How Do You Make Sure Your Idea is Safe?



A few days ago, I posted a message on Linked In, offering to answer a few legal questions posted by app and video game developers. I've been nearly overwhelmed with questions!  So here's the answer to the first from a developer who asked:

Hey Jordan, this is a great first question because it comes up all the time. The answer is a bit surprising for most people, so let me give you the quick answer and then I'll explain why. 

Here's the answer: Transform your "idea" into something tangible. 

If it's a game "idea" make the game. If it's a story, write the book. If it's a... you get the picture. 

Now, here's why (and this is what most people don't understand). 

You can't copyright an "idea". Copyright law protects tangible works (like books, movies, complete video games, etc.) but not the idea behind them. That's why you see so many movies that have the same plot. It's the reason you see a half-dozen Bejeweled clones in the app market. 

What is protectable are works fixed in a medium like computer code, design documents, etc. These can be copyrighted, but the idea behind them cannot. 

It makes sense too. Think of what a mess things would be if a idea could be copyrighted. How would you prove in court that someone stole your unique idea? It has to be fixed in order to show that someone took it (and, of course, it's a lot more complex than that, but you get idea). 

I get a lot of people who come to me and say, "I have this game idea...now how do I protect it". I give them the same answer that I gave above. Write the game. 

I know that's difficult, but that's the law. 

Now, with that said, there is another area of law called "trade secrets" and unlike a copyright, a trade secret can be protected even in the form of an idea. But trade secrets are generally business ideas: customer lists, advertising strategies, manufacturing strategies, new ways of doing business, and unique business ideas. 

Trade secrets can be protected from unfair competition, and the most common way of doing this is through the infamous non-disclosure agreement that people and businesses sign when they begin talking with each other about business ideas. 

That said, trade secrets are not only difficult to prove, but you also have to show actual damage. How much money you lost. What business opportunities actually and in reality vaporized because someone took your business plan. 

You may want to check out an article I wrote not all that long ago (Zynga Slammed Again). In this article I discuss the lawsuit between Electronic Arts and Zynga, where EA is suing Zynga for copyright infringement. The article addresses the idea of an "idea" versus a tangible representation of it. 

I hope this helps. 

Like if you've found this helpful.

Follow Dan on Twitter at rogersdanlee

The comments here are for discussion purposes only, which means that I'm not giving legal advice and the reader shouldn't rely on this this discussion (or any social media or internet forum discussion for that matter) to satisfy your legal needs. Also, no attorney-client relationship is established by my comments here. 

In the ever-changing world of high tech intellectual property law, the word “Platform” has special meaning. More often than not, you’ll find it in software licensing agreements to specify, and more importantly to limit, the computing systems that a particular piece of code—whether a video game or accounting program or iPhone App—are authorized to run on. But these days, Platform can mean just about anything. 

Consider this: “Platform” means a PC operating Microsoft Windows software.

Pretty straightforward, isn’t it? You immediately imagine everything from a dusty Windows 3.0 286 computer to a sleek new Dell desktop. But before you copy and paste this into your next software agreement, you may want to think about whether you intended to include Microsoft’s new Surface tablet.

After all, computing doesn't get any more personal then with a tablet, and tablets are far more powerful than the desktop devices you were using a few years ago. According to a recent New York Times review, [1] the Surface Pro runs Windows 8, and it’s described as follows:

“… inside the Pro is a full-blown Windows PC, with the same Intel chip that powers many high-end laptops, and even two fans to keep it cool …”

Well that clears up things, doesn’t it?

Try this: “Platform” means mobile devices only.

A few years ago, the difference between a mobile phone and a personal computer was like comparing Les Misérables with The Hobbit. Today, Samsung’s Galaxy 4 mobile phone (dimensions 136.6mm x 69.8mm x 7.9 mm) and an iPad Mini (dimensions 200mm x 134.7mm x 7.2mm) are nearly the same size. One is marketed as a smartphone with powerful applications (Galaxy) and the other is a smart tablet that can run phone applications like Skype (iPad mini).

And where does Amazon’s Kindle Fire fit into the picture? It’s a book, but it can run Skype and a gazillion useful computer applications like Word for Friends and Greedy Spiders.

Now think about this: “Platform” means a social networking or cloud-based application. As an example and not in limitation, Farmville for Facebook is a social networking application and Google Docs is a cloud-based application.

With the above language, you’ve included iPhone, iPad, Android devices of all shapes and sizes, Macintosh and Windows desktops, Steam, Gaikai, OnLive, streaming and smart television devices, and at least a half a dozen other systems. Is that what you intended?

Today handheld means everything from a Nintendo Game Boy to an iPad to a Sony PlayStation Vita to the nifty Trackpad the UPS driver makes you sign. Console gaming includes Internet connected games and on-line app-stores. On-line App-stores like Amazon sell computer hardware. PCs are as tall as a five-foot RAID storage cabinet and as small as a wristband computer. And where the heck will Google Glass fit in?

And the problem isn’t going to get easier. Territory used to mean, “The United States” or “Europe” or “Japan”. Now servers in China and India are regularly communicating with countries all over the globe.  

As a result, lawyers end up writing spaghetti language like this:

Platform means the client Software executing on a Windows PC or Macintosh (OS X or later) device and thereafter accessing data via the Internet though such PC or Macintosh only. Platform does not include (1) mobile platforms, including but not limited to iOS and Android platforms of all types; (2) dedicated handheld and console game systems, including but not limited to Sony PlayStation, Microsoft Xbox, Nintendo Wii, or any future version or form of any such system; and (3) any Internet-based service provided by or on any computing device now existing or ever created, including but not limited to web applications, cloud-based game services, and social networking platforms (including but not limited to Facebook and MySpace).

Now you understand why I loath the day when my new Xbox 720 rings my iPhone to let me know that someone stole my magic sword, and then updates my friends through Twitter or Pinterest.

//

Please tweet or like if you enjoyed this article. 

Follow Dan on Twitter @rogersdanlee; or visit http://dlr-law.com/writings--pubs.html for other articles and information.

[1] http://www.nytimes.com/2013/02/07/technology/personaltech/microsofts-surface-pro-works-like-a-tablet-and-a-pc.html?pagewanted=all&_r=0


Image licensed through Shutterstock.

A recent Game Developer’s Conference study found, unsurprisingly, that 53% of the attendees they polled identified themselves as indie developers, with nearly the same percentage saying that they work in companies with ten or fewer people. [1]

With the explosion of mobile and casual gaming, this has created exciting times for entrepreneurs, but the reality is that most independent game developers lack the legal expertise necessary to navigate this new publishing world. Many will make it through unscathed. Others, unfortunately, won’t be as lucky.

In the first half of this series, we discussed three legal mistakes that indies make more often than they often realize: Unintentionally Infringing Another’s IP Rights, Failing to Secure Copyrights and Trademarks before an Infringement is Discovered, and Failing to Use Properly Drafted Contracts with Contractors. We continue now with three more common indie legal mistakes.

Mistake #4 - Failing to Properly Incorporate and Operate

C Corp. S Corp. LLC. No Corp. Most indies understand that a corporation is a legal entity that provides them a certain level of liability protection, but few realize that ignoring corporate formalities can render this shield vulnerable to attack. The legal term for breaking through a corporation’s structure and reaching the principals and officers inside is called Piercing the Veil, and it’s fairly descriptive of what happens: a legal death ray essentially cuts through the corporate force field, leaving the individuals inside liable for the torts and infringements of the company they thought was protecting them. How the corporate veil is pierced is generally determined on a state-by-state basis, but here are some common ways it can happen:

• Ignoring corporate formalities. Generally, corporations exist in the eyes of the court so long as they operate as such. C Corporations, for example, are required to hold regular meetings, have adequate funding, and faithfully keep maintain their business records and transactions. Corporations that fail to do so risk being deemed an alter ego of the principals and stockholders running the organization. When this happens, these same people can be liable for the corporation’s acts and debts. [2]
  
• Co-mingling personal and corporate money. Similar to the above, when a party can show that the corporation is nothing more than façade, proven by a lack of distinct and separate corporate funding and monies, the corporation’s protective armor can be penetrated. [3]
  
• Fraud. Where the court finds a corporation is a sham to hide illegal activities, the parties inside can be liable for acts of the organization. 
  

Another issue raised is in the corporate form itself. When and how you chose to incorporate—whether as an LLC, C Corp, or otherwise—will mandate what procedures you are required to follow. Failing to pay attention to these details can be fatal. And one thing you can count on: those who bring suit against your corporation will look at this very closely.

Finally, consider that while LLCs and S Corps may, in some ways, be easier to manage, venture and angel funds generally prefer to invest in entities where stock and options of various flavors can be issued and tax issues minimized.

Mistake #5 - Failing to Create Bulletproof Partnership Agreements

Mike Kerns (fictitious name) was raised in a middle-class neighborhood in Southern California. Self-reliant, street-smart, with a loyalty tenet cast from Band of Brothers clay, he was never shy about expressing his opinion. That’s what Peter Morris (name also fictitious) liked about him. Peter believed that Mike would make a great addition to his small but profitable video game consulting firm.

So Peter brought Mike on board with the idea that Mike would eventually become a full partner. Two years later they were bitter enemies, and Peter acknowledges that if not for the partnership agreement he insisted Mike sign, things would have ended much worse.

Surprisingly, few take the time to create clearly thought-through partnership agreements, despite the fact that, according to Harvard Business School, 90% - 95% of all startups fail. [4] Think of a partnership agreement like a marital prenuptial, and then consider what it clarifies:

• Ownership of technologies created prior to the partnership and use thereafter.
  
• Who’s in charge and how decisions are made.
  
• Whether a spouse can become involved in the business at the death or disability of a partner.
  
• How profits are divided and when.
  
• What expenses the company will pay.
  
• Whether and what type of health plan the partners can participate in.
  
• What happens when a partner leaves voluntarily.
  
• How partners can be removed.
  
• What happens when the corporation dissolves.
  
• How new partners will be brought into the company.
  

Each of these issues can turn into a powder keg where partners have failed to agree in advance. On the other hand, for those who take the time to create solid partnership agreements, a breakup may be painful, but at least the rules of the road are defined.

Mistake #6 - Failing to Understand the Implications of Third-Party Investments

Cash is king, especially when a business is in start-up mode. But where you get your investments and how you treat them afterward can have significant legal implications, especially with regard to Security and Exchange Commission regulations. The laws in this area are complex, and it takes an experienced lawyer to help you through them. For simplicity sake, however, alarms should ring when you are thinking about:

• Selling, offering to sell, or exchanging your company stock, since these activities require compliance with complex SEC regulations. While there are exemptions—including private placements, sales to accredited investors, seed capital, and crowd-funding (discussed briefly below)—you’ll need competent legal advice to know if you qualify and what obligations and filings are necessary.
  

• Advertising or making general solicitations to market securities. What’s a security? Any sort of investment or interest in a company, which can mean anything from stock to a percentage of a corporation’s assets or profits. [5]
  
• Selling securities or promising future profits to investors who make less than $200,000 annually or with a net worth of less than $1 million. 
  
• Issuing early stage equity, since this can greatly impact mergers or acquisitions later. 

Crowdfunding has also become a popular way for game developers to finance their projects. Be aware that while this activity is legally recognized in the United States, [6] things have been moving forward rather quickly and loosely. As a game developer, two concerns should be on your mind before you launch your next crowdfunded project:

• Lawsuits initiated by disappointed backers are becoming more common. [7] Recognize that your donation-based campaign creates a contractual obligation, and over-promising or under-delivering can be grounds for a breach of contract claim. So before launching your next campaign, make sure you’re properly incorporated.
  
• Equity based crowdfunding, meaning you offer an interest in your company or profits, is complex and the rules are still being finalized. [8] While everyone is anxiously awaiting for SEC rules in this area, for now it’s probably best to hold off. 
  

Who would have thought five years ago that a handful of young programmers and artists working from their garage could develop, market, and launch a game that could compete head-to-head with top publishers like EA, Activision, and Ubisoft. At the same time, the legal risks involved in app development are growing. The six issues we’ve discussed are common but by no means comprehensive. These days a prudent indie needs to make sure their legal ducks are as orderly as the code that’s driving their next hit game.

This information is not legal advice. This article is provided for commentary purposes only, and is not legal advice nor does it create an attorney-client relationship between the author and any reader.

About the author.

For twenty years Dan Rogers has worked with leading video game companies, and participated in the development of more than a dozen million unit-selling video games. As an attorney, he has advised and negotiated with interactive game publishers, independent developers, and technology companies around the world on matters of intellectual property, licensing, and contractual law.

If you enjoyed this article, please tweet or like. 

Follow Dan on Twitter @rogersdanlee; or visit http://dlr-law.com/writings--pubs.html for other articles and information.

[1] See http://www.prnewswire.com/news-releases/game-developers-conference-2013-state-of-the-industry-research-finds-indies-on-the-rise-interest-in-mobile-dominating-over-consoles-193809101.html.
[2] Mid-South Mgmt. Co. v. Sherwood Dev. Corp., 374 S.C. 588.
[3] Fletcher v. Atex, Inc., 68 F.3d 1451.
[4] http://hbswk.hbs.edu/item/6591.html
[5] 15 USC § 77b provides the following definition: “The term “security” means any note, stock, treasury stock, security future, security-based swap, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a “security”, or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.”
[6] Congress created the Jumpstart Our Business Startups Act (the “JOBS” Act) on April 5, 2012. JOBS is the legal framework for crowdfunding in the United States.
[7] http://www.crowdfundinsider.com/2013/01/kickstarter-lawsuit-neil-singh/; http://www.businessinsider.com/how-one-stupid-mistake-and-35000-from-kickstarter-made-an-average-guy-bankrupt-2013-1
[8] For a general overview of equity based crowdfunding, see: http://www.huffingtonpost.com/gary-emmanuel/5-reasons-why-equitybased_b_2759580.html
[9] Image used by permission. Shutterstock.

Until recently, video game developers generally focused on the creative and technical aspects of developing an interactive game, while their publishers handled issues of sales, marketing, and legal. But in the world of direct-to-consumer digital distribution, indies do both. They build apps, and then manage sales and marketing through Apple’s App Store and Google Play, and inside environments like Steam and Xbox Live. While all this has created significant opportunities for thousands of emerging game developers, few realize the legal hazards they undertake when launching a game—risks that their former publishing partners often assumed on their behalf. 

In this two-part series (find part two here), we’ll discuss what I consider the top six legal mistakes app developers make when launching a new game in the digital marketplace.

Mistake #1 – Unintentionally Infringing Another’s IP Rights.

Several years ago, an independent developer created a mid-priced racing game for a top publisher.  The automobiles used in the game were appropriately licensed, including a well-recognized American sports car brand. The mistake made, however, was in recreating a unique building found along Route 66, the iconic highway stretching from Chicago to Los Angeles, filled with kitschy gas stations, motels, and unique Americana rest stops.

The developer’s artists discovered the building while searching the Internet, and they thought it visually representative of the look they were trying to achieve.  They didn’t intend to steal the image. Instead, they created their own digital rendering of it, and then placed that asset in the game. Unbeknownst to them, the building is protected by an architectural copyright, as many are these days.  After the game launched, their publisher received notice from the copyright owner, and promptly settled the dispute on behalf of everyone.

In today’s world of direct-to-consumer distribution, where traditional publishers are often out of the picture, things might not have gone as smoothly. Independent developers seldom have the expertise necessary to navigate delicate copyright infringement issues on their own, and unfortunately, infringing another’s copyright can result in either actual damages or statutory damages of $750 - $150,000 per copyrighted work, plus attorney fees, if the infringement is willful. [1] Regardless, using a photograph or song or even a copyrighted architectural design in a video game without permission can land you in hot water fast.

Mobile and social game developers are often so busy building and launching their games that they don’t take time to perform a proper due-diligence of the assets their artists and programmers use. Music. Art. Photographs. Code. Utilities. All of it needs to be licensed, unless you've created yourself without obligation to someone else. And remember, even innocent infringement is copyright infringement nonetheless, and developers should carefully clear all the assets and software tools used in their games prior to launch.  More often than not, it’s not conflicts they see that will get them, but the ones they don’t.

Mistake #2– Failing to secure copyrights and trademarks before an infringement is discovered.

In January 2013, Apple proudly announced that 775,000 apps were available in its hugely successful App Store, and in 2012 alone nearly 20 billion iOS apps were downloaded by consumers around the world. [2] Google’s success is similar on the Android platform, and many believe their Google Play store will be the first to offer over one million apps this year. [3]

With more than 641 mobile apps being launched every day, copyright and trademark infringements are bound to occur. With the odds of a conflict only going up, prudent developers should secure their copyrights and trademarks before they discover an infringement. Delay doesn’t necessarily mean they can’t protect their intellectual property rights, but there are distinct advantages in registering early. [4]

For one, the statutory damages for the copyright infringement are not available for non-registered works. As a practical matter, it means that a significant leverage in settling a dispute out of court (which most do, by the way) evaporates. The reality is that actual damages are difficult and expensive to prove, and opposing counsel probably knows this. On the other hand, when faced with a properly registered work, infringers are more likely to settle, recognizing that if they lose they could end up paying both statutory damages and attorney fees as well.

Similarly, registering a trademark with the United States Patent and Trademark Office offers powerful advantages:

• It allows the trademark owner to bring suit in federal court without having to show minimum damages, which today is $75,000. [5] For most small app developers, this could be a significant hurdle.  
  
• Registering a mark enables the owner, in some cases, to receive triple (called “treble”) damages, plus attorney fees. Faced with the prospect of paying three times actual damages, an offender is more likely to comply with a trademark owner’s demands. 
  
• Registering gives others nationwide notice of your mark, which could discourage potential infringers. It also may enable you oust cyber-squatters sitting on your Internet URL. 

Copyright and trademark registration isn’t rocket science, but there is an art to it. Retaining a knowledgeable attorney—especially where trademarks are concerned—offers the protections mentioned above, and provides valuable advice regarding the overall strength of a mark and potential conflicts you might have.

Mistake #3 – Failing to use properly drafted contracts with contractors.

 A digital entrepreneur I know recently used a design team to create a series of artistic layouts that the entrepreneur planned to use in the launch of an on-line social media product. Unfortunately, after paying their designers a substantial amount of money, it became clear that things weren’t working out. The entrepreneur fired the designers, and shortly thereafter received a letter from them demanding a buy-out of the work they created.  The entrepreneur was surprised to learn that the money they paid didn’t secure the rights they assumed they owned.

The mistake was in not signing a properly drafted contractor agreement, but what’s surprising is that many app developers don’t use contracts at all, relying on email messages and phone conversations to finalize the terms of their contractor agreements.  That’s living dangerously.

Under U.S. copyright law, the creator of a work—whether that work is computer code, digital art, music, or a game design—owns that work from the moment of creation, [6] unless an agreement or other circumstances (an employee, for example) provide otherwise. Commonly, these rights are secured through an IP transfer or stipulation in a work-for-hire agreement. The added benefit of a well-built contractor agreement, by the way, is that it sets the expectations of everyone at the beginning, when it’s easiest to manage, often saving everyone a rollercoaster ride later on.

In the case of the entrepreneur, the agreement failed to properly articulate IP ownership rights, so, at most, they had purchased a non-exclusive license to use the developers’ work. That wasn't what they were looking for, and after an expensive bout of legal wrangling, they were finally able to secure the exclusive, worldwide, unfettered rights they thought they had purchased in the first place.

Treat your legal work as you do your development.

There are far too many legal landmines in the app marketplace to navigate these digital waters without knowing what you might encounter. Apps are a significant growth business worldwide, and sophisticated publishers, entrepreneurs, and legal eagles troll it closely. Regardless of your size, take care of your app’s legal business early on; it could save you major headaches later.

In the final installment of this two-part series, we’ll discuss three other legal mistakes app developers make: failing to properly incorporate, failing to create bulletproof partnership agreements, and failing to understand the legal implications of third-party investments.

[Read Part Two Here]

This information is not legal advice. This article is provided for commentary purposes only, and is not legal advice nor does it create an attorney-client relationship between the author and any reader. 

Tweet or like if you enjoyed this article.

About the author.

For twenty years Dan Rogers has worked with leading video game companies, and participated in the development of more than a dozen million unit-selling video games. As an attorney, he has advised and negotiated with interactive game publishers, independent developers, and technology companies around the world on matters of intellectual property, licensing, and contractual law.

Follow Dan on Twitter @rogersdanlee; or visit http://dlr-law.com/writings--pubs.html for other articles and information.

[1] See 17 USC § 504, remedies for copyright infringement: Damages and Profits.
[2] See http://www.apple.com/pr/library/2013/01/07App-Store-Tops-40-Billion-Downloads-with-Almost-Half-in-2012.html
[3] See http://readwrite.com/2013/01/08/google-play-to-hit-1-million-apps-before-apple-app-store
[4] Under Section 412 of the Copyright Act, certain remedies, including statutory damages, are only available to copyright owners who register before infringement occurs.
[5] 28 USC § 1332 specifies the criteria necessary to bring a suit in Federal Court.
[6] See http://www.copyright.gov/circs/circ01.pdf (page 5).

Number 4
Keller v. Electronic Arts

Earlier we discussed West and Zampella v. Activision, Gate Five LLC v. Beyoncé Knowles-Carter, and Silicon Knights v. Epic Games, all of which were primarily breach of contract and/or copyright infringement disputes. It leads us now to  Keller v. Electronic Arts, a case that could be worth as much as a billion dollars in damages if Mr. Keller prevails. [1]

While this case has probably gone unnoticed by most outside of legal circles, its importance should not be underestimated. Keller proposes a fairly simple question: when can a real-person be included in a game without compensation?  In answering it, two complex areas of law are addressed: an individual’s right of publicity and the First Amendment.

THE CONFLICT

In May 2009, former quarterback for Arizona State University and University of Nebraska, Sam Keller, filed a lawsuit against Electronic Arts, the National Collegiate Athletics Association (NCAA), and the Collegiate Licensing Company (CLC), the licensing arm of the NCAA, claiming that the use of his likeness, stats, jersey number, and position within Electronic Arts’ NCAA Football violated, among other things, his right of publicity. (Click here to see a brief explanation of these two rights)

In his class-action complaint, [2] Keller asserts that EA profited from his real life persona in its NCAA Football titles. EA did so without permission, and it violated Keller’s right of publicity in the process. [3] But the extent of EA’s infringement goes further. According to Keller, EA blatantly replicates virtually every Division I football and basketball player in their NCAA games, including players’ exact weight, height, statistics, body-type, home state, skin tone, hairstyles, and identifying accessories, such as wristbands and visors.

Keller believes the NCAA and CLC are complicit. Student athletes are not permitted to receive compensation for their skills, and NCAA bylaws prevent colleges from exploiting a student-athlete’s fame as well. [4]  Yet, the NCAA and CLC granted EA exclusive rights that, in effect, enabled EA to exploit over 8,400 players, including those appearing in EA’s NCAA Football, NCAA Basketball and NCAA March Madness titles [5].

The NCAA denies that it granted EA rights to student-athlete images, but instead only licensed stadiums, team names, and identifying trademarks. As proof, they point out that, by default, student-athlete names do not appear on team jerseys in any of EA’s games. Keller agrees, but asserts that EA intentionally designs its sports games to allow gamers to circumvent this formality, providing a means to easily upload entire rosters of actual player names, after which player jerseys contain both the player’s number and name. Although EA could easily block this feature (as they do for profanity), they choose not to.

In February 2010, the Keller court denied EA’s motion to dismiss, based on, among other defenses, the First Amendment. The case is now on appeal to the Ninth Circuit.     

Understanding Keller

Ultimately, the Ninth Circuit Court of Appeals will balance Electronic Arts’ First Amendment right and Mr. Keller’s own right of publicity. While several tests measure the weight of each, the predominate one, and the one used exclusively by the lower court in the initial Keller decision, is called the transformativeness test. Here’s how it works:

In Keller, EA argued that if a work contains “transformative elements” not primarily derived from a celebrity’s fame, then the work is protected under the First Amendment. [6] EA proposed that if Mr. Keller and the other student-athletes’ likenesses were simply some of the raw materials from which their game was created, but not the very sum and substance of the game itself, then the game is protected under the First Amendment. [7]

The lower Keller court agreed with the transformativeness test but disagreed with EA's outcome, citing three examples:

Example #1 - Comedy III

In Comedy III Productions v. Saderup [8], artist Gary Saderup produced and sold a charcoal drawing of the Three Stooges in lithograph prints and T-shirts. Comedy III is the registered owner of the Three Stooges intellectual property rights, and sued Saderup under California Civil Code Section 990. The California Supreme Court applied the transformativeness test and determined that Saderup’s work did, in fact, infringe on Comedy III’s rights.  In doing so the court made the following observation:

“The central purpose of the inquiry.…is to see whether the new work merely supersedes the objects of the original creation, or instead adds something new, with a further purpose or different character, altering the first with new expression, meaning, or message; it asks, in other words, whether and to what extent the new work is transformative.” [9]

Applying this to Saderup’s work, the court held it was not sufficiently transformative:

“Turning to Saderup's work, we can discern no significant transformative or creative contribution. His undeniable skill is manifestly subordinated to the overall goal of creating literal, conventional depictions of The Three Stooges so as to exploit their fame. Indeed, were we to decide that Saderup's depictions were protected by the First Amendment, we cannot perceive how the right of publicity would remain a viable right other than in cases of falsified celebrity endorsements.” [10]

Example #2 - Winter

Winter v. DC Comics involves the iconic rock and roll musician brothers Johnny and Edgar Winter, who sued DC Comics, alleging that DC had misappropriated their names and personas after two characters appeared in a five-volume miniseries, titled Jonah Hex. [11] The characters in question were giant worm-like singing cowboys named the “Autumn Brothers”, who, like the Winter brothers, were albinos, and drawn with similar long white hair and comparable clothing.  

Using the same transformativeness test as in Comedy III  [12], the Winter court held that the Autumn Brothers were sufficiently transformative:

Application of the test to this case is not difficult…. Although the fictional characters Johnny and Edgar Autumn are less-than-subtle evocations of Johnny and Edgar Winter, the books do not depict plaintiffs literally. Instead, plaintiffs are merely part of the raw materials from which the comic books were synthesized. [13]

Example #3: - Kirby

Kirby v. Sega of America involves the leader of a retro-funk-dance musical group known as Deee-Lite, which made several music albums in the 1990s but was best know for a single hit, Groove Is in the Heart. Kierin Kirby, Deee-Lite’s lead singer provided the group a provocative persona, including a unique look incorporating platform shoes, knee socks, cropped tops, pig-tails, and a signature lyrical expression “ooh la la.” [14] Kirby refused when Sega of Japan approached her to license Grove for one of their games.

After Deee-Lite disbanded, Sega of Japan created a game (distributed in the U.S. by Sega of America) called Space Channel 5, incorporating a character with attributes similar to Kirby’s Deee-Lite persona. The game’s creator, Takashi Yuda, testified that when he created the Kirby-like character, he named her “Ulala,” similar to Kirby’s own signature expression.

In 2003, Kirby sued Sega, claiming common law infringement of the right of publicity, misappropriation of likeness, violation of the Lanham Act, and other claims.  Sega sought protection under the First Amendment.

Applying Comedy III and Winter, the Kirby court held that Sega’s Space Channel 9 contained sufficient expressive content to constitute a transformative work. While Ulala was similar to Kirby, the game’s character was a space-age reporter and unlike any public depiction of Kirby. [15]

The Keller Court Reasoning

Applying Comedy III, Winter, and Kirby to the Keller facts, the Northern District Court in California held that EA’s NCAA Football was not sufficiently transformative so as to bar Keller’s publicity claims as a matter of law.

The court pointed out that, like Keller himself, his virtual NCAA Football equivalent plays for Arizona State University, shares many of Keller’s physical characteristics, including his jersey number, height, weight, and wears the same accessories as Keller did while playing football. The Keller court concluded that:

“EA does not depict Plaintiff in a different form: he (Keller) is represented as he was: the starting quarterback for Arizona State University. Further, unlike Kirby, the game’s setting is identical to where the public found the Plaintiff during his collegiate career: on a football field.”

EA, in their appeal, argues otherwise. They purport that their NCAA games do contain transformative elements, including unique stadiums, sounds, commentary, and fictional scenarios unlike any real-world experience. EA believes that the Keller court mistakenly focused only on the work’s main characters (as was done in Kirby and Winter), when the work should have been considered as a whole. EA also argues that the court was in error by not applying the Rogers test (which is briefly discussed below). [16]

Another Perspective: Hart v. Electronic Arts

In October 2009, in a case with strikingly similar facts, former Rutgers University quarterback Ryan Hart sued Electronic Arts in New Jersey District Court for essentially the same complaint as in Keller: right of publicity. [17] [18]

But the New Jersey court ruled opposite of Keller. In September 2011, U.S. District Judge Freda Wolfson granted EA’s summary judgment motion, holding that EA’s First Amendment right outweighed Hart’s right of publicity under…you guessed it…the transformativeness test.

Judge Wolfson held in a 67-page opinion that the balance was in favor of Electronic Arts. She cited many of the same cases as in Keller (Comedy III, Winter, and Kirby), but ruled that EA’s virtual stadiums, crowd sounds, commentary, and other interactive features provided transformative elements sufficient for First Amendment protection. 

The Rogers Test under Hart

Furthermore, Judge Wolfson agreed with EA that the Rogers test was useful. Under Rogers (borrowed from Latham Act trademark cases), a court must determine if the appropriation of a celebrity likeness creates a false or misleading impression that the celebrity is endorsing the product. [19] The Rogers analysis includes a separate component, called a right of publicity test, which asks whether a new work is wholly unrelated to the prior work or simply a disguised commercial. After considering Rogers, the Hart court held that EA was not liable to Ryan Hart or any other NCAA student-athletes. [20]

LEARNING FROM KELLER

Even after Hart and Keller's appeals are decided, it won’t bring clarity unless both courts find some agreement (meaning that either Hart sides with Keller on issues or the opposite occurs). If it ends in tie (as we have now), this could go all the way to the United States Supreme Court. [21]

But once a final determination is made, it will provide a template for not only the video game industry but to talent and publishers in all other media forms as well. We’re not there yet, and, in the meantime, over a dozen organizations have submitted amicus briefs in support of the parties. The stakes are that high. And the bias in each is easy to see:

Aligned with Electronic Arts are organizations such as the Motion Picture Association of America, ESPN, and Viacom.  Siding with Keller and Hart are the Screen Actor’s Guild, Bob Marley and John Steinbeck’s heirs.

As for EA, if Mr. Keller prevails, not only could they be liable for millions of dollars in damages, but the court could order them to remove all attributes pertaining to individual athletes in their NCAA games—which could make for a much different game experience. But if you believe EA’s arguments, their NCAA games don’t rely on real player performances anyway.

I have my doubts.

Video game players may tweak player’s stats, but they want the realism even more. That’s why EA spends upward to $35 million dollars annually to license professional sports organizations and players. [22]

In July of 2012, one of the three Ninth Circuit Court of Appeals judges asked EA's counsel an interesting question:

“At what point do we cry uncle when someone decides to make a movie based on an avatar of Tom Cruise and other living persons, and says, I don’t need to hire Tom Cruise at $20 million dollars a picture. I can do it cheaper by going to Pixar….you’re suggesting that they could do that, and there wouldn’t be any problem?”

After a brief dialogue, EA’s counsel responded, “Under the right of publicity, your honor, what they would have to say is, if you’re using someone and portraying that person as if it is actually Tom Cruise, that’s a different scenario.”

Isn't this Keller’s complaint?

EA doesn’t rely solely on player stats to create their sports game experiences. They leverage expensive personalities to make them appealing to the mass market and to create barriers to entry for the competition: Tiger Woods. John Madden. The NFL. The NBA. FIFA. The NHL. It seems that the only people not benefiting here are NCAA athletes.

By Dan Lee Rogers (c) 2013

Please tweet or like if you enjoyed or found this article useful.

Read other Influential Video Game Suits of 2012 

• #3 Silicon Knights v. Epic Games
  
• #2 Gate Five LLC v Beyoncé Knowles-Carter
  
• #1 West and Zampella v. Activision

///

Historically, the initial concern was, arguably, censorship by the government, even though the constitutional framers actively suppressed the very same, as an example, in the form of the Alien and Sedition Act of 1798, which, in the wake of the French Revolution, restricted speech critical of government. [1] Nevertheless, the right of free speech and press was codified in The Bill of Rights, [2] and has since manifested itself as certain (but not unlimited) rights of protected speech, including two specific cornerstones: 1) advancing knowledge and the search for truth by fostering a free marketplace of ideas and an “uninhibited, robust, wide-open debate on public issues; and 2) fulfilling the human need for self-expression and self-realization.[3]

Contrastingly, the right of publicity has been on a collision course with the First Amendment from the start. As Gloria Franke points out in a fine Southern California Law Review article, The Right of Publicity vs. The First Amendment: Will One Test Ever Capture the Staring Role, our founding fathers (the same who ratified the First Amendment) recognized the value in their own fame, but chose to give it away freely.[4] 

Franke reasons that it was the advent of the newspaper industry in the 1800s and a “names make news” formula, perfected by the likes of William Randolph Hearst and Joseph Pulitzer, that awakened America to the idea of capitalizing on an individual’s fame. But that same exploitation lead to abuse and to a right of privacy, recognized in Pavesich v. New England Life Insurance Co., [5] where an artist’s photograph appeared with an unauthorized advertisement. 

From there, a modern right of publicity was advanced in 1953 in Haelan Labs. V. Topps Chewing Gum, Inc., [6] in which Judge Jerome Frank wrote

“…. in addition to and independent of that right of…. a man has a right in the publicity value of his photograph, i.e., the right to grant the exclusive privilege of publishing his picture, and that such a grant may validly be made 'in gross,' i.e., without an accompanying transfer of a business or of anything else.” 

Since Haelan, most states have recognized the right of an individual to capitalize on their fame (a right of publicity), but have done so without uniform legal test(s). This is one of the most significant issues underlying Keller v. Electronic Arts. [7]

[1] http://www.loc.gov/rr/program/bib/ourdocs/Alien.html
[2] The first Bill of Rights was ratified as Constitutional Amendments on December 15, 1791.
[3] Roberta Rosenthal Kwall, Fame, 73 IND. L.J. 1 (1997), as discussed in Southern California Law Review: The Right of Publicity Vs. The First Amendment: Will One test Ever Capture the Starring Role: http://weblaw.usc.edu/why/students/orgs/lawreview/documents/Franke_Gloria_79_4.pdf
[4] Id. For a great discussion on this topic, see Southern California Law Review: THE RIGHT OF PUBLICITY VS. THE FIRST AMENDMENT: WILL ONE TEST EVER CAPTURE THE STARRING ROLE?: 
[5] Pavesich v. New Eng. Life Ins. Co., 50 S.E. 68, 74 (Ga. 1905).
[6] See: Marquette University Law School: Baseball cards and the Birth of the Right of Publicity http://scholarship.law.marquette.edu/cgi/viewcontent.cgi?article=1156&context=facpub; also see Haelan Labs., Inc. v. Topps Chewing Gum, Inc., 202 F.2d 866 (2d Cir. 1953).
(7) http://dlr-law.com/3/post/2013/01/countdown-the-5-most-influential-video-game-lawsuits-of-2012-4-of-5-keller-v-electronic-arts.html

Number 3
Silicon Knights v. Epic Games

Earlier we posted West and Zampella v. Activision and Gate Five LLC v. Beyoncé Knowles-Carter, the first two of what we consider the 5 Most Influential Video Game Lawsuits of 2012.

The discussion continues here with Silicon Knights v. Epic Games, which, so far, has ended badly for Silicon Knights.

The Conflict
Recently concluded Silicon Knights v. Epic Games could be considered the legal equivalent of a cowboy barroom brawl, complete with broken chairs and bottles. In this case, Silicon Knights took a cowboy swing at Epic, but was countered with a vicious uppercut and then thrown through the saloon window and out onto the street.

The conflict began in 2005 when well-regarded Canadian independent video game developer Silicon Knights entered into an agreement with Epic Games to use Epic's software engine, Unreal 3, in a game called Too Human, which Silicon Knights was developing for Microsoft Game Studios. [1] Key to the decision was Epic’s promise to deliver a working version of Unreal for Xbox 360. [2] When Epic failed to do so—as Silicon Knights interpreted the contract—they sued.

Silicon Knights' first swing was impressive. In its initial complaint, filed in July 2007, it claimed fraud, negligent misrepresentation, intentional interference with contractual relations and economic advantage, breach of warranty, breach of contract, and other related issues. Silicon Knights suggested that the most incriminating evidence was the completeness of Epic’s own game, Gears of War, which, in comparison to Too Human, was vastly superior, when previews of both were shown at E3 in 2006. [3]  Silicon Knights then unabashedly accused Epic of intentionally and fraudulently diverting resources owed to its licensees in order to ensure the success of Epic's own game. [4]

Over the next five years, hundreds of documents and dozens of motions were filed. But in May 2012, Silicon Knights suffered a significant setback when the court disqualified an expert witness who had testified on their behalf on the amount of damages they had theoretically suffered. [5] That decision meant was that even if Silicon Knights had won, its damages would be limited to $1. [6]

By the end of the eleven-day trial, which concluded this year, not only had Silicon Knights lost the case entirely, but Epic prevailed on a counterclaim for breach of contract, copyright infringement, and misappropriation of trade secrets. Epic’s award, including damages, costs, and attorney fees, was a whopping $9 million. [7] Adding insult to injury, the court also ordered Silicon Knights to recall and/or destroy all copies of Too Human, X-Men: Destiny, Siren in the Maelstrom, The Sandman, and The Box/Ritualyst. [8]

In December 2012, Silicon Knights appealed, although many consider their chances at winning slight, given the weighty evidence against them. [9]

Why it’s Important
Shortly after filing suit against Epic, Silicon Knights publicly announced that they had scrapped Unreal and wrote their own engine in order to complete Too Human. [10] However, court documents reveal something slightly different. According to presiding Judge James C. Denver, Silicon Knights took portions of Epic’s Unreal Engine, in violation of their contractual agreement and copyright law. In Judge Denver’s decision, he stated that Silicon Knights had initiated a prolonged cover-up, taking steps to deliberately disguise and conceal hundreds of lines of Epic’s proprietary software, even going so far as to remove Epic’s copyright notices and other markings. [11] In that, Silicon Knights made a fatal mistake.

Within the context of a contractual dispute, a party has a general right (and obligation) to mitigate damages by taking steps to minimize costs and expenses. But mitigation has never included the right to infringe another’s copyright. The two are mutually exclusive, and Silicon Knights strengthened Epic’s case when they copied Epic's proprietary code and then made efforts to conceal it. [12] 

Silicon Knights, no doubt, thought things would end differently. After all, in a suit they filed against Crystal Dynamics a decade earlier, they came out much better. 

Silicon Knights v. Crystal Dynamics
In 1997, Silicon Knights sued video game publisher Crystal Dynamics. [13] According to court documents, the two had entered into a contract wherein Crystal Dynamics agreed to provide development funding and distribution for Blood Omen: Legacy of Kain in exchange for royalties and the right to create derivatives (sequels). [14] When Crystal Dynamics began working on a sequel without input from Silicon Knights, Silicon Knights sued, alleging, among other things, that Crystal Dynamics had entered into the original agreement with no intent to preform, and, echoing a similar assertion to what they argued against Epic, said that Crystal Dynamics had caused them several months of delay in their software development. [15]

The parties eventually settled out of court, with Crystal Dynamics retaining the underlying intellectual property, requiring credit to Silicon Knights. When they initiated their suit against Epic, perhaps Silicon Knights thought things would end similarly? If so, it was another fatal mistake. 

What it Means to the Industry
Both in the initial complaint and publicly thereafter, Silicon Knights had openly accused Epic of sabotaging its licensees by intentionally diverting resources to ensure its own success. In essence, they questioned Epic's good faith and fair dealings with all its existing, and, perhaps more importantly, future customers, saying,

“…rather than provide support to Silicon Knights and Epic’s other many licensees of the Engine, Epic intentionally and wrongfully has used the fees from those licenses to launch its own game...” [16]

Further, consider that Epic’s Unreal Engine had already been phenomenally successful. Epic maintained vital relationships with hundreds of licensors and partners, [17] and its software licensing business was worth millions of dollars in annual income. When Silicon Knights put Epic's reputation on the line, they put Epic in a position where it had to win in order to save face. That isn't wise when you're out-gunned.

Legal disputes are expensive, and the majority of independent developers can't sustain protracted litigation. Silicon Knights v. Epic illustrates just how badly things can go, and the lesson learned, regardless of whether you’re right (or think you are), is that throwing a punch at a bigger more experienced cowboy rarely ends favorably.

By Dan Lee Rogers (c) 2013

Read other Influential Video Game Suits of 2012 

• #4 Keller v. Electronic Arts
• #3 Silicon Knights v. Epic Games
  
• #2 Gate Five LLC v Beyoncé Knowles-Carter
  
• #1 West and Zampella v. Activision
  

[1] Silicon Knights v. Epic complaint, #49.
[2] Id. at #55.
[3] Epic’s Gears of War won best of show at E3 in 2006: http://www.ign.com/articles/2006/06/01/best-of-show-game-critics-e3-2006-winners. In comparison, Too Human was generally berated by reviewers: http://kotaku.com/280050/dyack-details-too-humans-e3-disappearing-act
[4] http://www.joystiq.com/2007/07/19/silicon-knights-sues-epic-over-unreal-engine-3-inadequacies/
[5] http://law.justia.com/cases/federal/district-courts/north-carolina/ncedce/5:2007cv00275/89570/697/
[6] http://law.justia.com/cases/federal/district-courts/north-carolina/ncedce/5:2007cv00275/89570/761
[7] http://www.dragndropbuilder.com/weebly/main.php#_ftn7
[8] http://www.joystiq.com/2012/11/09/silicon-knights-v-epic-games-judgment/
[9] http://penny-arcade.com/report/editorial-article/silicon-knights-to-destroy-games-code-and-give-up-millions-in-epic-lawsuit-
[10] http://www.gamesindustry.biz/articles/2012-03-23-too-human-got-a-bad-rap-sequels-still-possible-says-dyack; and http://www.develop-online.net/news/30355/SK-v-Epic-Justice-will-be-done-says-Dyack
[11] http://docs.justia.com/cases/federal/district-courts/north-carolina/ncedce/5:2007cv00275/89570/862/0.pdf?ts=1352377322
[12] Id., at page 18.
[13] http://www.leagle.com/xmlResult.aspx?xmldoc=19972286983FSupp1303_12147.xml
[14] Silicon Knights v. Crystal Dynamics, 983 F. Supp. 1303 (N.D. Cal. 1997)
[15] Id. at p. 64.
[16] Silicon Knights v. Epic complaint at introduction.


BACK

Number 2
Gate Five LLC v. Beyoncé Knowles-Carter

Continuing our discussion of influential video game lawsuits (see part one here), we consider Gate Five LLC v. Beyoncé Knowles-Carter, which pits a small video game developer against superstar power.

The Conflict

Before the spring of 2011, Gate Five LLC probably thought they had a hit game on their hands. After all, they had secured a licensing and performance agreement with iconic superstar Beyoncé, and were in the process of developing a game called Starpower: Beyoncé. But things fell apart.

According to Gate Five’s complaint, filed in The Supreme Court of New York in April 2011, Beyoncé demanded new terms. [1] Gate Five believed them extortionate, and when they refused, Beyoncé terminated the agreement, leaving Gate Five with unhappy investors (who had already paid out $6.7 million) and forcing them to layoff a staff of 70 employees just before the holiday. They sued, claiming $100 million in damages, [2] calling the acts of Beyoncé’s talent agents “morally reprehensible”. [3]

Beyoncé’s lawyers hold another view. According to press reports, they claim that Gate Five missed a critical financial deadline, and that Beyoncé was within her rights to terminate as a result. Gate Five acknowledges that the finance deadline was missed, but holds that Beyoncé was aware that they were finalizing $19.2 million in additional financing, and that the doctrine of estoppel prevents her from terminating the agreement. [4]

Hoping to end the case early, Beyoncé’s lawyers filed a motion for summary judgment, arguing that it was without merit. In the meantime, Gate Five sought court approval to force Ms. Carter to reveal conversations she allegedly had after terminating the contract, claiming such would prove that not only did she terminate the agreement unlawfully, but was, in fact, negotiating a deal with another video game publisher at the time. [5]

The lower court judge denied Beyoncé’s request for summary judgment, and, after her attorneys appealed, the New York Supreme Court’s Appellate Division, denied her request a second time. [6] Entering the New Year, the case is now clear to move forward.

Why it’s Important

Gate Five v. Beyoncé Knowles-Carter considers a rather complex area of contractual law, called the doctrine of estoppel, and weighs it against the technical obligation of contractual performance. In other words, if Gate Five was in breach of their agreement by failing to secure the financing specified, is Beyoncé still obligated to perform? Further, is Gate Five’s failure significant enough to relieve her from that commitment?

Estoppel Explained

Equitable estoppel originates from the law of equity and within an existing contractual relationship seeks to find fairness. A very simplified example may provide clarity. 

Say, for example, that you and I agree that you will mow my lawn for $25. We agree to other important terms, including a promise that you will start first thing Saturday morning and will conclude by dusk the same day. We shake hands. The deal is made. 

Unfortunately, your Saturday morning doesn’t start well. You arrive late, but I tell you it’s no problem. Your new mower doesn’t start. Again, I say, “Things happen. Don’t sweat it.” Then the mower blade is destroyed after hitting a small rock. 

You apologize, and I respond that everything is fine and that I think you’re doing a great job despite the setbacks. For the rest of the day you try your hardest to complete the job as promised. I watch from my balcony, nodding my head, which you believe means, “Good job, keep going.” 

Just after sun sinks below the horizon, you complete the final pass on the lawn, and when you come to the house to get paid, I tell you, “Boy, you sure had a rough day, didn’t you?  Unfortunately, you didn’t finish on time, and we agreed that you had to complete the job by dusk. You failed, so I don’t have to pay you.”

From a contractual perspective, all other issues aside, I’m right—technically. If the contract specified completion by dusk, then you’re in breach and my obligation is relieved. But is it fair?

Under the law of equity (equitable estoppel) I would still owe you your fee because there’s an element of reliance. I knew you were having trouble, yet I encouraged you, and, when you failed at the very last minute, I suddenly enforced my contractual right. Fairness dictates that I pay you.

Applying Equitable Estoppel to Gate Five v. Beyoncé Knowles-Carter

Gate Five and Carter are poised to argue essentially the same issue. If Gate Five failed to secure financing, but Beyoncé nevertheless encouraged, acknowledged, or endorsed it; her performance obligation could remain. On the other hand, if she made no such endorsements, offered no such encouragement or acknowledgment, then she could be free to terminate the agreement.

Without submerging into the depths of contractual law, minimally Gate Five will need to prove two things: 1) that it relied to its determent on promises made by Beyoncé or her management while Gate Five secured their financing; and 2) the enforcement of Beyoncé obligation is necessary to avoid injustice.[7] 

That said, Beyoncé, in all likelihood, will not be required to complete the game with Gate Five regardless, since courts have long since acknowledged that personal performance is difficult to compel. On the other hand, she could be barred, as Gate Five has requested, from entering a similar agreement with another video game publisher.[8] Perhaps more important is that if the court agrees with Gate Five, Beyoncé will be liable for the financial implications of her the termination, which Gate Five believes to be $100 million. 

As this case moves forward, it may require disclosure of documents that Beyoncé may not want made public. It will also require significant financial investment on both sides, and the outcome could go either way, depending on what evidence is actually presented and whether it is persuasive enough. With all that in mix, a settlement between the parties wouldn't be surprising, since both seem to have motivation to find common ground. 

What it Means to the Industry

When Gate Five secured its agreement with Beyoncé, it landed a very big fish. Did it hook something it couldn't realistically hold on to? Would things have been different had the deal been made directly with Activision, Electronic Arts, or Ubisoft?

I’ve been involved in several video game agreements with musicians over the years, including Christina Aguilera, Britney Spears, and Aerosmith. I’ve also worked on a number of film to video game contracts, and one thing has become clear to me: there’s sometimes a disconnect between the goals of the artistic community and those of the video game industry. Styles and legal approaches are somewhat different, and managing the agreements and relationships that bridge the two requires artful communication. 

The video game industry will continue leveraging high-powered, influential entertainment figures, but in doing so we need to keep in mind that landing a big fish and keeping it in the boat are two different matters entirely. 

By Dan Lee Rogers (c) 2013

 Read other Influential Video Game Suits of 2012 

• #4 Keller v. Electronic Arts
• #3 Silicon Knights v. Epic Games
  
• #2 Gate Five LLC v Beyoncé Knowles-Carter
  
• #1 West and Zampella v. Activision

[1] Gate Five’s Original Complaint: http://images.nymag.com/images/2/daily/2011/04/26_beyoncesummons.pdf
[2]  http://www.nydailynews.com/entertainment/judge-videogame-maker-100-million-lawsuit-beyonce-article-1.987803
[3] http://images.nymag.com/images/2/daily/2011/04/26_beyoncesummons.pdf
[4] http://www.hollywoodreporter.com/thr-esq/beyonce-video-game-lawsuit-gate-five-271442
[5] http://www.hollywoodreporter.com/thr-esq/beyonce-gate-five-videogame-lawsuit-354545
[6] http://law.justia.com/cases/new-york/appellate-division-first-department/2012/8433-651094-11.html
[7] http://scholarship.law.wm.edu/cgi/viewcontent.cgi?article=1018&context=wmblr&sei-redir=1&referer=http%3A%2F%2Fwww.google.com%2Furl%3Fsa%3Dt%26rct%3Dj%26q%3Dprecedent%2520cases%2520equitable%2520estoppel%2520and%2520breach%2520of%2520contract%26source%3Dweb%26cd%3D2%26ved%3D0CDsQFjAB%26url%3Dhttp%253A%252F%252Fscholarship.law.wm.edu%252Fcgi%252Fviewcontent.cgi%253Farticle%253D1018%2526context%253Dwmblr%26ei%3DINjhUJnGEK7piQLR_4D4CA%26usg%3DAFQjCNGwcDd8rvggu2k1aZ8R-YIF_M_I7w#search=%22precedent%20cases%20equitable%20estoppel%20breach%20contract%22
[8] http://scholarship.law.berkeley.edu/cgi/viewcontent.cgi?article=3367&context=californialawreview&sei-redir=1&referer=http%3A%2F%2Fwww.google.com%2Furl%3Fsa%3Dt%26rct%3Dj%26q%3Dentertainment%2520law%2520compel%2520personal%2520performance%26source%3Dweb%26cd%3D1%26ved%3D0CDEQFjAA%26url%3Dhttp%253A%252F%252Fscholarship.law.berkeley.edu%252Fcgi%252Fviewcontent.cgi%253Farticle%253D3367%2526context%253Dcalifornialawreview%26ei%3DD9vhUN_aAqb1igLq1IDYCg%26usg%3DAFQjCNG5s44HPzIaf8cFkxgQ3_qa1NvdGw%26bvm%3Dbv.1355534169%2Cd.cGE#search=%22entertainment%20law%20compel%20personal%20performance%22

BACK

Number 1
West and Zampella v. Activision

The video game industry isn’t a cult fad anymore. It’s a multi-billion worldwide enterprise, and along with its success comes legal risk to those who create and deliver the games that feed this ever-growing, ever-changing industry. As we enter a New Year, it’s important to learn whatever lessons we can from the noteworthy video game conflicts of 2012. 

So here's number 5: West and Zampella v. Activision, which began in 2010 and finally settled this year.

Number 5
West and Zampella v. Activision

The Conflict
This multi-party legal battle began in March 2010, when game publisher Activision fired Vince Zampella and Jason West, the founders of Infinity Ward, the game development studio behind Activision’s $7 billion franchise Call of Duty. [1] West and Zampella sued, [2] complaining that they were unjustly terminated in an effort by Activision to avoid paying out millions of dollars in royalties to them, in accordance with their employment contracts and a later amended Memorandum of Understanding. West and Zampella initially claimed damages of $36 million, but the amount was later amended to $1 billion [3] for Breach of Contract, Breach of Implied Covenant of Good Faith, Wrongful Termination, and Declaratory Relief.

Activision quickly filed a cross-complaint for Breach of Loyalty, Breach of Employment Agreements, Breach of Contract—Memorandum of Understanding, Breach of Implied Covenant of Good Faith, and Declaratory Relief, claiming West and Zampella were insubordinate, self-serving schemers. [4] 

In December 2010, Activision added Electronic Arts to its now $400 million cross-complaint, alleging that executives at the highest levels within EA had engaged in unlawful conduct when, with the help of Creative Artist Agency, they assisted West and Zampella in establishing Respawn Entertainment, which began developing games for EA. [5]

The legal web tangled further when forty former Infinity Ward employees filed suit against Activision, demanding hundreds of millions of dollars in bonus payments and royalties for Activision’s failure to pay them royalties on Modern Warfare 2.

For two years the parties engaged in a legal battle of paperwork and motions that revealed  questionable practices on all sides. According to court documents, prior to firing West and Zampella, Activision had instructed IT Director Thomas Fenady to dig up dirt on the two in an effort to find grounds to fire them [6] The plan, dubbed Project Icebreaker, included an attempt to hack into Infinity Ward's computers, and while it was unsuccessful it nonetheless put Fenady and others in compromising positions. [7] Equally interesting was Electronic Arts’ questionable efforts to recruit Zampella and West, going so far as sending a private jet to transport them to a meeting with EA's CEO, John Riccitiello. [8]

The Settlement
On May 31, 2010, the day the trial was to begin, West and Zampella announced that they had finally resolved their dispute. While the settlement details were not disclosed, Activision confirmed that it paid out an unspecified amount to the duo, stating that the one-time charge would not materially affect its earnings.[9] EA and Activision had settled their dispute two weeks earlier, with little or no money changing hands. [10] Activision also settled the lawsuit with the former employees at that same time, paying out $42 million in unpaid bonuses. [11]

Why it’s Important
West and Zampella v. Activision represents the extreme of an employee-employer relationship gone wrong in the entertainment industry. With billions of dollars at stake, greed sometimes clouds the vision of reasonable people. Taking a step back, behavior on both sides appears, at times, dubious. Evidence presented shows that West and Zampella likely held back an Activision project in order to allow Electronic Arts to release Battlefield: Bad Company 2. [12] They also began negotiating an agreement with Electronic Arts two years prior to the expiration of the term of their employment agreement—which is a significant time even given the circumstances. Yet, according to court documents, Activision was actively trying to find a way to fire them. Evidence also indicates that Activision was clearly motivated by money, believing that the employment agreements they made with the two were too rich.

Electronic Arts’ hands were equally unclean. They recruited a top talent agency to secure relationships with West and Zampella, and one can reasonably speculate that the exclusivity of the developers' employment with Activision had to have come up. So why did EA continue? Perhaps West, Zampella, and EA knew ahead of time that Activision was looking to fire the two developers? Was it West and Zampella’s way of protecting themselves, their families, and their creative content? Was Activision’s conduct as distasteful as it appears, or were they only trying to protect their biggest franchise and other Activision employees?

What it Means to the Industry
What is clear to us now is that parties within the video game industry have the ability to go to surprising lengths to protect lucrative franchises. West and Zampella v. Activision quickly spiraled into a multi-billion dollar lawsuit, sweeping into its path forty former employees and one of Activision’s biggest competitors, Electronic Arts. While it ultimately settled out of court, we know that EA’s Medal of Honor franchise has so far failed to oust Activision’s Call of Duty despite EA's efforts to re-establish this directly competitive franchise, an EA goal since at least 2010. [13] In fact, reviews of EA’s latest version of Medal of Honor earned a meager 50 out of 100 on Metacritic’s aggregate review score. [14] In the meantime, according to IGN, Respawn Entertainment (West and Zampella’s new studio) has been quietly working on a sci-fi based first person shooter, scheduled to release in 2015. [15] The question begging to be answered there is whether the five-year delay was intentional or whether EA and Respawn had to develop from the ground up a new engine they hadn't planned on building.

By Dan Lee Rogers (c) 2013

 Read other Influential Video Game Suits of 2012 

• #4 Keller v. Electronic Arts
• #3 Silicon Knights v. Epic Games
  
• #2 Gate Five LLC v Beyoncé Knowles-Carter
  
• #1 West and Zampella v. Activision

[1] According to Forbes, the Call of Duty franchise has generated more life to date sales than both Star Wars and Harry Potter movie franchises: http://www.forbes.com/sites/davidthier/2012/11/16/money-machine-call-of-duty-black-ops-2-rakes-in-500-million-in-24-hours/; Call of Duty Black Ops 2 generated $1 billion in retail sales in 15 days, while Call of Duty: Modern Warfare 3 generated $1 billion dollars 16 days, according to EuroGamer.net: http://www.eurogamer.net/articles/2012-12-05-call-of-duty-black-ops-2-makes-USD1bn-a-day-quicker-than-modern-warfare-3
[2] Copy of original complaint at: http://kotaku.com/5485703/ousted-infinity-ward-founders-lawsuit-against-activision-the-court-documents/gallery/1
[3] http://latimesblogs.latimes.com/entertainmentnewsbuzz/2010/03/fired-call-of-duty-developers-sue-activision-for-more-than-36-million.html. Later, petitioners Zampella and West, in claimed damages  of $1 billion after initial discovery: http://www.bloomberg.com/news/2012-05-15/activision-seeks-delay-as-warfare-trial-claims-hit-1-billion.html
[4] http://kotaku.com/5513734/activision-infinity-ward-gallery/gallery/1
[5]http://www.gamasutra.com/view/news/32159/InDepth_Activision_Adds_EA_To_400M_CrossComplaint_Against_West_Zampella.php#.UN9GE3PjkR4
[6] http://www.gameranx.com/updates/id/6804/article/activision-tried-to-dig-up-dirt-on-former-employees/; http://articles.latimes.com/2012/may/31/entertainment/la-et-ct-activision-call-of-duty-lawsuit-settled-20120530
[7] http://www.thesixthaxis.com/2012/05/17/kotick-accused-of-ordering-westzampella-computer-hack/
[8] http://www.gamespot.com/news/ea-added-to-activisions-zampella-west-suit-6286660
[9] http://console-news.dcemu.co.uk/activision-vs-zampella-amp-west-case-settled-out-of-court-458932.html
[10] http://articles.latimes.com/2012/may/17/entertainment/la-et-ct-settlement-with-activision-call-of-duty-20120517
[11] http://www.escapistmagazine.com/forums/read/7.375207-Activision-Pays-Out-to-Former-Infinity-Ward-Employees
[12] http://www.eurogamer.net/articles/2012-05-23-activision-vs-west-zampella-lawsuit-docs-exhibit-b
[13] http://news.cnet.com/8301-13506_3-20024621-17.html
[14] Please note that Respawn did not work on the latest Medal of Honor. http://venturebeat.com/2012/10/30/ea-acknowledges-medal-of-honor-warfighter-sales-will-be-below-expectations/
[15] http://www.ign.com/articles/2012/02/07/report-respawn-entertainments-first-game-in-2013

BACK

Yesterday, Instagram's CEO, Kevin Systrom, apologized in a blog post, promising that the company would revisit the company's new Terms of Use, scheduled to go into effect on January 16, 2013. 

Unfortunately, the promise does little to address the underlying issue of intellectual property ownership and the exploitation of user data across all social media. Here's what Mr. Systrom promised: 

"The concerns we heard about from you the most focused on advertising, and what our changes might mean for you and your photos. There was confusion and real concern about what our possible advertising products could look like and how they would work... Because of the feedback we have heard from you, we are reverting this advertising section to the original version that has been in effect since we launched the service in October 2010..."

The problem is that Instagram's apology and reversion to the existing contract does nothing to restrain their right to use your photographs and personal data in any way they choose. Even with the reversion, they can use your photographs, including in an advertisement. The existing language they are reverting to is found under the RIGHTS section of the user agreement:


"Instagram does not claim ownership of any Content that you post on or through the Service. Instead, you hereby grant to Instagram a non-exclusive, fully paid and royalty-free, transferable, sub-licensable, worldwide license to use the Content that you post on or through the Service, subject to the Service's Privacy Policy, available here http://instagram.com/legal/privacy/, including but not limited to sections 3 ("Sharing of Your Information"), 4 ("How We Store Your Information"), and 5 ("Your Choices About Your Information"). You can choose who can view your Content and activities, including your photos, as described in the Privacy Policy."

In our blog post yesterday, Instagram's Messy Manifesto, we explained that this contractual language allows Instagram to use your photographs and information under license, and it's easy to see that the rights they have are broad and only limited by their privacy policy.  Their Privacy Policy does distinguish between public and privately posted information, but the bigger issue is in Instagram's ability to use and exploit your information under the licensing agreement above.  

If we've learned anything from this adventure with Instagram, it's in realizing where their head is at. In fairness to them, we should accept Mr. Systrom's apology and promise as sincere.  I do believe they value their customers.  At the same time, Instagram is under new ownership now, and we know that the Facebook executives approach advertising more aggressively. Let's not forget how all this started: Instagram restated its Terms of Use in effort to clarify their intent. I'm not convinced yet that this has changed. By Dan Lee Rogers (c) 2012