Wednesday, March 23, 2011

Wands and the Wii

The makers of the interactive game "MagiQuest," Creative Kingdoms LLC, have filed an International Trade Commission (ITC) complaint against Nintendo alleging that the importation of the Wii infringes its patents relating to motion-activated handheld devices.

MagiQuest is a live-action adventure game, often installed at tourist destinations, where players use a wireless infra-red wand to interact with scattered physical objects. In its complaint, Creative Kingdoms claims that its patents covering these wands also cover the Wii motion controller.

The complaint states: "The distinguishing feature of both MagiQuest and the Wii system is a motion-activated, portable wireless handheld device that facilities a physically interactive play experience for participants... Nintendo infringes U.S. Patent Numbers 7,500,917; 7,761,637; 7,850,527; and 7,896,742 through importation of its Wii system and remote control."

The goal of a complaint at the ITC is to block the importation of the infringing product (the Wii, in this case) into the U.S. This tactic, if successful, can be especially effective leverage against game console makers, since all current-generation consoles are imported from Asia. Creative Kingdoms has also filed a parallel patent infringement suit in the District Court for the District of Oregon seeking to recover damages caused by the same alleged infringement.

The Wii has previously been subject to another ITC complaint, filed by Motiva LLC. Motiva claimed the Wii infringed its patents for a fitness-based video game, but the ITC tossed that complaint last month, ruling that Motiva failed to show that a domestic industry existed for Motiva's game.

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Wednesday, February 2, 2011

Gibson Brings Another Defendant On-stage

Gibson has filed suit against another defendant alleging infringement of its concert simulation patent. This time, it involves Seven45 Studios' new video game Power Gig: Rise of the SixString. Gibson lost its first suit involving the same patent against Activision in 2009. In June of 2010, Gibson settled with Harmonix, Viacom, and EA in a similar suit.

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Friday, January 7, 2011

MDY v. Blizzard - The Court of Appeals Weighs-in

As you may recall (and as we've been covering), last January, an Arizona District Court found that using MDY's Glider bot program in conjunction with Blizzard's World of Warcraft game software fell outside the scope of the game's End User License Agreement (EULA). The District Court then held that MDY is responsible for players running Glider outside the scope of the EULA, and awarded Blizzard a $6.5 million judgment against MDY for copyright infringement.

MDY appealed the case to the Ninth Circuit Court of Appeals, which recently issued its own decision. The Ninth Circuit overturned the District Court’s finding of copyright infringement, but nevertheless held MDY liable for breach of the EULA on a different ground – violation of the Digital Millennium Copyright Act (DMCA).

The Ninth Circuit held that using Glider while playing World of Warcraft in violation of the EULA did not amount to copyright infringement. The Ninth Circuit categorized the EULA term that forbade the use of bots as a "covenant" (i.e. a promise not to do something), rather than a "condition" (i.e. a limit on the scope of the copyright license). And, while a violation of a covenant might be a breach of the EULA, such a breach does not trigger copyright infringement.

In upholding the DMCA verdict against MDY, the Ninth Circuit held that Section 1201(a)(1) & (2) of the DMCA created a right of "anti-circumvention" — the right to prevent circumvention of measures designed to control access to a copyrighted work. The most significant aspect of this holding is that no actual infringement of the copyrighted work needs to actually occur. The Ninth Circuit acknowledged that this new right created a split with the Court of Appeals for the Federal Circuit, which requires actual infringement before holding a defendant liable for a DMCA violation. It's possible that this split may trigger a Supreme Court review of the issue.

The Ninth Circuit's ruling appears to make it easier for copyright owners to attack products and software designed to circumvent access controls, encryption, or other digital rights management in video games and other digital works. Without the need to prove infringement of the work itself, courts (at least within the Ninth Circuit) will likely find it easier to remove or impound devices, software, or access keys designed to facilitate cheating, hacking, decryption, or pirating of video games or consoles. It is unclear whether or not a defendant would have any fair use defenses to a claim based on this new right of "anti-circumvention".

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Tip: IP Indemnification

As patent and other intellectual property lawsuits continue to litter the video game landscape, it makes a mind wander to one of everyone's favorite clauses in developer and publisher agreements: indemnification (which we have discussed before). This is one of those clauses that gets buried at the end of the agreement, often on the hope that it never gets discussed. And, certainly neither party ever hopes to have to invoke the indemnity clause. The problem arises that, while the clause generally does not see the light of day, should the clause ever become necessary -- the dollars and stakes are bigger than ever anticipated.

A publisher will generally try to seek a broad indemnity from a developer, so that, if a patent owner sues the publisher alleging that the developer's game infringes the patent (or other intellectual property), the publisher will be protected. The indemnity clause will be used to shield the publisher from the patent lawsuit (i.e., have the developer pay for the legal costs). The publisher's position is that "you designed and developed the game -- you should bear the risk if the game violates someone else's intellectual property."

A developer will generally try to limit the scope of the indemnity so that the developer's obligations to shield are limited only to those specific things developed by the developer. For example, if the developer uses third party libraries or tools -- is the developer willing to indemnify the publisher if those libraries or tools are the reason for the lawsuit? What if the publisher demands that certain development tools be used? Will the publisher indemnify the developer for the use of those tools? How about the scenario where the developer is developing a sequel to the publisher's original game? Who should indemnify who for what?

I could write pages of questions to illuminate the different scenarios involved in the back-and-forth of negotiations on the indemnification clause, but that would probably only serve to further glaze your eyes over. Instead, if you take only one thing from this posting, then I hope that, should you ever have to read an indemnity clause because a lawsuit was filed, it won't the first time you're reading the clause.

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Friday, September 24, 2010

The End of Used Video Games?

Are you one of the 75 million used video game purchasers in the U.S? Or, are you one of the 26 million used video game sellers looking to subsidize your next game purchase with a trade-in? If so, you might not want to delay too long before making your next trip to GameStop.

The Ninth Circuit Court of Appeals recently ruled that Timothy Vernor, an eBay seller of used commercial versions of Autodesk's AutoCAD, is not permitted to sell used AutoCAD discs under copyright law. The court held that the "first sale" doctrine that traditionally protects used book sellers from charges of copyright infringement does not apply to used software sellers. The court based this distinction on the finding that the company that originally sold its old copy of AutoCad to Vernor was not an owner of software, but merely a licensee.

The court held that a software user is a licensee when the publisher or copyright owner (1) specifies that the user is a licensee, (2) significantly restricts the user's ability to transfer the software; and (3) imposes notable restrictions on the use of the software.

In Vernor's case, the court found that Autodesk had done each of (1), (2), and (3). As a result, the company that sold the used AutoCAD software to Vernor was a mere licensee, and could not transfer title to the software to Vernor, so neither that company nor Vernor were entitled to any protection under the first sale doctrine. As a result, Vernor's eBay sale of AutoCAD was an infringement of Autodesk's copyright.

So, why does a case about used commercial PC software matter to video games? Well, the Ninth Circuit appears to have opened the door for game publishers to adopt the software industries' licensing model. Don't be surprised if the terms and conditions included with your next Xbox game purchase look more like the terms and conditions included with your copy of Windows Vista. Should game publishers adopt this model, legal sales of used games may become a thing of the past.

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Friday, August 27, 2010

Trademark Clearance and Mafia Wars

As a reminder to us all of the reason for a good trademark clearance search, game developer Digital Chocolate, Inc., has filed a trademark infringement suit in the Northern District of California against Zynga Game Network, Inc., creator of popular Facebook games like Farmville and Mafia Wars.

The complaint alleges that Zynga, which released Mafia Wars in 2008, has “hijacked” the Mafia Wars name from Digital Chocolate. Although Digital Chocolate never registered the Mafia Wars mark in the U.S., it claims Zynga is violating the common law trademark rights it has had since it started selling its own Mafia Wars game in 2004.

For the careful entrepreneur, this case highlights the importance of an adequate pre-launch trademark clearance search to minimize the risk of problems in the future.

A pre-launch trademark clearance search might encompass, for example, federal and state trademark registrations and applications, common law rights, web searches, and domain name availability. While an adequate search might incur some initial costs -- the consequences of inadvertently stepping on someone else's trademark could cost much more in the long run.

In this particular instance Digital Chocolate is seeking a permanent injunction against Zynga’s use of the Mafia Wars mark, Zynga’s profits, treble damages, attorneys’ fees, and an order forcing Zynga to spend twice as much on corrective publicity as it has on its Mafia Wars marketing.

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FTC Comes Down On Fake Video Game Review

Most people who use online consumer reviews as an aid for decision-making recognize an inherent dilemma: how do you know whether the reviews are honest, consumer reviews, or phony reviews posted by a business owner, its competitor, or a paid reviewer? Apart from hit-or-miss strategies like ignoring reviews by one-time contributors or those with over-the-top review language (positive or negative), there really isn’t a good way to distinguish the two.

Cue the Federal Trade Commission, which this week settled an enforcement action brought against Reverb Communications – a public relations agency hired by video game developers to promote their products.

The original complaint alleged that Reverb engaged in deceptive advertising practices by posting positive online game reviews in the iTunes Store that gave the impression that they were written by disinterested consumers, rather than by a paid advertising or PR firm. The terms of the settlement require Reverb, which admitted no wrongdoing, to remove the allegedly deceptive reviews that it already posted, and prohibit it from making similar misrepresentations in the future.

This is one of the few actions the FTC has taken since issuing late last year its revised guidelines concerning endorsements and testimonials in advertising, which address internet endorsements and require disclosure of any “material connections” between an advertiser and an endorser. In a previous instance, the FTC sent essentially a written warning to Ann Taylor’s Loft, which had given gifts to bloggers attending a preview of its new season’s clothing line but failed to inform the bloggers that such gifts had to be disclosed to readers.

Based on this limited history, it seems that the FTC is going after the advertisers or professional endorsers, rather than an individual blogger or reviewer. The FTC has already said as much in its attempts to clarify the endorsement guidelines. As one FTC employee has been quoted as saying, “Our approach is going to be educational, particularly with bloggers. We're focusing on the advertisers. . . .”

Game developers should be mindful about the advertising techniques they or their PR firms use to promote their games, and ensure that their employees and agents are not posting phony reviews on web sites. The Reverb case showsthat the FTC is more than willing to take action against such practices.

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