<![CDATA[LAW OFFICE OF DAN LEE ROGERS - Writings & Pubs]]>Sun, 20 Apr 2014 11:59:22 -0800Weebly<![CDATA[Hitting the Reset Button on Video Game Copyrights]]>Tue, 13 Aug 2013 02:37:30 GMThttp://dlr-law.com/3/post/2013/08/hitting-the-reset-button-on-video-game-copyrights.htmlPicture
Space Invaders—the video game that effectively set the interactive entertainment industry on fire—turned thirty-five this year. 

And thirty-five is a magic number when it comes to copyright termination. Thirty-five is effectively Cinderella’s midnight for hundreds, perhaps thousands, of music, book, film, and video game publishers who believe they have secured the intellectual property rights to another’s work indefinitely.

What may surprise them (and you) is that in 1976 Congress amended Section 203 of the United States Copyright Act, allowing authors of works published after 1978 to reclaim the rights to their creations.  And, in some instances, these rights extend to video games.

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Illustration 1
U.S. Copyright Section 203 specifies the following:

  In the case of any work other than a work made for hire, the exclusive or nonexclusive grant of a transfer or license of copyright or of any right under a copyright, executed by the author on or after January 1, 1978, otherwise than by will, is subject to termination under the following conditions….

With proper notice (explained below), individuals and joint video game authors can reclaim their original intellectual property rights, and iconic video game publishers and rights holders may begin scrambling like Halo Banshees as a result.

In the music industry, for example, Tom Petty, Bob Dylan, and Tom Waits have filed termination notices for many of their works. [1] So too have the 70s-80s iconic country rock group the Eagles, [2] Ray Charles, and Charlie Daniels.

So why haven’t we heard about this on the video game front? Probably because we tend to think in terms of nano-seconds rather than decades.

Video Games - Thirty-Five Years Ago

Here's something to think about: in 1978, Japanese publisher Taito Corporation released Tomohiro Nishikado’s Space Invaders, which featured successive rows of alien creatures slowly descending on a lonely gun station. Since then, game players have defended earth against Nishikado’s invasion over three billion times. Asteroids was released in 1979, the year after Space Invaders. Pac-Man came out in 1980. And in 1981, Nintendo’s ubiquitous Mario first walked in two-dimensional space. And video game property published during this era falls within the scope of Copyright termination law.

Reclaiming Video Game Copyrights

What does it take to reclaim video game rights? Here's the big-picture list:

  1. The original work cannot be a work made for hire.  35 years ago, if you were an employee of a company creating a game, then termination wouldn’t apply. Neither would it apply if you signed an agreement specifying the work as one made for hire. 
  2. Only the original authors or their heirs can reclaim your rights. 
  3. It only applies to U.S. copyrights.
  4. It doesn’t apply to derivative works. 
  5. Games created by joint authors (more than one person) require a majority to agree in writing. 
  6. Termination must occur within 5 years after the 35-year period (40 years in some instances).
  7. A notice window from 2 years (minimum) to 10 years (maximum) is required.

An Example

Perhaps this illustration will make the above more clear:

Back in 1980, Sam and Sally created an original game called Crazy Adventure. Sam created the sprite-based art, and Sally programmed it on her new Tandy TRS-80. The same year, they signed a publishing agreement with Big Publisher, who paid them a whopping advance on sales of $1000, plus 10% of the net royalties. In the agreement, Sam and Sally assigned all intellectual property rights to Big Publisher, which later published two additional versions of the game: Crazy Adventure 2 and Crazy Adventure On Steroids.

Fast forward to present day. Sam and Sally used their Crazy Adventure royalties to buy the laundry they still work at. Retirement is but a pipe dream.

Then Sally stumbles on this little known law while reading a copy of the recently revived Byte Magazine (her favorite, by the way), and she calls an attorney using a still-working 1200-baud modem, wondering if copyright termination applies to Crazy Adventure.

The attorney explains that since Sam and Sally were clearly not employees of Big Publisher when they signed their original agreement, and because they never signed a work made for hire provision, then Section 203 applies, provided they both agree to terminate Big Publisher’s rights, since they are joint authors. Unfortunately, they don't have termination rights to the derivatives: Crazy Adventure 2 and Crazy Adventure, On Steroids

Sam pulls out his handy-dandy scientific calculator, the one he still carries in a holster on his belt, and calculates that because their game was published in 1980, he and Sally have until 2020 to terminate Big Publisher’s rights. The last date of notice is 2018—still plenty of time—but their rights can revert as soon as 2015, which means they can give notice now.

Sam and Sally leap for joy, not knowing that a fight will likely ensure.

Expect a Fight

If other creative industries are any indication, then video game publishers aren’t going to give in easily. Music publishers, as an example, have been making some fairly creative legal arguments that delay the process, but hopefully won't change the inevitable. After all, the law is valid, and the rights of legitimate authors can be enforced.

An Interesting Thought…

The games in illustration 1 give you a good idea of what properties were in play 35+ years ago. This isn't to suggest that the rights to these specific games can be terminated, and my guess is that many were created by in-house teams—thus work created by employees within the scope of their employment. But other games created during these years were no doubt created by outside, independent developers, and these rights could very well  be subject to Section 203.

Best, Dan

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[1] http://www.hollywoodreporter.com/news/tom-petty-bob-dylan-copyright-law-music-rights-289295
[2] http://www.wired.com/business/2009/11/copyright-time-bomb-set-to-disrupt-music-publishing-industries/

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<![CDATA[The Real Meaning of Work Made for Hire in the Video Game Industry]]>Fri, 09 Aug 2013 03:48:00 GMThttp://dlr-law.com/3/post/2013/08/the-real-meaning-of-work-made-for-hire-in-the-videogame-industry.htmlPicture

If you’ve worked in the videogame industry for any length of time, you’ve undoubtedly come across legal language similar to this:

The Game and all other Intellectual Property that the Developer creates in connection with the services provided under this Agreement shall be considered work made for hire, and shall therefore be the sole and exclusive property of Publisher from the time of creation.


But Few Understand What Work Made for Hire Means.

In a videogame contract, Work Made for Hire is a means of clarifying the copyright ownership of whatever creative work is being developed between the parties.  In the context of a videogame publisher-developer relationship, it is used to ensure that the publisher owns developer-created assets and game content.  As a developer, when you see Work Made For Hire in your contract, you should be thinking, “What intellectual property rights did I just give up?” And the answer, most of the time, is that you’ve given up all your intellectual property rights.

In a videogame developer-independent contractor relationship—a 3D artist working on subcomponents of a game, for example—the same principle applies. If Work Made for Hire appears in your developer-contractor agreement, then the developer is expressing a desire to own and exclusively control the work that an independent artist is creating.

So What Happens When There Isn’t a Work Made for Hire Contract or Provision?

Technically, Work Made for Hire is a contractual clarification of the relationship between the parties. If you’re an artist, musician, programmer, or designer, but not an employee, and you’re either a) working without a written agreement altogether, or b) there isn’t a Work Made for Hire provision in your agreement, then its likely that you’ve retained your intellectual property rights, despite being paid to create them.

How can this be true?

Under U.S. Copyright law, artistic creations—whether art, music, programming code, or game designs—vest to the creator, unless a work made for hire arrangement is in place.

What surprises many is that the act of paying for a creative work doesn’t automatically give the payor the intellectual property rights of the creator.

This idea is codified in Section 101 of Title 17 of the United States Code:

A “work made for hire” is— 

 (1)  a work prepared by an employee within the scope of his or her employment; or

 (2)  a work specially ordered or commissioned for use as a contribution to a collective work, as a part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a compilation, as an instructional text, as a test, as answer material for a test, or as an atlas, if the parties expressly agree in a written instrument signed by them that the work shall be considered a work made for hire.

Understanding Category 1 – Work Created by an Employee.

In unraveling the language in Number 1 above, it’s clear that work created by an employee is work made for hire. As such, the employer owns the underlying intellectual property rights. But the trick is in figuring out whether a binding employer-employee relationship exists. And that’s where things get more complicated.

Under copyright law, the term employee is different than what most people assume.

As an example, let’s assume that you’re the employer, and you’ve hired someone to create 3D art for your new game.

To determine whether they are an employee under copyright law, we have to examine the nature of the relationship as codified in a U.S. Supreme Court case, Community for Creative Non-Violence v. Reid: [1]

1)   Do you, the employer, have control over the work? Do you determine how the work is done? Is the work done at your location or does the artist create their work offsite? Do you provide equipment or other means for the artist to create their work?

In our example, the artist works from home, but comes in your office once a week to pick up their check and show you their progress. They use their home computer and their own personal copy of Maya (graphics software). You only provide general direction over their work.

Not withstanding other considerations, the artist probably owns the art they create, and your rights are limited either to a non-exclusive license to use it, or a claim that it’s a jointly owned work, giving both parties equal intellectual property rights.

2)   Do you control the artist’s schedule? Can you assign other tasks to them?

In our example, the artist works on a schedule they alone determine (provided they hit their milestones), and they have the right to refuse additional work from you. 

As was true in the prior illustration, not withstanding other considerations, the artist probably owns the art they create, and your rights are limited either to a non-exclusive license to use it, or a claim that it’s a jointly owned work, giving both parties equal intellectual property rights.

3)   Do you provide the artist with health insurance and other benefits? Do you withhold tax?

 In our example, you pay the artist a set fee, and you don't deduct taxes or provide health or retirement benefits. 

Just as it was true in the prior two illustrations,  not withstanding other considerations, the artist probably owns the art they create, and your rights are limited either to a non-exclusive license to use it, or a claim that it’s a jointly owned work, giving both parties equal intellectual property rights.

Note that the factors above (called the Reid factors after the precedent case) are not conclusive or exhaustive in determining whether an employer-employee relationship, but they are indicative of whether you’re treading dangerous water.

Understanding Category 2 – Work Created in One of Nine Enumerated Categories.

In addition to the employer-employee test discussed in Category 1, copyright law specifies that if a work is included in one of nine categories (a collective work; a part of a motion picture or other audiovisual work; a translation; a supplementary work; a compilation; an instructional text; a test; answer material for a test; or an atlas) then a written instrument signed by both parties is required for that to be considered a work made for hire.

For simplicity sake, I’ll narrow our discussion to two common problems in the videogame industry.

1.     A videogame, as a whole, is considered an audio-visual work under copyright law. [2] As such, it is included in the nine categories (audio-visual), and unless there is a work made for hire agreement, signed by both parties, then the work still belongs to the creator.

2.     The computer code underlying the videogame is considered a literary work under copyright law. [3] As such, it is not in included in the nine categories, and without an agreement in place, it falls outside the statute. In other words, the programmer owns the work.

There are other ways of proving ownership—a common law argument, as given in the Reid case—but enforcing these arguments is costly and risky. As such, it’s always better to clarify the relationship before the work begins.

Conclusion.

So the bottom line is this:

If you’re an independent artist, programmer, musician, or designer, pay attention to the work made for hire provision in your agreement. You may be giving up more than you intended.

If you’re a publisher or a developer hiring independent artists and programmers, and you want to own the intellectual property they create, then you need a work made for hire provision in your agreement. Without one, you probably own less than what you think. 

Best, Dan


[1] In a precedent U.S. Supreme Court case, Community for Creative Non-Violence v. Reid, 490 U.S. 730 (1989), the Court concluded that “In the past, when Congress has used the term "employee" without defining it, we have concluded that Congress intended to describe the conventional master-servant relationship as understood by common law agency doctrine.”
[2] Stern Elecs., Inc. v. Kaufman, 669 F.2d 852 (2d Cir. 1982).
[3] Williams Elecs., Inc. v. Artic Int'l, Inc., 685 F.2d 870 (3d Cir. 1982).


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<![CDATA[The Future of Reselling Digital Video games]]>Tue, 06 Aug 2013 20:04:15 GMThttp://dlr-law.com/3/post/2013/08/the-future-of-reselling-digital-video-games.htmlPicture

The decision in ReDigi v. Capitol Records probably means that you can't resell your digitally downloaded video games—but for reasons that may surprise you. 

CAPITOL v. REDIGI
Marketing itself as the world’s first and only online marketplace for digital used music, ReDigi, Inc. launched an on-line business in October 2011 that allowed users to resell legally acquired iTunes music. To facilitate the transaction, users downloaded a software utility that verified the music files on their local computer, and then transferred them to ReDigi’s centralized cloud locker, where others could purchase the songs for less than the original sale price. ReDigi asserted the digital music only resided in one location at any time, so there was no copyright infringement.

Capitol Records didn’t agree, and they filed a lawsuit in July 2012, complaining that the owner of a work retains the exclusive right of reproduction and distribution under U.S. copyright law. [2] ReDigi’s act of transferring iTunes music to their cloud locker created an unauthorized  “copy” in violation of Capitol’s rights.

The New York Southern District Court agreed with Capitol, even though the original music file was deleted from a user’s computer. The court reasoned that reproduction of a copyrighted work occurs when it is fixed in a new material object, stating 

It is beside the point that the original phonorecord no longer exists.  It matters only that a new phonorecord has been created.” [3] 

REDIGI'S FAILED DEFENSE
ReDigi argued that its service was protected under the First Sale Doctrine, a 105 year old law that allows purchasers of books, audio records, and other copyrighted material to resell them. [4]

The ReDigi court didn't agree.  They held that the First Sale Doctrine wasn’t applicable, and differentiated between reselling physical and digital goods, saying that ReDigi’s process was similar to the illegal copying of music via P2P services such as Napster and Grokster, despite the fact that only a single copy of a digital good was accessible. 

The court reasoned that “…it is the creation of a new material object and not an additional material object that defines the reproduction right [of the rights holder].”

In other words, the First Sale Doctrine didn’t apply because ReDigi’s service created an unauthorized second copy, whereas in reselling a physical good—such as a vinyl record or book—the physical good is transferred between owners without a second copy ever being made. 

APPLIED TO VIDEO GAMES
The ReDigi decision has reaching implications for all digital media, including video games. In 2012, 40% of all video games sold in the United States were done so digitally, totaling over $5.9 billion dollars, according to the NPD Group.  Reselling used video games generated 27% of Gamestop's 2012 business, or approximately $1.8 billion dollars in revenue. Consumers have become accustomed to reselling their games as a means to buy new ones.  So while the defendant in ReDigi was reselling digital music, the similarities in content and law are enough that those in the video game industry should take notice.

In 1908, in the First Sale Doctrine case discussed above, Bobbs-Merrill Co. v. Straus, the Supreme Court was asked whether the purchaser of a book, in this case one entitled The Castaway, had the right to resell it. The question at bar was this:

"Does the sole right to vend... secure to the owner of the copyright the right, after a sale of the book to a purchaser, to restrict future sales of the book at retail, to the right to sell it at a certain price per copy, because of a notice in the book that a sale at a different price will be treated as an infringement, which notice has been brought home to one undertaking to sell for less than the named sum?"

The Supreme Court answered that while a copyright owner has the right to multiply and sell his production, this does "not create the right to impose, by notice, such as is disclosed in this case, a limitation at which the book shall be sold at retail by future purchasers, with whom there is no privity of contract."

In other words, the re-selling of books was and still is a lawful activity. 

Assuming you have the right to re-sell a digital good you've purchased, if you make a copy of it in the process of facilitating an exchange, under ReDigi  you've infringed the owner's copyright. Practically speaking, this prevents re-selling all digital goods--unless you sell the computer or iPhone holding the work along with it.

But chances are good that you don't own the digital good anyway.

DIGITAL LICENSES OFTEN PREVENT THE TRANSFER OF OWNERSHIP
The ReDigi decision was based on the physical act of copying bits from one device to another, which is a right reserved to copyright owners. But few realize that publishers rarely sell you a digital good. They license it to you.  And under the terms of use that you have agreed, you probably don’t have the right to resell it. 

From a legal perspective, licensing terms are terms of contract, and as applied to Bobbs-Merrill Co. v. Straus, there is privity of contract. So licensing, at least for the time being, allows digital goods copyright owners a way to avoid the First Sale Doctrine entirely.

Consider Apple’s iTunes End User Licensing agreement term:

“The Products transacted through the Service are licensed, not sold, to You for use only under the terms of this license….” [5]

Apple then lets you know that you are not allowed to transfer your license to someone else:

This license granted to you… is limited to a nontransferable license to use…” [6]

Activision’s End User License Agreement provides similar language:

“LIMITED USE LICENSE.  Activision grants you the non-exclusive, non-transferable, limited right and license to use one copy of this Program solely and exclusively for your personal use.” [7]

And they too do control your ability to transfer the license to someone else.”

“You Shall Not: … Sell, rent, lease, license, distribute or otherwise transfer this Program, or any copies of this Program, without the express prior written consent of Activision.” [8]

So what’s the difference between licensing and owning a game? 

LICENSE VERSUS OWNERSHIP EXPLAINED
Consider the difference between purchasing a home and leasing one.  A home owner can resell their property, but a lessee can’t. A lessee agrees in a signed contract to follow rules, which can be more restrictive than what the owner themselves must ascribe to. 

In the same way, a digital license agreement is limited to the terms you agree to by clicking yes at the end of a multi-page, complex on-line agreement. [9] In that agreement, you almost always agree that you do not have the right to transfer your rights to someone else. 

BUT IS IT FAIR?
Digital goods are different than physical goods, in that physical goods are subject to wear and use, whereas a copy of a digital good can be reproduced identically and in perpetuity. Those who favor limiting  the rights of digital goods owners view Capitol v. ReDigi as a significant win. But with the rapid shift of copyrighted works from physical form to stored digital media, whether in the form of Amazon purchased movies and television shows to iTunes music to digitally downloaded video games, there seems to be something fundamentally unfair in a license-only transaction, especially considering a widespread perception that consumers actually own the the digital goods they purchase.




[1] Capitol Records, LLC. v. ReDigi, Inc., Dist. Court, SD New York , N. 12 Civ. 95 (RJS), March 30, 2013.

[2] 17 U.S.C. §§ 106(1), (3)-(5).

[3] Capitol Records, LLC. v. ReDigi, Inc.

[4] Articulated in Bobbs-Merrill Co. v. Straus, 210 U.S. 339, 350 (1908) and now codified at Section 109(a) of the Copyright Act, the owner of a particular copy or phonorecord lawfully is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that work.

[5] Emphasis added. Apple iTunes End User Licensing Terms and Conditions: https://www.apple.com/legal/internet-services/itunes/us/terms.html

[6] Emphasis added. Id. 

[7] Emphasis added. Activision Black Ops licensing agreement: http://store.activision.com/store/atvi/en_US/Content/pbPage.eula_black_ops?resid=UgE9agoBAlUAACOICZEAAAAa&rests=1375812969748

[8] Emphasis added. Id.

[9] Click wrap licensing agreements have generally been held enforceable. See  Burcham v. Expedia, Inc., WL 586513 (E.D. Mo. Mar. 6, 2009;  Hotmail Corporation v. Van Money Pie Inc., et al., C98-20064 (N.D. Ca., April 20, 1998)); ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996)); and  Specht v. Netscape Communications Corp., 150 F.Supp.2d 585 (S.D.N.Y. 2001).

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<![CDATA[Ninth Circuit Rules Against EA in Keller v. Electronic Arts]]>Thu, 01 Aug 2013 23:59:07 GMThttp://dlr-law.com/3/post/2013/08/countdown-the-5-most-influential-video-game-lawsuits-of-2012-4-of-5-keller-v-electronic-arts.htmlPicture
Right of Publicity in Video games

Earlier this year I discussed Keller v. EA, a right of publicity case [1] that was appealed by EA to the Ninth Circuit Court, primarily on the basis of a First Amendment Right to use NCAA player likenesses in their college football games. The Ninth Circuit issued its opinion yesterday, holding against EA, in what may prove to be a fatal and perhaps final blow in EA's self-proclaimed right to use sports figure likenesses in a game without express permission.

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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].

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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.     

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Understanding Keller

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]

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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]

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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, argued otherwise. They purported 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. 

However, Hart appealed to the Third Circuit and the lower court opinion was reversed in his favor. Earlier this month, EA requested a full Appeals Court review (rather than a three-judge panel), and the court refused, leaving EA with limited options.

Ninth Circuit Decision

With the Ninth Circuit's 2-1 decision holding against EA's First Amendment argument in Keller as well, Electronic Arts options are even more limited. No doubt they will appeal to the United States Supreme Court, but there is no guarantee that the Supreme Court will hear the case. In that event, the Ninth's decision will hold in cases with similar facts and circumstances.

By Dan Lee Rogers (c) 2013

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

1. California’s right of publicity law provides for damages up to $1000 per likeness per platform, plus treble damages if the use was willful or intentional. See http://usatoday30.usatoday.com/tech/news/2011-08-02-ncaa-lawsuit-electronic-arts_n.htm for a discussion of the damages of this suit.
2. http://www.courthousenews.com/2009/05/06/ElectronicArts.pdf 
3. Keller claims EA violated its right of publicity under California Civil Code §3344, which states: Any person who knowingly uses another's name, voice, signature, photograph, or likeness, in any manner, on or in products, merchandise, or goods, or for purposes of advertising or selling, or soliciting purchases of, products, merchandise, goods or services, without such person's prior consent, or, in the case of a minor, the prior consent of his parent or legal guardian, shall be liable for any damages sustained by the person or  persons injured as a result thereof.
4. NCAA Division I Manual 2008 states, in part, that a student athlete’s amateur status is lost if the student athlete uses his/her athletics skill for pay or signs a contract or commitment of any kind to play professional sports (12.1.2). However, a member institution may use student athlete’s name, picture, or appearance to support charitable, educational, and activities incidental to participation provided such use is to support the charity or educational activities considered incidental to the student athlete’s participation in intercollegiate athletics. (12.5.1): http://www.maine.edu/pdf/NCAADivision1RulesandBylaws.pdf
5. See http://usatoday30.usatoday.com/tech/news/2011-08-02-ncaa-lawsuit-electronic-arts_n.htm  
6. EA had further argued that transformativeness is not the only test that should be applied. Rather, in looking at both the public interest and a test borrowed from trademark law, called the Rogers test, EA claimed that Keller’s claim suit was without merit. Nevertheless, the Keller court chose not to use the Rogers test, and it discounted EA’s public interest argument as well, focusing instead on transformativeness.
7. Winter v. DC Comics, 30 Cal. 4th 881, 885
8. Comedy III Productions, Inc. v. Gary Saderup, Inc., 25 Cal. 4th 387, 409 (Cal. 2001)
9. Id., at 808.
10. Id at 811.
11. Winter supra.
12. The transformativeness test used in Comedy III is as follows: “The test to determine whether a work merely appropriates a celebrity's economic value, and thus is not entitled to protection the First Amendment, or has been transformed into a creative product that the First Amendment protects, is whether the celebrity likeness is one of the ray materials from which an original work is synthesized, or whether the depiction or imitation of the celebrity is the very sum and substance of the work in question. The court asks whether a product containing a celebrity's likeness is so transformed that it has become primarily the defendant's own expression rather than the celebrity's likeness.”
13. Id., at 479. 
14. Kirby v. Sega of America, Inc., 144 Cal. App. 4th 47 (Cal. App. 2d Dist. 2006)
15. Id at 59.
16. The Rogers test resulted from Rogers v. Gramaldi, and has been applied to a number of right of publicity claims.  That test, in essence, asks: whether the challenged work is wholly unrelated to the underlying work, or whether the use of the plaintiff’s name and/or likeness is simply a disguised commercial advertisement. The Rogers test history lies in trademark infringement (thus the language here), whereas the Transformative test is rooted in copyright law.
17. Moved to Federal Court from the Superior Court of New Jersey on November 24, 2009.
18. See United States District Court of New Jersey Opinion: http://docs.justia.com/cases/federal/district-courts/new-jersey/njdce/3:2009cv05990/235077/23/0.pdf?1285240988
19. Rogers v. Gramaldi, 875 F.2d 994 (2d Cir. 1989) 
20. Hart, 808 F.Supp.2d at 783-786
21. http://www.nytimes.com/2010/11/16/sports/16videogame.html?_r=0
22. http://www.nytimes.com/2009/07/04/sports/04ncaa.html?_r=0 
23. http://www.loc.gov/rr/program/bib/ourdocs/Alien.html
24. The first Bill of Rights was ratified as Constitutional Amendments on December 15, 1791.
25. 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
26. 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?:
27. Pavesich v. New Eng. Life Ins. Co., 50 S.E. 68, 74 (Ga. 1905).
28. 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).    

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<![CDATA[Ask an Attorney: Answering Legal Questions about App and Video Game Development]]>Mon, 15 Apr 2013 02:17:06 GMThttp://dlr-law.com/3/post/2013/04/ask-an-attorney-answering-your-legal-questions-about-app-and-video-game-development.htmlPicture

 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. 
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<![CDATA[So What the Heck is a Platform Anyway?]]>Tue, 19 Mar 2013 05:47:34 GMThttp://dlr-law.com/3/post/2013/03/so-what-the-heck-is-a-platform-anyway.htmlPicture
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.
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<![CDATA[App.Oops - Six Legal Mistakes App Developers are Making (Part 2 of 2)]]>Sun, 17 Mar 2013 16:29:32 GMThttp://dlr-law.com/3/post/2013/03/appoops-six-legal-mistakes-app-developers-are-making-part-2-of-2.htmlPicture
Creating a bulletproof corporate shield.
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.


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<![CDATA[App.Oops - Six Legal Mistakes App Developers are Making (Part 1 of 2)]]>Wed, 13 Mar 2013 20:00:27 GMThttp://dlr-law.com/3/post/2013/03/appoops-six-legal-mistakes-app-developers-are-making-part-1-of-2.htmlPicture
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).

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<![CDATA[The First Amendment and The Right of Publicity]]>Tue, 29 Jan 2013 03:59:57 GMThttp://dlr-law.com/3/post/2013/01/january-20th-2012.htmlThe First Amendment states, in part, that Congress shall make no law…. abridging the freedom of speech, or of the press.
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

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<![CDATA[Countdown: The 5 Most Influential Video Game Lawsuits of 2012, Silicon Knights v. Epic Games]]>Wed, 02 Jan 2013 22:59:51 GMThttp://dlr-law.com/3/post/2013/01/countdown-the-5-most-influential-video-game-lawsuits-of-2012-3-of-5.htmlPicture
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.




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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 

[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.


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