AGDC07: Emerging Legal Issues in Online Games

Liveblog — forgive the typos.

Greg Boyd, general corporate attorney, at Paul Weiss.

I have given fifteen of these talks in the last three years. I promise this one is different. The goals of this talk:

• Not to suck
• Give concrete legal info about emerging and old issues for online games
• Leave lots of time for questions

Roadmap (talk outline):

• general IP
• EULA/Privacy
• Contests and sweepstakes
• Startup to investment/sale

I have represented maybe 25 companies, from SOE, EA, Vivendi, to startups, for all sorts of things.

Patents

They protect inventions, are growing in importance, take 2-3 years thru USPTO, and cost around 12-22K to file for 80% of them. A bit ago there was an article in Gamasutra about how the toothbrush industry had an order of magnitude more patents filed than the game industry.

The patent fixes the date of your invention, so filing early means that it can block competitors.

The cost varies based on the complexity of the invention, and how much work you want to do.  The better the spec you send, and if there’s a few meetings, then the cost goes down. Send me a postcard, and it could cost up to $40k. It is hard to come in under $10k, but it is easy to get to $40k depending on what you want to do. Also, this is cost to file — not total cost. You could end up fighting a patent for 7 years or more to get it through. Every 6 months you get an office action from the PTO and have to make a business decision to keep going or not.

Also, beware the bargain basement patent attorney. It’s like the old Bill Cosby routine about buying tires. Getting them on the car is extra. Having them bounce is extra. Make sure you pick a firm that understands the tech.

The highest cost will be from general practice firms, and the boutiques will be cheaper. And firms on the coast will be a bit pricier.

Trademarks

Trademarks protect names and logos.  1-2 years in the US, longe rintenationally. They cost around 2-3k to file. They are potentially immortal.

Copyright

Protects expression in a fixed medium. It lasts nearly 100 years thanks to Mickey Mouse. (It’s actually a ridiculously complex chart… don’t try to wing it — 1923 is just a rule of thumb). Copyright is cheap to file, and costs maybe $45, and you don’t really need an attorney.

Copyright has big nasty teeth. The FBI can get involved and there’s jail time. You can get $150k in damages per instance. It’s the broadest protection for the game industry.  Keep in mind “fair use” is a defense, so you will still spend $100k just to get to the point where you get to use that defense.

This guy (shows pic) sold something called the Power Player, an unauthorized Nintendo player with some games. And since the Nintendo patents had expired, people thought it was OK for him to sell this in malls. But he got busted, and convicted for 40 counts, 5 years in prison, then deported. And he had to pay for ads in the gaming mags, full page ones, saying that he was guilty and not to do what he did.

Trade secrets

Protect any secret used to a business advantage. Possibly broader than copyright. It is free or cheap. You are not supposed to register it. But you do have to have things in place to demonstrate that you are protecting the secret. They are potentially immortal (patents are only 20 years).

What is IP good for?

“So I can sue my competitors!” Great, we can get 1/5th of the way there for $1m. “I’m going to license it to Google!” Easier said than done. People jump to the last reasons.

Really, it’s this order:

1. Company valuation
2. A symbol of sophistication
3. Defense (which is working even when you don’t know it)
4. Licensing
5. Litigation as a last resort

On defense, when a competitor considers entering your market, the presence of your patent in a patent search can scare away competitors (or curtail their access to funding). It builds a moat around what you are doing.

EULA

This is your agreement with your customers about who has what rights and responsibilities. Absolutely necessary.

The privacy policy is a legal obligation — you have to have one, and have to follow certain rules.

Of course, these do vary from country to country.

“Can’t I just copy WoW’s?” No. if you read 300 EULAs you will notice subtle and important differences. If you are WoW and havea billion dollars, you will divide the rights and responsibilities differently than a new startup. It will pay off in the long term. Plus, WoW could actually sue you for copyright infringement!

1. Arbitration or litigation? Arbitration is private dispute resolution. It keeps stuff outof the courts. The bad news is that it is cheap to get into — so it is easy for someone to file one against you. Whereas litigation has a higher barrier of entry for someone coming ater you. But it will cost you more in the long run, and it will be far more public. There is a new opinion in the Bragg case against Linden that moved something from arbitration to Federal court, so even then it’s possible for your arbitration clause to not be valid.
2. Stuff varies state to state, especially in consumer protection and liability.
3.  The more symbols of volition you can show, the more likely your agreement is to be enforced. This is why you have to scroll down to click OK, force people to click through the agreement every time.
4. If you are taking info from children, there are a lot of strings because of COPPA and other factors. You have to know what the changes are in termsof EULA, privacy, etc.
5. Selling your company. The privacy policy could prevent you from selling the userbase along with the company! (True story). So you need to make sure your privacy policy is right.

Virtual property

The tension in the Bragg v Linden case… we all know the old school customer service — mud style, Jessica Mulligan style. If you look at me funny, I ban you, I have the right. A grand old tradition, probably been going since Bartle. It’s worked great until recently. But it may not work too well going forward.

If you grant IP rights to other people, and they own copyright in it, and have stuff in that world, there’s a lot of legal obligations. Worse perhaps is that you deliberately acknowledge the monetary value of what they do, and you know that this room has $500 of stuff. What happens if you have an account with $500 of virtual stuff and this person does something that you would ban for? In the old school model you would, you’re the game god. But what about the taking of the $500?

It is creating a tension that the law may or may not tolerate. In some ways these people have an account with money in it. You may say in your EULA that you can do it, but you have to assess how strong the EULA is. You should run away from anyone who makes definite statements on this, because nobody has a real legal answer right now. If you turn off the game and there’s hundreds of millions of dollars of value in there, do you owe the money back to the users?

The answer is uncertain, we don;t know, and the one guarantee is full employment for a certain number of lawyers. The answer will probably vary by country.

Contests and sweepstakes

Growing in importance. A contest could be who is the 4 millionth visitor, who makes the best website — I haven’t seen the same contest twice. These are going to be nationally and state regulated. Plus the law is changing — like sweepstakes and gambling in Maryland and in Canada, changing now.

We tried making a chart of the rules, and it would have cost $100,000 and could only be guaranteed for one day. We had a sweepstakes that was valid on Monday in Canada and invalid by Wednesday. And if you screw this up, it could put you in jail, because of gambling.

Considerations:

• Is it skill or chance? Chance is scarier than skill to most regulatory bodies. And skill has to be objective, with criteria. The highest score.
• Is there a purchase? In some coutries, including a sub, or even an internet connection! Cost raises more eyebrows. A common way to get around this is to have a free mail-in entry.
• Children. There are a lot of issues that arise here. I had a client where anyone could enter, and the prize was a 2 week trip for 1 to Seoul to visit a dev team for a week. What if your six year old wins? Think these things through with me, help us help you. Yes, it will hurt some feelings, but what is the purchasing power of a 9 year old?
• Size of prize matters base don country. A car, an Alienware system — that can be tough in some countries. A signed $50 statuette with a lead designer autograph won’t, and your customers will still love it.

How does this work? Say you’re Blizzard and want to run a contest in 25 countries.

You need a coordinated counsel — one lead firm in the US who knows who to call in each country. You need to set up billing arrangements with all these other people. But you talk to one core firm.

I don ‘t mean to insult your intelligence, but this is a core point: Europe is not a country. There are some EU level directives, but these places have thousands of years of sovereignty and the EU is 20. Countries like France have resistance to doing what they are told. And you will probably have to translate your EULA to all the languages — if you want it enforceable, anyway.

So lots of risk, and also lots of possible profit. Pick territories one at a time, and work with local folks. If you don’t want to deal with it at all for a given territory, be sure to void the jurisdiction.

Question: what about void where prohibited?

It is commonly done, but it is not a substitute for voiding by territory. I have a high knowledge of this area, but I still call a guy who is more expert than I am, because this area is so complicated.

Start-up to investment or sale

Corporate form before all else. it is not that hard to get done, a small law firm can help you.

IP and NDA agreements is the second thing you should do. What if the founder leaves before beta? he can shut you down with the copyright case.

Get the deals in writing. Lots of handshake deals in the game business. But ideally, get it drafted by a lawyer. If it is anything more than emptying your trash… and there’s even janitorial contracts.

Also, don’t throw away the writings. I don’t make stuff up. Yes, it happens. If you hire a consultant and they help with a game design, and then give your design to a competitor, and you want to do something — you need to be able to find that writing. Scan them, have backups, do whatever you can.

A founder will leave. I cannot think of an example of a company started by 3 or more people where one didn’t leave within 3 years. Plan for it while you are all still friends.

It is cheaper to set up legal work than it is to clean it up. Everyone will sign an IP assignment in the beginning. After all, you’re in your mom’s garage. But once there is a $50m deal on the table, that’s when people start asking for more.

Litigation is a last resort — it is hugely expensive in money and resources. Even if you win, you rarely win. I used to do this a lot professionally, and now I don’t, because I saw so few people come out better.

Summary

Keep in mind that the contests and sweepstakes really are more complicated than you think — a blackjack tourney for 1 m people, some of whom are minors, with a prize of a trip to Bangkok!

Business & Legal Primer for Game Development

My favorite slide: I wrote a textbook on this. I make almost no money on it. But it covers lots of this.  My favorite chapter is the interview chapter “I Wish I Knew” where I interviewed all the game gods and asked what things they  had learned the hard way.

Questions

What could that Nintendo guy could have done?

Gotten a license. Make sure that those folks actually own the rights! What does it take to get sued?  Here’s what i say after ten gin and tonics. You have to do something bad. Second, the rights owners have to know you are doing a bad thing. At 200 players it’s unlikely. Third, people have to be really pissed off. Normally, you just get a letter asking you to desist. They have to be a million dollars of pissed. For most people there’s a high bar to get into litigation.

Does it matter the purpose of the purchase in a contest? For example, limiting a contest to subscribers, versus requiring a new purchase?

My experience is no. A $20 a month game and a contest for current subscribers, that’s “purchase required.” A free entry could help — depending on the nature of your contest.

What about self-regulated content among the community? User reporting, flagging, etc? Seems to be the way things are done, are we kidding ourselves?

I think we are kidding ourselves to some degree.  If YouTube has child porn on it, YouTube is in trouble. So it is a great idea, but it does not absolve you of all responsibility. A good DMCA ability will be great for copyright, truly consider yourself more of a carrier. But on the whole, it is not a cure-all. It is a risk you deliberately take. Depending on how well you design the processes up front, you can get a lot of shielding that way. In the YouTube case, they seem to have different standards based on what you are talking about. In the modern YouTube, can you find any true porn? No, so they had SOME sort of mechanism. And license holders with YouTube, they seemed to have protection. But people who wouldn’t pay, their stuff seemed to be showing up. At least that is a perception. Make sure you use the same level of screening for everyone. Certainly leverage user abilities when you can.

How do recent Supreme Court rulings affect patents? Like last Friday?

I don’t know about Friday, so I could need to see the specific case and charge you a comical amount of money… kidding, actually no, not kidding. 🙂 On the whole, people are saying that  patents have gotten a little easier to break.

Patent law is one of the few things in law that has a subspecialty bar.  You need to find someone who is registered and passed that.

Are you able to assign IP rights to content created by kids?

Usually IP assignment has to be done by written assignment, and traditionally kids cannot even agree to your EULA. They can only enter ‘contracts of necessity” usually. It is a gray area right now because of the rise of user created content.

Terms and Conditions are different from EULA. Can putting the ban and confiscation thing in the TOC instead of the EULA and be covered better?

You just restated the tension: can we rely on the old school customer service model. It will not be settled in one case.

EULAs are  hot topic. How do we compromise between a EULA with teeth and violating user rights — thinking of stuff like Warden and Punkbuster.

On the whole, I think those things if fully disclosed, haven’t been tested as hard. The tension is there, but right now, I think those things are still safe.