making Chronic the World's Slowest Hedgehog, but if you sell it for money you may still get caught out by trade mark law…)

(4) Preventing the use of contracts to overcome exceptions to copyright law – so that a publisher can’t restrict users' statutory rights (including any new private copying right) by imposing restrictions in an EULA. This has the potential to introduce several changes to the drafting of EULAs, so watch this space...

Patents:

(1) Examining patent thickets as a possible barrier to market entry for small and medium sized businesses - a patent thicket is described in the IPO's preliminary report on the issue as "a dense web of overlapping intellectual property rights that a company must hack its way through in order to actually commercialize new technology". The report is sparse on specific proposals for reform and it raises more questions than it answers, but the fact that the government is looking at this at all may be of interest to games industry stakeholders of all sizes.

General: an evidence-based approach to future IP reform

One of the most important changes proposed by the Hargreaves review was a move to an evidenced-based approach to IP reform. On other words, we should only change IP law in response to issues that have been factually demonstrated to be real issues. Issues which people claim are issues, but which they can't factually prove to be issues, don't deserve legal change. Consider what that would mean for various changes to IP law to combat issues like content piracy in the past (answer: many of them would I suspect not become law, because demonstrating the financial impact of piracy and why it needs a LEGAL solution is infamously hard).

Professor Hargreaves clearly hoped the government would take this on board and therefore be cautious when it comes to future IP law change - here's hoping...

Next steps:

So what next? Well, the Government's consultation on copyright reform is open for responses until March 2012, so the games industry has until then to make its views known. On the patents front the IPO's report also moots the possibility of a consultation to gauge industry appetite for reform or views on any specific proposals.

What ISN'T being discussed:

The list is as long as your arm, but examples include:

- No general fair use defence to IP infringement
- No discussion of whether the current copyright term (generally 70 years after author's death)
- No proposals regarding cutting edge IP issues like legal treatment of user generated content or virtual goods
- No proposals to deal with patent trolls
- No proposed clarification regarding complicated issues like when a piece of content (eg a game)is a cloned from or 'inspired by' an original

Some of these matters aren't being dealt with because the UK government can't do it without accompanying EU legal change; others because the government just doesn't consider them sufficiently important yet. Some are more for courts than the government because they require interpretation of existing law, not new law. Unfortunately, these are some of the most important issues as far as the games industry is concerned.

As a result, our conclusion regarding the impact of the UK government's legal proposals on the games industry is: not that much, really. Which is a shame (although, given the games industry had by far the least involvement in IP reform compared to the other creative industries, that's maybe not a surprise).

Anyway, we're still at the consultation stage regarding these reforms, and there will be a lot more reform required over the next few years one way or the other. As always, watch this space for any developments that will affect the games world...

The Internet v CD Projekt: a Legal Perspective

noreply@blogger.com (Jas Purewal) — Thu, 29 Dec 2011 10:21:00 +0000

This is guest post by John Wrigley, a gamer and law student

As a law student and as an enthusiastic gamer, I can't help but have noticed the recent controversy surrounding CD Projekt. In case you haven't been following it, the story goes something like this: CD Projekt release The Witcher 2 without any DRM. Some people, as some people inevitably do, pirated it. Now CD Projekt are sending letters to people that they believe have pirated the game demanding a sum somewhere in the region of €750, with the backup threat of a legal suit if the person does not pay up. Many people are quite upset about this, including Mr John Walker at Rock Paper Shotgun, whose recent words on the subject you can find here and here. This post attempts to offer an insight into the legal position behind the events. What this article isn't about is creating solutions or settling the debate, its purpose is solely to try and raise awareness of the legal doings and beings and to maybe try to challenge some of the common misunterstandings about the way the law works.

The First Argument: CD Projekt are threatening the innocent

By far the most emotive argument that is often proffered is that CD Projekt are blackmailing people by saying “Pay up... OR ELSE!” and thereby are removing access to justice and denying due process and so forth. Sadly, from a legal perspective, the case seems to be slightly different. Granted, for CD Projekt to call this a “fine” (as they did in the posts linked above) is perhaps unwise. But the principle of what they are doing (and until we see an actual copy of their letters, we can argue over nothing else) is perfectly sound, at least within a legal perspective. One obvious problem is if people are intimidated by these letters, and that is obviously something to avoid, but again, without seeing any of the actual letters that have been sent, it seems far too soon to actually make any comments about it. What we do know about these letters is that what they are offering is an out of court settlement, something which is not only allowed but encouraged by the courts. When a case is open and shut (i.e. Person A says that Person B has done something and Person B admits to it) then there is absolutely no reason to go to court, no reason to waste time and money on lawyers, judges, buildings and so on and so forth. It is trite law that it is cheaper to settle out of court than to go into court and lose, especially since judges can (and almost always do) order the loser of a case to pay the costs of the winner. So if you haven't downloaded The Witcher 2 illegally and CD Projekt cannot prove that you have then actually the entire process won't cost you a single penny. You will only HAVE to pay if you are found guilty - if you are not guilty, it won't cost you anything to refuse to pay the initial settlement and if you are guilty, it'll be a heck of a lot cheaper if you do.

Of course, one problem with this is that people may wonder how they can convince a judge that they are not guilty. It should first be noted that if CD Projekt do take you to court, they have to prove that you downloaded the game, the only thing that you will ever have to try and prove is that their proof is wrong. This could actually be easier than anticipated, as IP tracing is far from a reliable source of evidence. It is entirely possible that someone has spoofed your IP or someone has downloaded using your insecure internet connection or someone in your household has used your internet connection to download it without your knowledge or consent. This last reason seems the least persuasive - by giving someone unrestricted access to your internet connection you accept liability for their actions - legally speaking there is no other workable system. It's the same with any service which you sign up for and which you give other people use of, at least from a civil perspective. The IP spoofing is much harder to get around and also much harder to prove and does provide a legitimate reason for concern.

The easy argument is that civil cases only require proof “on the balance of probabilities” (i.e. is it more likely than not that the accused did the thing he/she is accused of?) and if you think that this is wrong then we should be having a jurisprudential argument (the theory of law) rather than one about CD Projekt's practices. But that one is only convincing to a certain point and it certainly does us no help. Sadly, the evidential argument is out of the scope of this particular post and so I'm not going to try and offer any form of conclusive point about it. I will, however, say that I personally consider that the claims of thuggery and bullying are probably unfair (although of course this depends on the actual contents of the letters being sent), I would be loathe to accept the concept of a court accepting a simple IP trace from a torrent site as being conclusive. These cases will depend entirely on the facts that can be proved, particularly in relation to what method of proof CD Projekt actually have and it will certainly be interesting to see how they play out in court.

The Second Argument: The sum asked for is too high

Other comments being made are the fact that the money being asked for is considerably higher than the actual price of the game. This argument has been met in many different ways, all of which seem unconvincing. For the pros, people are saying “Well, it's something to dissuade people from pirating!” An argument can be made that this is outside the scope of what CD Projekt are entitled to do with their civil settlements. This argument has merit, but it IS within the scope of the court to issue compensation with this in mind and there is nothing against CD Projekt offering a settlement within that range. If the person being challenged thinks that a court will give a lower level of compensation, they are more than welcome to chase it all the way through the legal system.

Another argument is that the pirates should just have to pay the retail price of the game. This clearly doesn't make any sense because then you are punishing CD Projekt for demanding that they obtain a benefit for their burden - lawyers cost money, ya know. A more reasonable argument is that CD Projekt should ask for legal fees plus the cost of the game plus any reasonable damages that are due for the effort and whatnot that chasing them down costed. And actually, that's a brilliant solution. That is what they should be doing - that's the point of a settlement, after all. “This is the minimum amount of money that we KNOW we will get. Pay it and we won't bother trying to press for more - especially since we will probably get more.” Win win. Remember kids, compromising is fun!

The Third Argument: Piracy is not a lost sale

The third argument, and the most uncertain, is that a pirated copy does not equal to a sale lost. This is a huge topic and I don't want to do it injustice, so this discussion is simply a brief overview of the legal implications of this argument. On the face of it, it is true that piracy is a lost sale. There is absolutely no evidence to suggest that someone who has pirated a game would have actually bought the game. Indeed, I would be willing to suggest that actually, many people who pirate the game would not actually have bought the game - for whatever reason they have. This is where the law of equity (a particular branch of the law which deals with moral rights and prevents people from doing anything which might affect their conscience) steps in, which (in this particular instance) says that if the gain something for which you should have given something, you aren't allowed to argue that you shouldn't have to give what you owe. In other words, because you get to play their game, it's unfair that you refuse to pay for it. Obviously this is an extremely controversial topic, but it would seem hard to defend against this concept. Even if we argue that the equitable rule doesn't apply, the underlying principle that people should not be able to obtain someone else's intellectual property (indeed something that somebody has spent time, money and effort constructing) without giving something back is one which is hard to support.

One counter to this is the idea that piracy can actually lead to a sale. This situation is less clear cut - although you gain from playing the game, you do actually pay for it and so there is no equitable dillema. Maybe an answer to this is that if you can prove that you bought the game within some reasonable window (and you can prove it) then CD Projekt should be as happy to drop the case as they they are (or as happy as they claim they are) if you bought the game and then downloaded an alternative copy. Looking forward, maybe we should consider the return of the demo in some form or other. Ultimately, it's hard to find a good solution, and to attempt to do so would be out of the scope of this article, but it certainly seems reasonable for gamers to want a sample of a game before they sink money into it, especially as promotional material can only tell you so much.

Conclusion

This article is not a conclusive argument either for or against CD Projekt, but hopefully it offers a breakdown and analysis of the main arguments being offered and the responses to them, at least from a legal perspective. Regardless of if you think that this is a bad policy, please, Internet, please stop simply saying that CD Projekt are robbing people of due justice and perverting the course of legality. There is a legitimate case for CD Projekt to be claiming against these people, at least within our current legal system. People who pirate a game are obtaining somebody else's intellectual property without compensating them from it and the law says that this is wrong. A better place to argue would be if you think that, in a civil case, a person should have to prove something beyond all reasonable doubt, as they do in a criminal case, or if we should reform the way in which people are allowed to make or accept out of court settlements. Alternatively, there's a good discussion about if what Projekt CD are doing is good from a PR point of view or if they are doing the most constructive thing possible to combat piracy in the long run. There are lots of discussions that can be had surrounding this case, I just wonder if the one currently so predominent is slightly missing the point.

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