<![CDATA[LAW OFFICE OF DAN LEE ROGERS - Writings & Pubs]]>Tue, 28 Feb 2017 03:30:41 -0800Weebly<![CDATA[GENERAL PATTON’S FINAL BATTLE  - PUBLICITY RIGHTS OF DEPARTED CELEBRITIES IN VIDEO GAMES]]>Tue, 20 Jan 2015 08:00:00 GMThttp://dlr-law.com/writings--pubs/general-pattons-final-battle-publicity-rights-of-departed-celebrities-in-video-games
Video game developers can’t do anything without getting sued these days—even when the opposing party is dead.

In the latest video game right of publicity lawsuit, CMG Worldwide Inc. has filed a complaint against California based Maximum Games LLC, on behalf of General George Patton’s estate. [1] Maximum’s History, Legends of War: Patton is a turn-based game featuring the legendary World War II commander of the American Third and Seventh Armies. Interestingly, Patton has been dead for sixty-nine years, one year shy of California’s seventy-year statutory limit for right of publicity lawsuits. [2]

So how is it that someone can sue nearly seven decades after death?

Reconnoitering the Legal Battlefield
The right of publicity is the prerogative of an individual—or a post-mortem rights-holder—to control and profit from the commercial value of personal identity. It originates from the rights of privacy afforded under the United States Constitution, but surprisingly, there is no federal right per se. [3]  [4] Rather, forty states recognize either a statutory or common law right of publicity, and fourteen extend its reach beyond a person’s death. [5] As a result, California’s right of publicity laws are different from New York, etc., which means that a lawsuit’s outcome is highly dependent on the state law used. [6]

Viewing this legal landscape from a hilltop vantage, the right of publicity allows a person to control the use of their name, likeness, and other distinguishing features, whether in products or services or the advertisements that promote them. [7] And video games are no exception. Over the years, movie stars, rock singers and bands, television personalities, professional and amateur athletes, gangsters, and even the former Panamanian dictator Manuel Noriega have sued video game companies, claiming a right of publicity. [8]

Most would agree that incorporating a well-known actor’s image into a video game without express permission is risky, if not downright reckless, but a right of publicity claim can be brought for something less obvious. For example, using “Here’s Johnny”, a catch-phrase associated with the former late night television host Johnny Carson, for a porta-potty business has resulted in a right of publicity suit. [9] Employing a sound-alike singer to impersonate Bette Midler in a television commercial has proved equally perilous. [10] And including the images and attributes of college and professional athletes in a series of video games was a fatal mistake. [11]

Battlefield Damages
Losing a right of publicity lawsuit can be expensive. California, as an example, allows for statutory and punitive damages, attorney fees, and a simultaneous award for a common law right of publicity infringement. [12] Damages in some jurisdictions may also consider peace, happiness, feelings, professional standing, and future publicity value. [13] As a result, a court award can be substantial:

  • Former television game show personality Vanna White was awarded $403,000 after Samsung depicted her as a robot in their VCR television advertisements. [14] 
  • Singer Bette Midler received $400,000 after a sound-alike performed one of her hits in a Ford commercial. [15]
  • Singer-songwriter Tom Waits was awarded $2,500,000 after Frito Lay imitated his distinctive voice for a Doritos commercial. [16] 

Dead Men Tell No Tales, But Publicity Rights Live On
While dead men tell no tales, if a deceased individual was domiciled in a state recognizing a post-mortem right of publicity, their rights-holder can sue beyond their death. [17] California enforces this post-mortem right seventy years after death. In Indiana and Oklahoma, it’s one hundred years. In Illinois, it’s fifty years. In Virginia it’s twenty. And in Tennessee, home of the late Elvis Presley, the right may extend in perpetuity. [18]

Flanking with the Lanham Act
If navigating the laws of fifty states isn’t complex enough, consider that a claim for false endorsement and misappropriation under Section 43(a) of the Lanham Act provides similar relief. [19] Under the Lanham Act, a person’s public image is considered in much the same light as a trademark, protecting notoriety and fame as one might protect McDonald’s Golden Arches or the Coca Cola logo. [20]

Assessing the Combatants
In the conflict between CMG and Maximum, CMG is the heavyweight, representing numerous celebrities and estates, including the late James Dean, Marilyn Monroe; Marlon Brando, Chuck Berry, Amelia Earhart, and, of course, General George Patton. CMG provides marketing and legal representation, and they have a long history of enforcing their clients’ legal rights. [21]

In opposition is five-year old Maximum Games, a privately held video game publisher located in San Francisco and founded by game veterans Christina Seelye and Len Ciciretto. Maximum’s games include a number of reasonably successful PC, console, and handheld titles.

Patton’s Initial Salvo
On November 19, 2014, CMG filed suit against Maximum, alleging false endorsement under the Lanham Act, 15 U.S.C. § 1125(a); California’s right of publicity statute, Cal. Civ. Code § 3344.1; and California’s common law right of publicity, Cal. Bus. & Prof. Code § 17200.

In its complaint, CMG alleged that Maximum’s conduct had damaged the licensing value to CMG of General Patton; interfered with their ability to license him for use in other video games; and damaged their ability to enforce his right of publicity against third parties. [22]

Let’s examine each issue in turn.

1. The Lanham Front

CMG argues that Patton’s name and image in Maximum’s video games and related advertisements deceives consumers and causes them to believe that General Patton is affiliated with and approves of these products, constituting false endorsement and unfair competition under the Lanham Act, 15 U.S.C. § 1125(a). [23]

There is no argument that the Lanham Act is a proper legal vehicle for asserting a claim of false endorsement, but less clear is whether CMG has a supportable claim, given that video games are expressive works and entitled to a greater degree of First Amendment protection. [24] The following illustration is helpful.

The Gridiron Battle
In 2009, legendary Cleveland Browns football player Jim Brown sued Electronic Arts and Sony, claiming they had violated the Lanham Act by including his image and stats in EA’s Madden Football series. [25] EA had licensed current NFL players through the NFL Players Association, but as an NLF retiree, Brown was not included.

Brown argued that EA’s use of his image had caused confusion as to whether he had endorsed EA’S games. But in 2013, the Ninth Circuit Court of Appeals ruled that EA was not in violation of the Lanham Act. Rather, Brown’s inclusion in EA’s games was artistically relevant. [26]

Artistic Relevance Greater than Zero
How artistically relevant must a person’s likeness or name be to avoid a Lanham Act violation? According to the Ninth Circuit Court of Appeals in Brown, to violate the Lanham Act there must be no artistic relevance to the underlying work whatsoever, or in the event there is, the use must be explicitly misleading. [27]

Maximum’s Nearly Identical Argument
CMG echoes Brown’s argument with regard to the Lanham Act, alleging that Maximum’s use of General Patton is causing consumer confusion as to any involvement and endorsement. But is Maximum’s use explicitly misleading? And how artistically relevant is General George Patton to a World War II game? Many would conclude that Patton is to World War II and tank warfare what Napoleon was to the battle at Waterloo.

Patton’s Name on the Box
The most significant difference between Maximum’s use of Patton and EA’s use of Brown is that Patton’s name appears prominently on Maximum’s packaging. But this isn’t altogether different from using a celebrity’s name in the title of a film or book. And one needs only to look at a lawsuit brought by singer-actress Ginger Rogers to see how the court may view such use.

Dancing with the Stars
In Rogers v. Grimaldi, film and dance star Ginger Rogers sued a filmmaker after a movie entitled “Ginger and Fred” was released. The 1986 film chronicled two fictional cabaret performers who imitated the famous dance duo Ginger Rogers and Fred Astaire, and Rogers argued that the use of her name in the movie title violated Section 43(a) of the Lanham by creating a false impression that she was involved in its production.

The court disagreed, explaining that the expressive elements of book and movie titles are afforded more protection under the Lanham Act. [28] Naming the film “Ginger and Fred” was not misleading because it was artistically relevant and did not indicate that Rogers had endorsed or helped produce it. [29]

Dancing with Tanks
Maximum titled their game History, Legends of War: Patton, but how reasonable is it to believe that someone who has been dead for nearly seventy years has somehow endorsed it? Bill O’Reilly recently published a historical and detailed account of Patton’s life in a book titled Killing Patton, which CMG offered in its complaint as evidence of damages. And in 1970, a biographical film titled “Patton” won seven Academy Awards. How are these entertainment works any less confusing as to General Patton’s endorsement and involvement?

2. The Unfair Competition Front

California Business & Professions Code § 17200 broadly defines unfair competition as "any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising. [30] It also bars dissemination of any statement regarding the sale of property "which is untrue or misleading, and which is known, or which by the exercise of reasonable care should be known, to be untrue or misleading.” [31]

CMG alleges that Maximum is in violation of California’s unfair competition laws by exploiting General Patton’s name, image, and likeness without CMG’s consent. But to prevail, CMG must show that members of the public are likely to be deceived, and the court will consider CMG’s Lanham Act claim in its evaluation. [32] [33] In other words, if CMG wins on the Lanham Act front, then they are likely to win on the § 17200 front as well. But lose the Lanham Act argument—which is a possibility—and CMG could very well lose their California unfair competition argument, too.

3. The Statutory Right of Publicity Front

Finally, CMG alleges that Maximum is in violation of the California statutory right of publicity under California Civil Code § 3344. To prevail, CMG must show that there was a knowing use of Patton’s identity, that the use was for advertising, product, or merchandising purposes; and that there is a direct connection between the use and the commercial purpose. [34]
Considering these factors, CMG appears to hold a clear battlefield advantage. Maximum used Patton’s name on their packaging, in advertising, and inside the game. His likeness is employed in the navigational elements. Maximum did so for a commercial purpose and without CMG’s consent. They profited from this use, while General Patton’s estate did not. Unless Maximum can counter with a solid defense, they could very well lose on the statutory front.

Counter-Offensive via the First Amendment
How is it that filmmakers and writers can use the name or likeness of famous people in their movies and books without permission and without violating the law? The answer is that the First Amendment provides immunity for entertainment works, provided that there is a sufficient level of artistic relevance, and provided the use was not simply to exploit the underlying publicity value of an individual. [35] The following illustrations are helpful to understand this principle:

In Joplin Enterprises v. Allen, a California District Court held that a two-act biographical stage play about the deceased blues and rock vocalist Janis Joplin was not actionable under California Civil Code § 990 (the predecessor to § 3344.1) because plays, books, and musical compositions are exempt from liability under California’s right of publicity law with regard to the deceased. [36] [37]

Similarly, in Parks v. LaFace Records, civil rights activist Rosa Parks objected to the use of her name in a rap song. Holding against Parks, the United States District Court determined that because her name was not wholly unrelated to the defendant’s song, and because the song itself was an expressive work, a common law right of publicity did not exist. [38] The Parks court further explained that a right of publicity does not mean that a prominent person has the right to financially exploit every public use of their name or picture. [39]

And in Romantics v. Activision, the 80s rock band sued Activision’s for a right of publicity involving Guitar Hero Encore, in which players could play along with the song What I like About You. Players were also presented a message “as made famous by the Romantics”. Yet despite this use, the court held that the First Amendment protected Activision’s use. [40]

CMG’s Response
It’s likely that CMG has considered the above cases. And they could argue that the Romanics and Parks lawsuits are inapplicable because they apply Michigan’s right of publicity law, rather than California’s pro-celebrity statute. Joplin, they could argue, concerns a stage play not a video game.

More likely is that CMG will rely on the recent California decision in Keller v. Electronic Arts, which appears highly favorable to those bringing a right of publicity suit. Keller, in fact, demonstrates that a right of publicity can trump a First Amendment right when applied to video games.
Understanding Keller v. EA
In May 2009, the former quarterback for Arizona State University and the University of Nebraska, Sam Keller, filed a lawsuit against Electronic Arts, the National Collegiate Athletics Association (NCAA), and the Collegiate Licensing Company (CLC), claiming that the use of his likeness, stats, jersey number, and position in Electronic Arts’ NCAA Football violated, among other things, his right of publicity. Keller asserted that EA profited from his persona and from virtually every Division I football and basketball player that it used in their NCAA games.

In its defense, EA argued that their use of Keller’s image and stats was protected under the First Amendment because (1) football is a matter of public interest and public affairs; and (2) their use was transformative. [41]

EA’s Public Interest and Public Affairs Defenses
EA argued that their inclusion of statistics and player information in NCAA Football entitled them to immunity because the dissemination of sports information was a matter of public interest. [42] The Keller court recognized that the recitation and discussion of facts regarding athletes was of public interest, but nevertheless concluded that NCAA Football was not a publication of facts about college football, nor was it a reference source. It was simply a game. [43]

Regarding its public affairs argument, EA contended there should be no liability because their use of Keller’s information was similar to using a person’s name, voice, signature, photograph, or likeness in connection with news and sports broadcasts. But the court, rather pointedly, again ruled against EA, concluding that NCAA Football wasn’t reporting on collegiate football by using Keller’s image as an avatar in their game. [44]

EA’s Transformative Defense
EA’s also argued that their use of Keller was transformative, meaning that their use of Sam Keller and other in-game athletes was more than simply duplicating their likenesses. Because video game players are able to manipulate Keller’s in-game attributes, EA believed this amounted to transformation under the law. But the court disagreed, citing other cases to clarify its decision. [45]

In Winter v. DC Comics, for example, the iconic rock and roll musician brothers Johnny and Edgar Winter sued DC Comics, alleging that DC Comics had misappropriated their names and personas after two characters appeared in a five-volume comic book series titled Jonah Hex. 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. [46]

Here, the court concluded that the fictional characters Johnny and Edgar Autumn were more than evocations of Johnny and Edgar Winter; that the Winter Brothers were merely part of the raw materials from which the comic books were synthesized. DC Comic’s use in this case was transformative. [47]

Comparatively, EA represented Sam Keller as a starting college football quarterback in their NCAA Football games, which was identical to where the public had found him during his college career. [48]

Maximum Defenses
Just as Sam Keller appeared in EA’s games “as is”, so too does General Patton appear in Maximum’s games as the famed World War II general that he was. But Maximum is not without other defenses.

First, the use of Patton’s 2D image in Maximum’s game is not similar to the use of Keller’s 3D likeness in EA’s NCAA Football. General Patton isn’t an avatar that can be manipulated or directed on screen. Rather, he’s is a two-dimensional figure displayed in a cartoonish, non-animated style within the game’s menu system. The Patton gameplay is viewed top down and isometrically, and players manipulate soldiers and military equipment not the General himself. [49]

Second, unlike Keller, Patton communicates newsworthy information that is still a matter of public interest.

In Comedy v. Gary Saderup, Inc., artist Gary Saderup produced and sold a charcoal drawing of the Three Stooges in lithograph prints and T-shirts. [50] The registered owner of the Three Stooges intellectual property rights, Comedy III, sued Saderup under California’s right of publicity § 990. Although the court found that Saderup’s use was not transformative, it was mindful that to preserve an uninhibited marketplace of ideas, there must be robust and wide-open debate on public issues. [51]

Specifically, the Saderup court cautioned that,

“Because celebrities take on public meaning, the appropriation of their likenesses may have important uses in uninhibited debate on public issues, particularly debates about culture and values. And because celebrities take on personal meanings to many individuals in the society, the creative appropriation of celebrity images can be an important avenue of individual expression” [52]

Whether proffered in a film, book, or video game, General George Patton is a central figure in World War II, and in light of Comedy III, his inclusion in an expressive work on this topic may not only appropriate but also arguably necessary.

Third, Sam Keller is alive and George Patton is dead.

Dead Right
California’s statutory law provides a safe-harbor for audiovisual works in which the subject is deceased. Sections 3344.1(a)(1) and 3344.1(a)(2) of California Civil Code specify that “a play, book, magazine, newspaper, musical composition, audiovisual work … shall not be considered a product, article of merchandise, good, or service if it is fictional or nonfictional entertainment, or a dramatic, literary, or musical work.” [53] In other words, California’s right of publicity statue doesn’t apply to certain expressive works, which could reasonably include video games.

In other legal contexts, the question as to whether video games are in the same category as films and books is established law. In Brown v. Entertainment Merchant’s Association, the Supreme Court stated, “Like the protected books, plays, and movies that preceded them, video games communicate ideas—and even social messages….” [54] In other words, from the Supreme Court’s perspective, video games are protected works that communicate ideas and even social messages.

And whether video games are audiovisual works contemplated under § 3344.1 is answered sufficiently in Astaire v. Best Film & Video Corp, where, in 1998, the Ninth Circuit determined that videotapes were subject to § 990 (the predecessor to the § 3344.1 post-mortem right of publicity) despite not being mentioned specifically in the statute. [55] And given that video games and the term audiovisual works are used interchangeably under copyright law, it would be surprising if a court held otherwise with regard to § 3344.1. [56]

4. Battle Wounds

CMG has a legitimate right to protect and manage its clients’ property, including enforcing the right of publicity. In fact, celebrities, politicians, athletes, artists, musicians, and you and I have the right to profit from our recognition. [57]  On the other hand, video game developers and publishers have an opposing right to exercise their First Amendment rights, including the lawful use of famed individuals in their games.

CMG should consider that General Patton isn’t being used in Maximum’s game out of context. For example, Patton isn’t pitching cavalry-styled bloomers, three-star helmets, or Seventh Army belt buckles. Rather, he provides a historically realistic context to Maximum’s game, which isn’t too different from a film documentary. Furthermore, General Patton’s right of publicity in California expires in less than a year, and one would hope that this suit isn’t a last chance to cash-in on the General’s fame. [58]

At the same time, Maximum (and all game developers and publishers for that matter) should recognize that you can’t reach into the world history bag and pull from it whatever looks interesting. Individuals—even those who have died—possess property rights in their fame and recognition. And in California, that right of publicity extends seventy years after death.

If video game publishers and developers can learn anything from this conflict, it’s that the laws encompassing the use of in-game assets—including art, music, animation, video, photography programming code, characters, and architecture, just to name a few—is one of the most complex and troublesome areas of video game law. Failing to thoroughly vet all in-game assets prior to publication is a fool’s errand, including the use of historically noteworthy individuals, regardless of whether they are alive or dead.


Dan Rogers is licensed to practice law in the state of California, including the Eastern Federal District Court. He has advised and negotiated with interactive game publishers, developers, and technology companies around the world on matters of video game licensing, intellectual property, software development, and contractual law. www.dlr-law.com

This article is provided for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to any particular issue or

[1] CMG Worldwide Inc. v. Maximum Family Games, LLC et al, Case No. 3:14-cv-05124, N.D. Cal. (San Francisco), filed November 19, 2014.
[2] George Patton died in an automobile accident on December 21, 1945. As provided in California Civil Code § 3344 (g) “An action shall not be brought under this section by reason of any use of a deceased personality's name, voice, signature, photograph, or likeness occurring after the expiration of 70 years after the death of the deceased personality”.
[3] The right of publicity and its predecessor right to personal privacy, harken the United States Constitution’s protections against various forms of intrusion, including the Fifth Amendment (protecting against self-incrimination and creating protective zones of privacy from the government); the Fourth Amendment (guaranteeing the right of people to be secure in their persons, houses, papers, and effects against unreasonable search and seizure); and the Third Amendment (limiting the quartering of soldiers in private homes to times of war and only in the interest of national security). For further reading see Law and Business of the Entertainment Industries, Fifth Edition, Donald E. Biederman, pg. 210. Also see http://www.examiner.com/article/the-short-history-of-the-right-to-privacy for an excellent history of the Right of Privacy in the United States. See also Griswold v. Connecticut, 381 U.S. 479.
[4] While there is no federal right of publicity statute, § 43(a) of the Lanham Act is often used on conjunction with a right of publicity claim to seek redress.
[5] Quantifying the number of states supporting a right of publicity requires the examination of statutory and common law involving tort claims that do not necessarily name a right of publicity—thus there is some level of disagreement as to the specific number of supporting states. According to rightofpublicity.com, thirty-seven states recognize the right of publicity, either through statue or common law. Also see Jonathan D. Reichman, Kenyon & Kenyon LLP, Getting Through the Deal In 21 Jurisdictions Worldwide 2014. See also Summary of Rights of Publicity Issues, Kelli L. Sager, Davis Wright Tremaine LLP, 2012.
[6] See McCarthy on Publicity and Privacy, § 1:4.
[7] California’s right of publicity law, as an example, protects a person’s name, voice, signature, photograph, or likeness. California Civil Code § 3344 (a). In contrast, Indiana law also protects a person’s gestures and mannerisms. Indiana Code Title 32, Section 36-1.
[8] Numerous right of publicity lawsuits have involved video game companies, including the following:
  • 2015 (Decided). Davis v. Elec. Arts, Inc., 2015 U.S. App. LEXIS 154 (9th Cir. Cal. Jan. 6, 2015) – Retired NFL players Michael E. Davis, Vince Ferragamo, and Billy Joe Dupree sue EA for unauthorized use of their likenesses in Madden Football.
  • 2014. Lindsey Lohan v. Take Two Interactive and Rockstar Games. Actress Lindsay Lohan filed a complaint claiming that GTA V included a character, Lacey Jones, infringed her right of publicity. See http://www.businessinsider.com/lindsay-lohans-grand-theft-auto-lawsuit-evidence-2014-10.
  • 2014. Noriega v. Activision. Deposed Panamanian dictator Manuel Noriega sued Activision for use of his likeness in Call of Duty: Black Ops II. See http://www.washingtonpost.com/news/volokh-conspiracy/wp/2014/07/17/can-manuel-noriega-really-win-his-right-of-publicity-lawsuit-against-activision.
  • 2014 (Decided). O'Bannon v. NCAA, 7 F. Supp. 3d 955, 2014 U.S. Dist. LEXIS 110036, 2014-2 Trade Cas. (CCH) P78,865, 2014 WL 3899815 (N.D. Cal. 2014) – In a class-action suit naming Electronic Arts as a defendant, current and former FBS football or Division I men's basketball team members sue for right of publicity in EA’s games.
  • 2013 (Decided). Hart v. Elec. Arts, Inc., 717 F.3d 141, 2013 U.S. App. LEXIS 10171, 41 Media L. Rep. 1985, 107 U.S.P.Q.2D (BNA) 1001, 2013 WL 2161317 (3d Cir. N.J. 2013) – Collegiate football player sued EA for the use of his likeness in EA’s NCAA Football series. The court held that EA’s games were not sufficiently transformative to provide them a First Amendment defense. 
  • 2013 (Decided). Keller v. Elec. Arts Inc. (In re NCAA Student-Athlete Name & Likeness Licensing Litig.), 724 F.3d 1268, 2013 U.S. App. LEXIS 15649, 107 U.S.P.Q.2D (BNA) 1629, 2013 WL 3928293 (9th Cir. Cal. 2013) – Similar to the plaintiff in Hart v. Electronic Arts, Sam Keller sued EA for the use of his likeness in EA’s college football game series. The California 9th Circuit ruled against EA, citing that under the transformative use test, use of the player's likeness did not qualify for First Amendment protection because EA “literally recreated the player in the very setting in which he achieved renown.”
  • 2013 (Decided). Brown v. Elec. Arts, Inc., 724 F.3d 1235, 2013 U.S. App. LEXIS 15647, 107 U.S.P.Q.2D (BNA) 1688, 41 Media L. Rep. 2276, 2013 WL 3927736 (9th Cir. Cal. 2013) – former NFL Hall of Fame player sued EA for use of his likeness and stats in Madden Football.
  • 2012. Michael Washington v. Take Two – A professional model and singer filed a complaint against Take Two alleging that they had misappropriated his likeness and identity for the character CJ in GTA: San Andreas. See http://www.bit-tech.net/news/gaming/2012/11/05/rockstar-fights-off-cyrpus-hill-singer-laws/1. 
  • 2011 (Decided). No Doubt v. Activision Publishing, Inc., 192 Cal. App. 4th 1018, 122 Cal. Rptr. 3d 397, 2011 Cal. App. LEXIS 174, 98 U.S.P.Q.2D (BNA) 1728 (Cal. App. 2d Dist. 2011) – Widely recognized band sued Activision for right of publicity claims, alleging that that Activision exceeded the scope of the licensed use of their computer-generated images in Band Hero, allowing players to direct the No Doubt avatars to perform songs other than the licensed No Doubt songs.
  • 2008 (Decided). Romantics v. Activision Publ'g, Inc., 574 F. Supp. 2d 758, 2008 U.S. Dist. LEXIS 63281, 88 U.S.P.Q.2D (BNA) 1243, 36 Media L. Rep. 2345 ( E.D. Mich. 2008) – 80s rock band the Romantics sued Activision claiming that their right of publicity was infringed when Guitar Hero game lawfully included a song by the Romantics in which players could play along.
  • 2006 (Decided). Kirby v. Sega of America, Inc., 144 Cal. App. 4th 47, 50 Cal. Rptr. 3d 607, 2006 Cal. App. LEXIS 1672, 35 Media L. Rep. 1075, 81 U.S.P.Q.2D (BNA) 1172, 2006 Cal. Daily Op. Service 9978, 2006 Daily Journal DAR 14190 (Cal. App. 2d Dist. 2006) - Keirin Kirby, known as Lady Miss Kier and for her hit song “Groove is in the Heart” sued Sega for its Japanese video game Space Channel 5, alleging that a character in Sega’s game was in violation of Kirby’s right of publicity.
  • 1997 (Decided). Ahn v. Midway Mfg. Co., 965 F. Supp. 1134, 1997 U.S. Dist. LEXIS 7773, 43 U.S.P.Q.2D (BNA) 1773, Copy. L. Rep. (CCH) P27,680 (N.D. Ill. 1997) – Black belt Tae Kwon Do athletes sue Midway claiming that their motion-captured images in Mortal Kombat exceeded the scope of the licenses granted EA, in violation of their right of publicity.
[9] Carson v. Here's Johnny Portable Toilets, Inc., 698 F.2d 831, 1983 U.S. App. LEXIS 30866, 218 U.S.P.Q. (BNA) 1, 9 Media L. Rep. 1153 (6th Cir. Mich. 1983).
[10] Midler v. Ford Motor Co., 849 F.2d 460, 1988 U.S. App. LEXIS 8424, 7 U.S.P.Q.2D (BNA) 1398, Copy. L. Rep. (CCH) P26,313, 15 Media L. Rep. 1620 (9th Cir. Cal. 1988)
[11] Hart v. Elec. Arts, Inc., 717 F.3d 141, 2013 U.S. App. LEXIS 10171, 41 Media L. Rep. 1985, 107 U.S.P.Q.2D (BNA) 1001, 2013 WL 2161317 (3d Cir. N.J. 2013) and Keller v. Elec. Arts Inc., 724 F.3d 1268, 2013 U.S. App. LEXIS 15649, 107 U.S.P.Q.2D (BNA) 1629, 2013 WL 3928293 (9th Cir. Cal. 2013). See also http://www.cbssports.com/collegefootball/writer/dennis-dodd/23859858/ea-sports-settles-likeness-suits-thousands-of-current-former-players-eligible-for-money.
[12] Punitive damages are court awarded fees not based on actual damages and granted where oppression, fraud, or malice are found. Damages under Cal. Civ. Code § 3444(a) provides that “In any action brought under this section, the person who violated the section shall be liable to the injured party or parties in an amount equal to the greater of seven hundred fifty dollars ($750) or the actual damages suffered by him or her as a result of the unauthorized use, and any profits from the unauthorized use that are attributable to the use and are not taken into account in computing the actual damages. In establishing such profits, the injured party or parties are required to prove his or her deductible expenses. Punitive damages may also be awarded to the injured party or parties. The prevailing party in any action under this section shall also be entitled to attorney's fees and costs.”
[13] Waits v. Frito-Lay, 978 F.2d 1093, 1102-03 (9th Cir. 1992).
[14] White v. Samsung Electronics Am., 971 F.2d 1395, 1992 U.S. App. LEXIS 17205, 23 U.S.P.Q.2D (BNA) 1583, 20 Media L. Rep. 1457, 92 Cal. Daily Op. Service 6578, 92 Daily Journal DAR 10519 (9th Cir. Cal. 1992). Vanna White brought her original action under California’s right of privacy statute (Cal. Civ Code § 3344), California’s common law right of publicity, and the Lanham Act, 15 U.S.C. § 1125(a). Her statutory claim was dismissed, but the suit proceeded on the common law and Lanham Act claims. 971 F.2d 1395 (9th Cir. 1992). Also note that this case was brought under the Lanham Act not California’s Right of Publicity laws.
[15] Midler v. Ford Motor Co., 849 F.2d 460, 1988 U.S. App. LEXIS 8424, Copy. L. Rep. (CCH) P26, 313, 15 Media L. Rep. 1620, 7 U.S.P.Q.2D (BNA) 1398 (9th Cir. Cal. 1988). Ford Motor Company’s advertising agency, Young & Rubicam, used a sound-alike singer to record Midler’s ''Do You Want to Dance,'' for background music to a series of Lincoln Mercury commercials. See http://www.nytimes.com/1989/10/31/business/y-r-ordered-to-pay-midler.html.
[16] Waits v. Frito-Lay, supra, 978 F.2d 1093.
[17] See http://lawblog.usfca.edu/internetjustice/2011/post-mortem-rights-of-publicity/. As of 2014, fourteen states holding post-mortem right of publicity statues including California, Florida, Kentucky, Nebraska, Nevada, Oklahoma, Tennessee, Texas, and Virginia and Massachusetts (The Massachusetts Senate bill passed a post-mortem right of publicity in 2014. See http://radioboston.wbur.org/2014/06/13/dead-right-publicity.) Furthermore, Illinois, New York, Ohio, and Pennsylvania all preclude the post-mortem right of publicity as a matter of law. New York and Wisconsin statues do not provide a post-mortem right of publicity.
[18] In 1987, the Tennessee Appellate Court held that Elvis Presley’s right of publicity was descendible. State Ex. Rel. Elvis Presley Intl. Memorial Foundation v. Crowell, 733 S.W.2d 89 (1987). See also http://rightofpublicity.com/brief-history-of-rop and https://www.graphicartistsguild.org/tools_resources/beware-the-right-of-publicity.
[19] “Why a Federal Right of Publicity Statute Is Necessary,” Kevin L. Vick and Jean-Paul Jassy, Communications Lawyer, Volume 28, Number 2, August 2011.
[20] Section 43(a) of the Lanham Act provides for civil remedies for anyone damaged by the use of any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact. 15 U.S. Code § 1125. See also http://digitalcommons.wcl.american.edu/cgi/viewcontent.cgi?article=1002&context=ipbrief.
[21] CMG’s right of publicity lawsuits have included American Football coach Vince Lombari (Nike, Inc. v. Lombardi, 732 F. Supp. 2d 1146), famed musician Duke Ellington (Ellington v. Harbrew Imports Ltd., 812 F. Supp. 2d 186), Bette Davis (Estate of Davis v. Erickson Beamon, Ltd., 2013 U.S. Dist. LEXIS 171477), actor Lee Strasberg (Dluhos v. Strasberg, 2005 U.S. Dist. LEXIS 34383), Marilyn Monroe (Milton H. Greene Archives, Inc. v. CMG Worldwide, Inc., 2008 U.S. Dist. LEXIS 71690), and others.
[22] See CMG v. Maximum Complaint, filed in the United States District Court Northern District of California.
[23] CMG’s complaint states that “Maximum’s use of General Patton’s name, image and likeness in connection with advertising and selling the Infringing Video game was and is intended to deceive consumers and to cause consumer confusion and mistake as to the affiliation, connection, or association of General Patton and/or his assignees with the Infringing Video game, and as to the origin, sponsorship, or approval of the Infringing Video game by General Patton and/or his assignees.”
[24] Brown v. Entm't Merchs. Ass'n, 131 S. Ct. 2729, 180 L. Ed. 2d 708, 2011 U.S. LEXIS 4802, 79 U.S.L.W. 4658, 22 Fla. L. Weekly Fed. S 1259 (U.S. 2011). In Brown, the Supreme Court held that the protected books, plays, and movies that preceded video games, video games ideas and even social messages through the employment of characters, dialogue, plot, and music. Because of these similarities, video games are entitled to the same First Amendment protection as these other expressive mediums.
[25] Brown v. Elec. Arts, Inc., 724 F.3d 1235, 2013 U.S. App. LEXIS 15647, 107 U.S.P.Q.2D (BNA) 1688, 41 Media L. Rep. 2276, 2013 WL 3927736 (9th Cir. Cal. 2013).
[26] Id. at 1240.
[27] Id. at 1688.
[28] Rogers v. Grimaldi, 875 F.2d 994, 998, 1989 U.S. App. LEXIS 6443, 9, 10 U.S.P.Q.2D (BNA) 1825, 16 Media L. Rep. 1648 (2d Cir. N.Y. 1989).
[29] Ibid.
[30] Cairns v. Franklin Mint Co., 24 F. Supp. 2d 1013, 1037, 1998 U.S. Dist. LEXIS 17359, 57, 49 U.S.P.Q.2D (BNA) 1396, 1998-1 Trade Cas. (CCH) P72,387 (C.D. Cal. 1998).
[31] Cairns v. Franklin Mint Co., supra, 24 F. Supp. 2d 1013, 1037.
[32] Ibid.
[33] “Unfair competition claims made pursuant to Cal. Bus. & Prof. Code § 17200 are substantially congruent to claims made under the Lanham Act.” Sega Enters. v. MAPHIA, 948 F. Supp. 923, 1996 U.S. Dist. LEXIS 20385, 41 U.S.P.Q.2D (BNA) 1705, Copy. L. Rep. (CCH) P27, 605 (N.D. Cal. 1996), citing Cleary v. News Corp., 30 F.3d 1255, 1262-63 (9th Cir. 1994).
[34] The elements of California’s right of publicity statute have been summarized for readability. California Civil Code § 3344.1 provides that: (a) 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. In addition, in any action brought under this section, the person who violated the section shall be liable to the injured party or parties in an amount equal to the greater of seven hundred fifty dollars ($750) or the actual damages suffered by him or her as a result of the unauthorized use, and any profits from the unauthorized use that are attributable to the use and are not taken into account in computing the actual damages. In establishing such profits, the injured party or parties are required to present proof only of the gross revenue attributable to such use, and the person who violated this section is required to prove his or her deductible expenses. Punitive damages may also be awarded to the injured party or parties. The prevailing party in any action under this section shall also be entitled to attorney's fees and costs.
See also http://www.dmlp.org/legal-guide/california-right-publicity-law, citing Newcombe v. Adolf Coors Co., 157 F.3d 686, 692 (9th Cir. 1998).
[35] The elements of law have been simplified for understandability. For a detailed discussion, see J. Thomas McCarthy, 2 Rights of Publicity and Privacy § 8:72 (2d ed. 2000).
[36] The California legislature enacted Civil Code § 990 in 1984, in which it created post-mortem right of publicity for deceased personalities. In 1999, the legislature renumbered § 990 as § 3344.1 and extended the duration of the post-mortem right of publicity from fifty to seventy years. See http://www.lexology.com/library/detail.aspx?g=4b6425b0-e86f-4445-96a5-19be1ea37265.
[37] Joplin Enterprises v. Allen, 795 F. Supp. 349 (W.D. Wash. 1992). Prior to 1984, neither California’s common or statutory law provided for a descendible right of publicity. See http://www.chapmanlawreview.com/archives/1403.
[38] Parks v. Laface Records, 76 F. Supp. 2d 775, 779, 1999 U.S. Dist. LEXIS 18097, 8-9, 53 U.S.P.Q.2D (BNA) 1559 (E.D. Mich. 1999).
[39] Parks v. Laface Records, supra, 76 F. Supp. 2d 775, 779, citing Paulsen v. Personality Posters, Inc., 59 Misc. 2d 444, 450, 299 N.Y.S.2d 501, 508 (1968).
[40] Romantics v. Activision Publ'g, Inc., 574 F. Supp. 2d 758, 771, 2008 U.S. Dist. LEXIS 63281, 30-31, 88 U.S.P.Q.2D (BNA) 1243, 36 Media L. Rep. 2345 (E.D. Mich. 2008).
[41] EA raised four specific defenses derived from the First Amendment, only three of which are discussed in this article. Specifically, EA argued the "transformative use" test, the Rogers test, the "public interest" test, and the "public affairs" exemption. The court did not accept EA’s Rogers test argument as applicable to the facts in the case. Keller v. Elec. Arts Inc. at p. 1282,and the author elected not to include this in the discussion.
[42] Keller v. Elec. Arts Inc. supra, 724 F.3d 1268, 1276, at p. 1283.
[43] Ibid.
[44] Id. at 1283 and 1283.
[45] The court cited three cases, Comedy III Productions, Inc. v. Gary Saderup, Inc., Winter v. DC Comics, and Kirby v. Sega of America. Comedy II and Saderup are discussed here. For an over view of Kirby, see http://dlr-law.com/3/post/2013/08/countdown-the-5-most-influential-video-game-lawsuits-of-2012-4-of-5-keller-v-electronic-arts.html. In Comedy III, the court held that Saderup’s charcoal drawing was not sufficiently transformative.  In Winter and Kirby, the court found the uses transformative.
[46] Winter v. DC Comics, 30 Cal. 4th 881, 69 P.3d 473, 134 Cal. Rptr. 2d 634, 2003 Cal. LEXIS 3492, 118 A.L.R.5th 727, 31 Media L. Rep. 1774, 66 U.S.P.Q.2D (BNA) 1954, 2003 Cal. Daily Op. Service 4586, 2003 Daily Journal DAR 5834 (Cal. 2003).
[47] Comedy III Productions, Inc. v. Gary Saderup, Inc., 21 P.3d 797, 25 Cal. 4th 387, 106 Cal. Rptr. 2d 126, 2001 Cal. LEXIS 2609, 29 Media L. Rep. 1897, 58 U.S.P.Q.2D (BNA) 1823, 2001 Cal. Daily Op. Service 3380, 2001 Daily Journal DAR 4163 (Cal. 2001).
[48] Keller v. Elec. Arts Inc., supra, 724 F.3d 1268, 1276.
[49] This conclusion was based on reviewing the first thirty minutes of game play only. General Patton’s persona and image may be treated differently elsewhere in the game.
[50] Comedy III Productions, Inc. v. Gary Saderup, Inc., supra, 25 Cal. 4th 387, 397.
[51] Id. at 397.
[52] Ibid.
[53] For clarity, the post-mortem right of publicity safe harbor does not apply if a use is “so directly connection with a product, article of merchandise, good, or service as to constitute an act of advertising, selling, or soliciting purchases of that product, article of merchandise, good, or service by the deceased personality without prior consent from the rights holder.” Cal. Civil Code § 3344.1(a)(1), § 3344.1(a)(3).
[54] Italic added for emphasis. Brown v. Entm't Merchs. Ass'n, supra, 131 S. Ct. 2729, 180.
[55] Astaire v. Best Film & Video Corp., 136 F.3d 1208, 1998 U.S. App. LEXIS 12790 (9th Cir. Cal. 1998).
[56] As an example, when registering a video game with the United States Copyright Office, the on line registration dialogue is as follows:
“Select Motion Picture/Audiovisual if you are registering a feature film, documentary film, animated film, television show, video, videogame, or other audiovisual work.”
[57] See, The Presidential Right of Publicity, Sean T. Masson, Boston College Intellectual Property & Technology Forum, 2010, which discusses politicians’ right to bring right of publicity actions for pure commercial uses of their image and persona.
[58] Based on an article by Alix Kirsta, published by the Telegraph 2014, the annual revenue generated by dead celebrities in the United States is estimated to be $2.25 billion, not including television and online commercial ads.
<![CDATA[Why ZeniMax v. Oculus Matters]]>Fri, 18 Jul 2014 01:56:35 GMThttp://dlr-law.com/writings--pubs/why-zenimax-v-oculus-mattersPicture[28]

While at E3 this year, I dove into an impressive undersea world using the new Oculus Rift headset. Simultaneously, I thought about the gallons of hot water that Palmer Luckey, the company’s founder, must be swimming in now that ZeniMax Media has filed a lawsuit against him, alleging, among other claims, copyright infringement and misappropriation of trade secrets. [1]

It also occurred to me that anyone working in a creative or technical field could easily find themselves in a similar situation.

The relationship between ZeniMax and Luckey is complex. ZeniMax claims that while Luckey was developing his innovative virtual reality headset, former Id Software cofounder John Carmack provided proprietary technology and know-how that enabled Luckey to perfect his invention and overcome a host of technical hurdles. [2] Because Carmack was a ZeniMax employee at the time, ZeniMax now lays claim to his technological contributions, demanding money damages and more.

Oculus counters that Carmack and ZeniMax contributed nothing to the Rift technology, and that the basis of the suit is merely an attempt to cash in on the $2 billion, March 2014 Oculus sale to Facebook. [3] [4] Oculus challenges that there isn’t a shred of ZeniMax hardware or code in the Rift headset. [5] Both companies are demanding a jury trail, and because the stakes are high, this one might go all the way.

Regardless of which version of the tale you believe, one thing is virtually clear: two years before the dispute arose, Palmer Luckey signed a non-disclosure agreement with ZeniMax, and therein lies a critical lesson for anyone contemplating an NDA.

Non-disclosure Agreements are Binding, Enforceable Contracts

Non-disclosure agreements are more than business formalities. NDA’s aren’t handshakes or respectful hellos exchanged between individuals prior to a meeting simply because protocol demands it. They are contracts. When executed between individuals—even when they are not ideally drafted—they form binding agreements as weighty and powerful as any twenty-five-page publishing or licensing agreement. [6] And the breach of a non-disclosure agreement is a breach of contract, and a damaged party may be entitled to a host of legal remedies.

In ZeniMax v. Oculus, the parties agree that Palmer Luckey signed a document, which ZeniMax claims is a binding non-disclosure agreement. [7] Oculus asserts that it even if it is an NDA, it is invalid because a specific term in it was not defined properly. [8]

Regardless, a legal question has been set in motion, and my guess is that Luckey signed that initial NDA—as most people do—without giving much thought to its long-term consequences.

Unfortunately, an NDA may lie dormant for years, but can erupt with volcanic force the moment a dispute arises, as it did in
Silicon Knights v. Crystal Dynamics

Saved by an NDA

In 1997, Canadian video game developer Silicon Knights and Crystal Dynamics were embroiled in a legal dispute over the video game Blood Omen: Legacy of Kain, which was developed by Silicon Knights. SK was upset because Crystal Dynamics (the game’s publisher) had assigned the game’s intellectual property rights—including the rights to sequels and other derivative works—to Activision. [9]

Silicon Knights claimed that Crystal Dynamics promised that they would remain the game’s publisher; that the Activision deal would transfer only the game’s distribution rights; and that the new deal would not affect Silicon Knights’ right of first refusal to develop derivative games.

None of this, by the way, had anything to do with a non-disclosure agreement.

But in their complaint, Silicon Knights also alleged that several of its employees were induced by Crystal Dynamics to breach their non-disclosure agreements, and either join Crystal or form new, competing companies. [10] According to SK, Crystal Dynamics had interfered with employee and employee non-disclosure agreements. [11]

The court reviewed each of SK’s fourteen claims, and nearly all were dismissed, but the question as to whether Crystal Dynamics interfered with SK employee contracts and non-disclosure agreements was upheld. [12] Thereafter, SK and Crystal Dynamics settled their dispute out of court, and one could argue that the non-disclosure agreements provided substantive leverage in that settlement. [13]

But an NDA doesn’t always give a party the protection they need, as former Foosball champion Steve Simon discovered.

Warning: An NDA Doesn’t Protect Everything

Regardless of whether you have an NDA in place, you may not be safeguarding the information you want protected.

In 1995, Steve Simon came up with an idea for adding a coupon dispenser to arcade video games.  Similar machines were already in use, but rather than dispensing hundreds of paper tickets, Simon’s machine printed a single coupon, on which a player’s cumulative points were printed, along with advertisements and more.

The idea wasn’t new, however. Similar coupon machines were already in use in the real-money wagering world. Nevertheless, to promote his machine to the video game industry, Simon disclosed it to several individuals, including Richard Oltmann, whom he met at a trade show. Oltmann signed Simon’s NDA, but after reviewing Simon’s device, Oltmann told Simon that he wasn’t interested.

Of note, is that Simon never showed Oltmann any of the device source codes or schematics, nor did Simon tell Oltmann how the device was built or discuss its component parts. [14]

But the plot thickens.

It turns out that Oltmann had an existing relationship with a company called Laser-Tron, which Simon had already unsuccessfully pitched his coupon machine. Oltmann knew the president of Laser-Tron, and records reveal that Oltmann contacted Laser-Tron the day after his meeting with Simon. Less than a year later, Laser-Tron introduced a coupon dispensing option for an arcade game called Solar Spin. Understandably, Simon was convinced that Laser-Tron had replicated his idea based on information provided to Oltmann.

Oltmann disagreed and filed a pre-emptive suit requesting declaratory judgment that he did not steal Simon’s trade secret. Simon filed a counter suit, alleging misappropriation of his trade secret, unfair competition, breach of contract, and fraud.

Surprisingly, the court dropped all of Simon’s claims. As to misappropriation of a trade secret, the court held that its value lies in the fact that it is not generally known to others who could benefit from using it, saying that a product or service that is within the realm of general skills in the industry cannot be a trade secret. [15] In other words, Simon’s idea wasn’t unique. It was based on information already known within the video game industry. [16] As to breach of the non-disclosure agreement, the court held that because there wasn’t a trade secret, there wasn’t a breach of contract either. [17]

Protecting Simon’s Idea as a Trade Secret

Simon couldn’t protect his idea as a trade secret because it was already known in the industry. Trade secrets—which in the United States are controlled by state rather than federal law—generally require that the information is not known, possesses commercial value, and reasonable steps are taken to protect it. [18] In other words

  • The information you want to protect as a trade secret can’t be already known, especially in the business sector that you are working. As an example, a telephone listing of potential customers gleaned from an Internet search wouldn’t be protected because the information is readily available.  On the other hand, the customer database and sales history of a large video game distribution company (think Valve Corporation’s Steam) is undoubtedly a proprietary trade secret.
  • The information you want protected must also have commercial value because it is a secret. The Coca Cola formula, locked away in a vault in Atlanta, or Mr. Fields chocolate chip cookie recipe come to mind.  They are valuable because no one knows them. (Yes, my doubting friends, Mrs. Fields recipe is still a trade secret despite the dozens of counterfeit combinations floating in the Internet ether. [19])
  • Finally, you must take reasonable trade secret to keep your valuable information secret. An NDA is one such way. Another is to keep the information secure and away from unauthorized access.

Steve Simon discovered that his idea wasn’t protected, despite diligence in obtaining a signed agreement with Oltmann, not because he didn’t take reasonable precautions (as required in bullets two and three above) but because the information itself wasn’t a trade secret. [20] It failed because of bullet number one.

Protecting Simon’s Idea with a Copyright?

Under copyright law, Simon could have protected the underlying source code for his device but not the idea of a coupon-dispensing machine. Why? Because copyright law doesn’t protect ideas. [21] This is why Paramount doesn’t sue Lucas (or visa versa) for the similarities between Star Wars and Star Trek: outer space; cool looking spaceships, quests to unknown galaxies far, far away; aliens; etc.

Protecting Simon’s Idea with a Patent?

What about protecting Simon’s idea with a patent?

Although patents do protect processes and inventions, and Simon’s device qualifies as such, he still wouldn’t have been able to protect his idea with a patent because, unfortunately, you can’t patent something already in use. [22]

As a result, Simon lost despite his diligence in making sure that he had an NDA in place.

Back to Palmer

Palmer Luckey signed a non-disclosure agreement, too, and ZeniMax claims that John Carmack provided confidential information that was covered by it, including trade secrets contained in, among other things, the ZeniMax’s VR Testbed software. [23]

Section 2(a)(vi) of Luckey’s NDA obligated him to not use ZeniMax’s proprietary information to create competitive products or to “obtain any competitive advantage.” [24] Luckey further agreed that ZeniMax was not granting a license for him to use ZeniMax’s technology without their consent, including any tech that Carmack had created during his time at ZeniMax.

It seems like a slam-dunk that Oculus is in trouble, but for two reasons it’s not.

First, if Oculus is telling the truth, that there isn’t a line of ZeniMax code in Rift, then ZeniMax’s copyright infringement claims are weak and difficult to prove.  To be clear, showing copyright infringement doesn’t require a showing of actual code use, but it helps.

Second, proving trade secret misappropriation, even if it is true, isn’t easy either. Texas trade secret law has recently changed, [25] and regardless of whether ZeniMax v. Oculus is litigated under the old law or new, ZeniMax will need to prove each of the elements of the infringement. [26]

But it all comes down to Luckey’s non-disclosure agreement, because it provides a critical link in ZeniMax’s strategy. And this may be why Oculus is questioning its validity from the get-go. [27] Throw out the NDA and ZeniMax’s case could fall apart.

The Luckey Dilemma

The relevant question the reader should ask is whether they would have signed ZeniMax’s NDA had they been in Palmer Luckey’s position.

The truth is that most would.

Two years ago, when Palmer Luckey was without resources or visibility, John Carmack, an industry icon, showed interest in the Rift technology. Regardless of how Oculus tries to downplay it, Carmack’s early endorsement was key to Rift’s initial acclaim and thereafter to the success of his Kickstarter campaign. But Luckey wouldn’t have gotten Carmack’s help, endorsement, or technological advice without the NDA. And as my mom used to say, you can’t have your cake and eat it, too. 

Regardless of how ZeniMax v. Oculus turns out, the lesson learned is that next time someone asks you to sign a non-disclosure agreement; you should consider the consequences.

Stay tuned. Next up: a discussion of the more ominous NDA provisions and what they mean.
[1] ZeniMax filed suit against Palmer Luckey, as an individual, and his company, Oculus VR, Inc., on 5/21/14. Oculus VR’s response was filed on 6/25/14.

[2] The Oculus VR, Inc. and Palmer Luckey response to ZeniMax’s complaint Oculus VR, Inc. and Palmer Luckey response to ZeniMax’s complaint ZeniMax v. Oculus VR, Inc. and Palmer Luckey complaint, filed in the United States District Court for the Northern District of Texas, asserts that its trade secrets include confidential programming code, methods, plans, designs, concepts, improvements, modifications, research data and results, and know-how related to virtual reality headsets; interfaces between virtual reality headsets and interactive entertainment content and/or software; sensors and optical components calibration; latency reduction; low-latency head-tracking, including positional and absolute tracking; head and neck modeling; predictive tracking; chromatic aberration reduction; distortion, motion blur, and jitter/judder reduction; pre-warping of displayed images; combining and selecting devices, displays, cables, optics, and related hardware solutions best-suited for improving the user’s virtual reality experience; minimizing or removing the “screen door” effect on the display; minimizing simulator sickness and/or motion sickness for users; and creating a commercially- viable virtual reality headset. ZeniMax Trade Secrets include valid, enforceable trade secrets in the confidential, proprietary components of ZeniMax’s “DOOM 3: BFG Edition” computer program code.

[3] Forbes. http://www.forbes.com/sites/briansolomon/2014/03/25/facebook-buys-oculus-virtual-reality-gaming-startup-for-2-billion/

[4] The Oculus VR, Inc. and Palmer Luckey response to ZeniMax’s complaint (above) asserts in paragraph 2 that “ZeniMax’s Complaint falsely claims ownership in Oculus VR technology in a transparent attempt to take advantage of the Oculus VR sale to Facebook. By deliberately misstating some facts and omitting others, ZeniMax makes the incredible assertion that it, a videogame software publishing company for personal computers and consoles like the Sony PlayStation, invented and developed a virtual reality hardware and software system.”

[5] Oculus VR, Inc. and Palmer Luckey response to ZeniMax’s complaint, at page 5.

[6] Cybertek Computer Products, Inc. v. Whitfield, 1977 Cal. App. LEXIS 2140.

[7] ZeniMax requests in their complaint Actual Damages; Restitution; Disgorgement; Unjust Enrichment; Equitable Relief; Punitive and Exemplary Damages; Statutory Damages; Enhanced Damages; Prejudgment and Post-Judgment Interest; Court Costs; Attorney Fees, and more.

[8] Oculus claims that the non-disclosure agreement is invalid because ZeniMax failed to define an essential term “Proper Purpose” in that non-disclosure agreement (Oculus VR, Inc. and Palmer Luckey response to ZeniMax’s complaint, page 512).

[9] Silicon Knights v. Crystal Dynamics, 983 F. Supp. 1303.

[10] Id. at 1311. Further, SK’s complaint alleged tortious interference with Silicon Knights' contracts with its former employees, and that SK had valid non-disclosure agreements and non-compete agreements in place with each with respect to work performed on behalf of Silicon Knights on Kain.

[11] The actual claim was intentional interference with contractual relations.

[12] Ibid.

[13] On July 3, 1997, Silicon Knights filed a complaint against Crystal Dynamics requesting rescission or reformation of the contract and damages for breach of contract. Additionally, the complaint asserted Statutory Unfair Competition, pursuant to Cal. Bus & Prof. C. § 17200 & 17500 et seq.; Common Law Unfair Competition; Intentional Interference with Contractual Relations with Silicon Knights' former employees; Intentional Interference with Contractual Relations with Activision; Intentional Interference with Prospective Economic Advantage with Activision; International Interference with Prospective Economic Advantage (generally); Negligent Interference with Economic Advantage (generally); Defamation and Commercial Disparagement; Fraud; and Negligent Misrepresentation. The claim as to intentional interference with contract was upheld, whereas the claims for interference with the Activision contract, interference with economic relations, negligent interference with prospective business advantage, and defamation and commercial disparagement, fraud and negligent misrepresentation, and unfair competition were all dismissed.

[14] Simon v. Oltmann, 2001 U.S. Dist. LEXIS 13924 at page 5.

[15] Id. at page 12, citing Pope v. Alberto-Culver Co., 296 Ill. App. 3d 512, 515, 694 N.E.2d 615, 617, 230 Ill. Dec. 646 (1st Dist. 1998).

[16] Id. at page 17.

[17] Ibid.

[18] Note that depending on the state of country, trades secret law will differ. California, for example, may include criminal penalties (Cal. Penal Code §§ 499c, 502).

[19]  See http://abcnews.go.com/Business/coca-colas-secret-formula-revealed/story?id=12914877&page=2

[20] http://www.wipo.int/sme/en/ip_business/trade_secrets/protection.htm.

[21] Copyright does not protect facts, ideas, systems, or methods of operation, although it may protect the way these things are expressed.  “In no case does copyright protection for an original work of authorship extend to any idea, procedure, process, system, method of operation, concept, principle, or discovery, regardless of the form in which it is described, explained, illustrated, or embodied in such work.” 17 U.S. Code § 102 (b).

[22] Under U.S. Patent law, a prior work cannot be patented. GLOBESPANVIRATA, INC. v. TEXAS INSTRUMENTS, INC., 2005 Jury Instr. LEXIS 855

[23] See the ZeniMax complaint. http://cdn0.vox-cdn.com/assets/4490157/1-main.pdf

[24] See Palmer Luckey’s non-disclosure agreement with ZeniMax. http://cdn0.vox-cdn.com/assets/4490157/1-main.pdf

[25] The Texas Uniform Trade Secrets Act (TUTSA) became effective on September 1, 2013. The following explains the changes provided by the this recent law: https://www.texasbar.com/AM/Template.cfm?Section=Texas_Bar_Journal&Template=/CM/ContentDisplay.cfm&ContentID=23857

[[26] See https://www.texasbar.com/AM/Template.cfm?Section=Texas_Bar_Journal&Template=/CM/ContentDisplay.cfm&ContentID=23857 for an explanation of the older Texas common law and the recently passed Texas Uniform Trade Secrets Act (TUTSA).

[27] See Oculus’ reply to the ZeniMax complaint: http://www.scribd.com/doc/231298129/Oculus-Response-to-Zenimax.

[28] Image Licensing: Shutterstock.com
<![CDATA[Hitting the Reset Button on Video Game Copyrights]]>Tue, 13 Aug 2013 02:37:30 GMThttp://dlr-law.com/writings--pubs/hitting-the-reset-button-on-video-game-copyrightsPicture
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.

PictureIllustration 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/
<![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/writings--pubs/the-real-meaning-of-work-made-for-hire-in-the-videogame-industryPicture

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.


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/writings--pubs/the-future-of-reselling-digital-video-gamesPicture

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. 

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 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. 

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.

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? 

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. 

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).
<![CDATA[Ninth Circuit Rules Against EA in Keller v. Electronic Arts]]>Thu, 01 Aug 2013 23:59:07 GMThttp://dlr-law.com/writings--pubs/countdown-the-5-most-influential-video-game-lawsuits-of-2012-4-of-5-keller-v-electronic-artsPicture
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.

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.


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

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

 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. 
<![CDATA[So What the Heck is a Platform Anyway?]]>Tue, 19 Mar 2013 05:47:34 GMThttp://dlr-law.com/writings--pubs/so-what-the-heck-is-a-platform-anywayPicture
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.
<![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/writings--pubs/appoops-six-legal-mistakes-app-developers-are-making-part-2-of-2PictureCreating 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.

<![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/writings--pubs/appoops-six-legal-mistakes-app-developers-are-making-part-1-of-2Picture
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).