The Gray Market of Game Emulators

Posted on by Thomas Ludan

Retro gaming fans that have collected enough coins over the years recently had their chances to bid on “Nintendo World Championships” (NWC), an NES game specifically created in 1990 for Nintendo tournaments in 29 cities across the country, loosely inspired by 1989’s “The Wizard” starring Fred Savage.  To date, there are 90 copies of the original gray cartridges used in the competitions as well as another 26 gold ones that were produced specifically for winners of a Nintendo Power sweepstakes.

Once bids approached six figures, the auction garnered national publicity as the collectability of these games has become an industry in itself, separate from actually playing the games.  Two of these cartridges were even featured items on an episode of “Pawn Stars,” where the seller was willing to part with one each of the gray and gold for a mere $35,000.

But what if you don’t have the kind of disposable income (or patience to blow in a twenty-five year old cartridge) to play such a classic?  What are gamers to do then?

More frugal and morally-flexible gamers (as it pertains to Intellectual Property law) can locate the ROM of the same “Nintendo World Championships” game on a given website with the same effort it takes to find one of the auctions for the actual cartridge.  One download later, they can then enjoy the same 6 minutes and 21 seconds of “Super Mario Bros.,” “Rad Racer” and “Tetris” provided by the original cartridges in competition.

It has been said imitation is the sincerest form of flattery, but for video game manufacturers – emulation has become the greatest form of infringement.  The law provides (under §106) copyright holders with certain exclusive rights, including the reproduction and distribution of copies of the protected work, the preparation of derivative works, and public display and performance of their copyrighted work.  To the manufacturers and copyright holders, the issue is quite clear and unambiguous.  Supporters conversely argue that emulators should be legal within the “fair use” exception to copyright law.

The “fair use” doctrine provides a defense for those otherwise guilty of copyright infringement if they can legally justify their use of the protected work applying four factors, all of which apply with some degree of judicial discretion.  Market effect, the factor perhaps given the greatest weight, has protected as fair use instances of infringement in the interest of promoting competition and advancement while preventing monopolies among developers.  The seminal cases hold that reverse engineering is “fair use” as it pertains to the development of future games and systems.  While these holdings allow developers to manufacture and consumers to buy systems that play the original cartridges (such as this masterpiece), other systems like Ouya are not above suspicion that their technology may contribute to piracy, as they already run emulated games including “Super Mario 64.”

The copying and platform-shifting from cartridge or disc to computer file of the games (ROMs) themselves is in some ways a legal gray area in copyright law, since no definitive case law exists.  ROMs are undoubtedly reproductions of copyrighted works; their distribution an absolute further infringement of the express copyright.  Proponents defend the possession and use of ROMs through loosely-connected justifications in existing law: preserving old media (games) no longer in production and backing up an otherwise legally-owned copy of a game.  The preservation argument could really only be made by libraries or other archival institutions, not private users.  The latter “backup” argument may have some legal weight (currently untested), provided there is no distribution of the ROM and it is done by an individual only for personal use.  While the use of devices like video recorders or MP3 players have been ruled permissible methods of “time-shifting” – for later, private, non-commercial use – courts have distinguished the use of these reproductions for solely personal reasons from other devices and systems that involve the distribution of protected material.  Distribution of games via conversion to digital media, or “space-shifting,” is even further removed from the legality of fair use – as made abundantly clear by holdings in the Napster cases.  Video game manufacturers have even attempted to refute the “backup copy” rationale by demonstrating their willingness to replace defective games and the durable nature of ROMs.  Furthermore, courts have held that downloading backup copies [of games] is prohibited even where the user/downloader owns a previous copy of that particular copyrighted material.

Nintendo has attempted to counteract the commercial impairment of their copyrighted games by entering the emulation market on their own, providing access to classic games via the WiiU’s Virtual Console, posting legal notices on their website, offering rental access to games and initiating litigation against violators of their copyrights.  Despite making these suggested efforts, console manufacturers remain vulnerable as emulation has only fueled piracy.

The Entertainment Software Association (ESA) identifies internet piracy as the main problem facing the U.S. market, although we are not alone in dealing with what has become a worldwide epidemic.

Canada is the leading exporter of circumventing technologies, such as flashcarts.  Mexico and India have piracy rates of 75% or greater.  Laws against internet piracy remain unenforced in Russia, with 47 known optical disc plants producing pirated video games which then spread to Western Europe.  The largest impact however is in China, where an aggregate piracy rate over 90% exists, resulting in the seizure of more than 250,000 counterfeit Nintendo products in 2005 alone.

Nintendo continues to engage in lawsuits around the world, especially as they pertain to the sale of aforementioned flashcarts, or R4 cartridges.  These cartridges are another type of platform-shifting, permitting users to store multiple games on one flash drive.  Recently outlawed in Japan and made illegal to import, sell or advertise in the U.K., they have an enormous impact on Nintendo DS sales globally.  In their efforts to police violators, Nintendo has filed lawsuits around the world to mixed results.  While they gained legal victories in Hong Kong and Italy, a civil suit was lost against a French manufacturer, when France’s highest court reasoned that Nintendo’s devices should be more accommodating to third-party developers.  Back home in August 2013, Nintendo sued the appropriately named HackYourConsole.com for promoting and selling pirated titles and services to modify the Wii console to play the aforementioned illegal software.  The Florida-based company, considered the only authorized dealer of flashcarts in the U.S., has been subsequently shut down as a result.  This is to say nothing of the additional onus placed on console manufacturers to monitor the use of their games on websites like Twitch, where users potentially employ emulators and modded ROMs while streaming their gameplay experience.

For a company as reliant as Nintendo on their first-party games and established consumer goodwill, classic titles offer potential revenue and competitive balance against companies like Sony and Microsoft, not to mention the numerous emulators and ROMs available as mods for existing systems or for free on the internet.  “NES Remix 2” was made available for download on the WiiU in April 2014, offering a sample of favorite games as well as a “Championship Mode” very similar to the original NWC game, replacing “Rad Racer” and “Tetris” with “Super Mario Bros. 3” and “Dr. Mario” in the timed scoring challenge.  Estimates have placed Nintendo’s Virtual Console sales at only 1% of their total revenue – indicating either room for improvement or further justifying the dispositive market impact outlined in the case law of diminishing sales and interfering with the marketability of current products.

Regardless of the purchase prices ($4.99 for NES downloads, more for SNES and N64 titles; and $29.99 for most 3DS games), emulators clearly have a competitive advantage.  With the failure of courts (and consumers) worldwide to recognize and enforce the dual copyright nature of videogames, as noted by the World Intellectual Property Organization (WIPO), and global piracy more rampant in today’s market than ever, the issue is whether the game industry can continue to monetize its titles, both classics and new releases, in the same way the music, television and film industries have been doing for decades.

Analyzing Fandom: Cosplay

Posted on by Suzanne Jackiw

Continuing the exploration of fandom, and its associated legal snares, we turn to cosplay. Costumed play, cosplay for short, is the hobby, and sometimes profession, of dressing up as a character from fantasy, comics, tv, movies, video games, or any inspirational material. In the past two years, I have prowled local conventions in a custom homemade set of Halo armor,  dressed as Chell from Portal, asAria from Mass Effect, Ray from Ray’s the Dead, and, most recently as Lady Loki, horned helm and all. Cosplay is how I share the things I love with the world, and it’s a much appreciated break from being a law student. Like most cosplayers, my costumes are homemade but are an homage to the creations of others. These creations exist in the world of copyright; cosplays are derivative works.

Copyright does not extend to useful articles; that’s the realm of patents. Useful articles include things like vehicles, other machines, and clothing. Some elements of these things can be copyrighted. For example, the stylized paint job on a truck or the pattern on the clothing can be copyrighted. These things can be separated from the useful article. The shape of the useful article itself, however, cannot be copyrighted – unless it’s the Batmobile. Recently, Warner Bros. challenged a private seller of redesigned cars, cars that looked suspiciously like the 1966 Batmobile, with copyright infringement. Even though cars are useful articles, and therefore not covered by copyright , because the court determined that the Batmobile is a character in the Batman series, not just a car.

Costumes, and to a lesser extent masks, are considered useful articles by the copyright office because they serve the same purpose as clothing; they cover the body and provide warmth. But, based on similar logic, the Batmobile should have been considered a useful article for the same reason cars are useful; they provide transportation. If the Batmobile had acquired enough distinction to be considered a character, recognizable costumes may receive the same treatment. Costumes are perhaps at a greater risk of this move since the goal of a costume is to represent a character. Unlike the Batmobile, a discrete object, a costume is almost exclusively used as part of a persona. As useful as the costume itself may be, the character being portrayed is certainly protected by copyright.

A notable factor of the Batmobile case is that the cars were built to be sold. Profit, or compensation, is used as a factor in considering whether an infringing use of copyright is a fair use. Perhaps more importantly, selling a copyright infringing good makes litigation more likely, even if the good isn’t directly competing with the copyright holder. If a fan is selling costumes, more are likely to appear in the market. The goods may not meet quality standards expected of the copyright holder, thereby damaging their reputation. The copyright holder may have any number of reasons for wanting infringing costumes and goods out of the market.

Similarly, copyright holders may have issue with professional cosplay, where individuals are paid to portray a character. If these cosplayers don’t meet the standards set by, or expected of the company, or are affiliated with actions or views that may impact the copyright holder’s reputation, they have good reason to want to remove the professional cosplayer from the market. Copyright infringement claims and cease and desist letters are the easiest way to handle these market issues.

Patents protect useful articles. There are many types of patents, but design patents cover the design associated with a useful article, for example the shape of a car or the cut of a piece of clothing. Any design that is substantially similar would infringe the design patent, but most individual characters or costume designs in creative works are not covered by design patents. This is in part likely due to the cost of patents and their associated litigation. To patent each character design in a creative work would be extremely expensive. Additionally, each version of a costume would have to be patented to ensure complete protection. Patents are not generally feasible for character protection.

A third type of intellectual property, trademarks, could block some types of cosplay. A trademark designates the origin of goods. Batman originated with DC Comics, so consumers may, and sometimes do, assume anything bearing the Batman logo is from or made with permission from DC Comics. A cosplayer sporting the logo on a homemade costume has no connection to DC Comics short of fandom. Bearing this mark may be confusing to consumers, harm their opinion of DC, or create competition in the market. DC may have a reason to stop the cosplayer. Beyond the logos, some characters may also be subject to trademark registrations, if the character is associated with particular goods or services, such as video games. If you dress up as a well known character, for example Master Chief from Halo, to promote a product or service, and consumers are confused about whether or not 343 is endorsing that service, you’ve infringed a trademark.

The non-legal angle of the situation is that cosplayer are the best advertising. They draw attention by wearing elaborate costumes. They are dedicated to the product and willing to put untold hours into producing a good product. They speak positively of the product and often sell better than the best commission based salesman. While stopping some cosplayers may be necessary on occasion, it’s best to allow the fandom to thrive.

YouTwitch – Some Further Thoughts on “Let’s Play”

Posted on by Mark Methenitis

In talking to Joe Silver about his then-forthcoming piece on Ars Technica, I had a number of more complex legal questions left in my mind about the potential Google acquisition of Twitch, and the greater legal issues around Let’s Plays.  Because I thought these issues were interesting, I wanted to take a few minutes to share them.

Are the console integrations of Twitch functionality implicit consent?

Both the Xbox One and Playstation 4 integrated Twitch streaming into their consoles. Obviously, those services all have terms of use, but it does raise the question of whether this is either a consent to the Twitch usage of the content from the console, or whether this could be an admission that the Twitch functionality of a Let’s Play is fair use.  That would obviously be limited to software they publish, but it is an interesting question.  If it was not, is this an inducement to infringement?  Again, the terms probably try to skirt this issue, but it’s an interesting question to pose.

Could we end up with a lawsuit to end all lawsuits over the legality of Let’s Plays?

Imagine this scenario, post-Google acquisition of Twitch.  Developer X is really mad about a Let’s Play by Internet Personality Y posted to Twitch, which Google doesn’t take down.  Developer X sues Twitch/Google and Internet Personality Y as a result.  Internet Personality Y had broadcasted the Let’s Play using the integrated Twitch functionality of the Playstation 4, so either Google/Twitch or Internet Personality Y (or both) file to bring Sony into the lawsuit.  I can surmise the Sony (or Microsoft) position if this were to happen, but this would get everyone to the table very quickly.

Is there a developer out there who would risk their console relationships to sue over Let’s Plays at this point?

Thinking about the scenario above, is there a developer out there who would risk putting their business at odds with Microsoft or Sony over a Let’s Play?  Or, playing off of the first question, is there a developer who would directly take on the console manufacturers, if they wanted to stop that integrated Twitch functionality from being used with their titles?  I’m not sure there’s anyone who could afford that kind of conflict, as it would likely end their ability to put content on at least those two consoles.

 

Certainly, the potential Google acquisition of Twitch poses a lot of potential on the lawsuit front, but I think questions like these may prevent anything from getting too heated.  As a result, we may never get any true caselaw directly on a Let’s Play. That said, a Google-owned Twitch is a much deeper pocket, so there may be someone willing to take a shot at the combined entity if the merger comes to pass.

International Video Game Law Summit

Posted on by Mark Methenitis

Please plan to attend the International Video Game Law Summit in Dallas, TX, this June 23-24.  It’s being held on the campus of the Center for American and International Law.  The preliminary program, which may still be slightly revised, is posted here.  I will personally be speaking on business structuring concerns for game developers.  Other sessions will cover hacking, game technology, and women in the game and legal industries.  It should be an excellent program, and I hope to see you there!

Op-Ed: Nintendo Improvement Plan

Posted on by Mark Methenitis

Occasionally, when a topic arises that merits is, I’ll go beyond the normal Law of the Game discussions to exercise my MBA and discuss a more business-oriented topic.  In this case, the topic is what can be done to turn around a floundering Nintendo.  There have been no shortage of pieces on this topic as of late, some with more practical suggestions while others clinging to the age old (and still incorrect) supposition that the only way to save Nintendo is to take them out of the hardware business.  What follows is the plan I would begin to implement if Nintendo’s fate were in my hands.  I won’t say all of these ideas are new, or even ones that I originally came up with.  However, I have yet to see anyone present this complete of a plan, with all of these elements present.  This is, of course, just my opinion on the matter.

Before I get into the specifics, I need to set forth what I believe Nintendo to be, since that foundation is what the plan rests on.  At its core, Nintendo is a family entertainment company, and like other family entertainment companies, control of the entire experience is what makes a key differentiation between the offerings of other companies.  In that regard, Nintendo’s game ecosystem is like Disney’s theme park ecosystem.  Control is what keeps the system pure and what makes it function, and it’s why so many others have a difficult (if not impossible) time replicating the experience as a whole.  Therefore, as a fundamental premise, Nintendo needs to control the platform as well as the software on it, just like Disney needs to control the parks and hotels along with the cast who operate them.

Nintendo’s largest flaw in this regard is that the experience is no longer consumer friendly, and it’s no longer family friendly, in regards to being friendly to the family as a consumer unit.  The core flaw is the fragmented online ecosystem.  While the finally combined Wii U and 3DS login system was a step, it’s still substantially behind what I would consider acceptable, much less industry leading.

The answer is a system overhaul.  Users need to have a core login, and purchases need to be tied to that login.  The overwhelming consumer unfriendliness of the entire online system is multiple generations behind. A basic change like this fixes many of the biggest consumer gripes with Nintendo’s system.

Similarly, given the family-oriented nature of the Nintendo business, setting up family account systems would be a welcome change.  A truly robust system would even allow for parental management from a centralized web portal, and perhaps beyond simple controls, some additional monitoring systems.  For example, since Nintendo has expresses many concerns with the friend system, perhaps the parent account could monitor and restrict different kinds of online interactions.

The second major issue is the virtual console.  Right now, I, like many other consumers, have copies of games that I’ve bought close to a half dozen times now.  For example, I own copies of The Legend of Zelda: A Link to the Past for SNES, GBA, Wii, and DS, and possibly more.  While it is my favorite Nintendo game of all time, I’m not sure why I needed to get different copies of it for the virtual console for each system, especially when no new features to speak of are being added to the experience.

There are two ways to solve for this.  The arguably less profitable one is, provided a single sign on, allow for people who have one version to have other versions of the same game for free, or for a minimal additional cost.  For example, using my The Legend of Zelda: A Link to the Past example, if I bought the Wii version, I could have the DS version at no additional charge, or for a modest fee, $1 or $2. Or, perhaps you could buy a premium version of the initial release of, say, Earthbound, that allowed additional access as it moved to other platforms.

What would potentially make more sense would be for Nintendo to offer their own Virtual Console subscription service.  Paid monthly or annually, it could be as simple as anything from the catalog, or even subdivided into into smaller parts (all the NES catalog,  all the Mario catalog, all the 16-bit era catalog, etc.).  A flat rate for the entire virtual console catalog, though, would be the easiest to implement, and would certainly get a substantial number of subscribers.

Expand this with a family offering, and you’ve created a smart, easy experience for families to get behind.  Like other services, there would need to be a limit to the number of systems or simultaneous users, but perhaps that would even be scalable with a base fee and a fee for consoles over some preset number.  It’s difficult to peg where these numbers would be without the kinds of metrics only Nintendo has, but I imagine there would be good traction at $8 a month for 3 systems, and an additional $1 a month for each additional system added to the family plan.  Given the Club Nintendo system already allows for family accounts, it would be easy to tie it to consoles registered to a Club Nintendo family account.

The major question is whether these kinds of software changes can be implemented given the current hardware, or whether it will take new hardware to get there.  The 3DS still continues to sell well, while the Wii U is obviously struggling.  If new hardware is needed, it would be an ideal time to not only roll out those changes, but also change the underlying architecture to make it both easier to port games from the other competitor consoles but also to tie the home console and the handheld console together.  Easier ability to port titles would help bring back third party content, though for the most part that shouldn’t be viewed as the core of the business.  As I stated before, the best results for Nintendo are like the best results from Disney: when the entire experience is controlled.  This is afforded in the first party titles, and that is what has been Nintendo’s forte.  Third party titles need to continue to be viewed as a bonus, not a core business.

Another benefit a hardware change could bring is more interaction between the home and portable consoles.  True remote play on the 3DS from the Wii U, or better still, ability to play DS/3DS titles on the Wii U combined with a TV would be great.  Features like this might be more easily implemented on new hardware.  These features may be just around the corner, but I think they would be best coupled with improvements to the virtual console system.  That said, just the ability for multiple 3DS consoles to remote play existing Wii U virtual console titles would be an improvement.

Other obvious plays are to take advantage of the Toys to Life category (i.e. Disney Infinity and Skylanders) with a Nintendo IP in the area.  Given the family focus and huge profitability of the sector, this seems like a no brainer.  Current rumors point to an offering possibly as soon as E3, so we will see.  Either an all-star Nintendo roster, a Pokemon game, or an entirely new IP could work well in the space.

To the extent possible, increasing the rate of release of core IP would also help.  Not that we need an annual entry from both Mario and Zelda, but working it out so that there are at least 2-3 releases per console from the major series per year would make a huge difference.  This would require investing more effort into some of the neglected IPs, but Donkey Kong has shown that this can happen.  Metroid in particular has been neglected as of late, and Kid Icarus continues to have a hard time getting back off the ground.

Finally, in any business turnaround, a pretty necessary step is to do the kind of internal review that only the company itself can accomplish.  I certainly don’t have the kind of Nintendo insider knowledge to make any realistic assessments of what kinds of systematic problems may exist, if any.  The path that Nintendo is on was the result of some decision making, the major questions is whether those decision makers can learn to make better decisions, or whether the problem is so endemic that major staff changes may be required in order to make things stay on the right path.  Similarly, if changes prove not to work after being given an adequate opportunity to work, then decision makers need to be in place who can pull the plug and chose an appropriate new direction to try to resolve the problem.

Without more information, data, and the ability to analyze those two things, it’s impossible to formulate a more comprehensive plan for a Nintendo turnaround.  But I think the core philosophy of control the experience should be the foundation for any attempt to fix what ails Nintendo.  Nintendo can, and should, learn a lot from the approach Disney takes to many of these things.  They are companies who share man core philosophies, and each has been home to one of the greatest creative minds the world has yet known  in Walt Disney and Shigeru Miyamoto.  Certainly, there are many ways to approach Nintendo’s recent struggles, and I hope that whomever is chosen to guide them through this rough patch figures out a way to do so, bringing Nintendo back to the level of success it has known in previous years.

Analyzing Fandom: Fan Art

Posted on by Suzanne Jackiw

Fandom is a huge part of the video game industry. From art to fan fiction, tattoos to cosplays, a truly dedicated fan can integrate games into every part of her life, and many of us have. As a cosplayer, artist, and all around fan, these activities are a major part of my life that I love sharing with other people, but I know they come with risks. Over the next few weeks, I’m going to do a series on the different instantiations of fandom, their legal repercussions, and their impact on the franchises that we love.

Bioware has reached out to the more dedicated Mass Effect fans, looking for art to cover a wall in their office. Doodles, sketches, paintings, and other art projects of every style and every level of dedication are a huge part of fandom. Game companies are well aware that their characters inspire their fans. Some even share these fan creations on social media, like Twitter and Facebook. Bioware wants to be able to share, revise, and display the art fans send it. Notably, they want this right exclusively. This means that the artists and creators could not share or reproduce their art, an upsetting thought to these dedicated creators, who would lose any right to display their work. What most fail to realize is that they don’t necessarily have these rights to begin with.

The content of fan art falls under copyright. Most notably, in addition to particular stories or images, individual characters, who are highly developed, can be copyrighted. Fan art works are derivative works, meaning they are works based on copyrighted works. Under the law, the copyright holder has the only right to make derivative works.  Display or distribution of a derivative work is illegal under copyright law, unless done under a license from the copyright holder. Some fan art, however, may fall under the fair use exception.

Judges determine fair use through the application of four factors found in 17 U.S.C. § 107: (1) the purpose and character of the use, (2) the nature of the copyrighted work, (3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole, and (4) the effect of the use upon the potential market for or value of the copyrighted work. The first factor considers whether the use is just for personal profit or  if it enriches the general public. The second factor considers how much copyright protection the original work is entitled to. The third considers how much of the original was taken, and the importance of that content. The fourth looks at economic considerations, and the impact of the new work on the value of the original copyright.

Selling fan art weighs heavily against the first factor, and may even impact the fourth factor if the developer has licensed the copyright for official works. Fan art that relies entirely on developer content, screenshots for example, likely add nothing that enriches the general public. While neither of these factors necessarily means the art isn’t fair use, the court would weigh all the factors before determining whether or not the affirmative defense is applicable.

Generally, fan art never reaches the courtroom. This may be because fans stop making art upon receipt of a cease and desist letter, so things never go further. More likely, however, unless the art is offensive, misrepresentative, or competing with licensed products, developers see no reason to confront the works. These works are often privately created by dedicated fans, shared with others, acting as free advertising of the highest caliber. Cease and desist letters are also time and money intensive. Blocking all fan art just isn’t good business.

The Tricky Business of NDAs

Posted on by Suzanne Jackiw

ZeniMax recently challenged Oculus VR over unspecified technology used in the Oculus Rift. They claim that between John Carmack leaving id Software, a subsidiary of ZeniMax, to join Oculus and Oculus having access to ZeniMax technology in the early stages of Oculus development, as well as the veritable library of know-how Carmack developed during his time at id, Oculus breached its duty to hold technical information confidential by integrating it into their own product. ZeniMax may be right. Employers generally own work produced by their employees within certain restrictions. These ownership rights are usually further bolstered within employment contracts by explicit assignments. In many cases, if you work on something while employed at a particular company, the company owns that work product. id Software claims that Carmack’s contract contained just such a clause. Under that type of contract, if he was working on a project anything he made belongs to id Software, unless an explicit exception was made.

Without seeing Carmack’s employment contract, the assignments it may or may not contain are entirely conjecture; but the non-disclosure agreement at issue is available online. It is relatively straightforward; it contains no transfer of any property or rights, and seeks to ensure that any shared information remains confidential. In conjunction with a particular type of employment contract, it could theoretically form the basis for claims like those made by ZeniMax. Whether Carmack’s transfer to Oculus leads to a settlement or litigation is yet to be seen, but non-disclosure agreements generally can be much more complex than they initially seem.

Non-Disclosure Agreements (NDAs) are some of the shortest, and possibly most common, agreements, and, as such, seem deceptively  familiar and simple. But, they are can be very complex. One thing to be aware of is who a NDA is written to protect. Some are described as mutual but actually only protect one party’s data. The individual or company providing the NDA has the power to write themselves in as the “discloser” and cast the other party as the “receiving party.” A document written this way can leave the “receiving party” open to misuse of their data or unauthorized disclosure without any recourse.

Another NDA issue cropping up more and more frequently is the re-use and misuse of NDAs. Whether a company is using the same NDA for a plethora of dissimilar purposes or an unestablished company has pulled an untested NDA off the internet, the document can be unfit for the purposes, fail to be valid in the jurisdiction, or have unnecessary complexities that bog down the relationship. Most concerning, these types of agreements often fail to protect the types of data the parties intend.

Beyond these somewhat obvious pitfalls, there can significantly trickier things in NDAs. The first of these comes up if the duty to maintain confidentiality ends with the term. Put simply, if the contract expires in one year and the confidentiality obligations do not survive termination of the agreement, all the confidential information shared throughout the course of the contract can be made public after that first year, including information given the day before the expiration of the contract as well as information that has long standing implications for future plans. NDAs are almost always intended to be temporary, but not so temporary that they fail to protect information. A NDA should last long enough to reach a formal agreement, since it’s meant to form a basis for initial conversation.

Another way a NDA can limit what information is protected is through extensive requirements for what can be considered confidential. For example, a NDA could require that confidential information be labeled “confidential” in red ink, 24.7 point font, Helvetica, and only disclosed to Bob Smith in Accounting. Anything that does not meet all these unreasonable criteria would be eligible for use or disclosure. While most NDAs are not as outlandish as the foregoing, how “Confidential Information” is defined is a very important point in the agreement. The other side of this issue is the inclusion of exceptions as to what is confidential. While certain exceptions may be legally required, some NDAs include so many exceptions that confidentiality is meaningless.

The “purpose” described in an NDA is often overlooked as legal voodoo, but it sets limits on what information can be disclosed and in what circumstances that information can be used. Further, a well written purpose can set both parties on track to a mutually beneficial long term relationship. While purposes can range from “a commercial relationship between the parties” to a “strategic relationship,” a “commercial relationship” is the language typically agreed upon.

Another thing to watch for in many NDAs is the inclusion of people not involved in the deal, third parties and affiliates. These outside parties are often excused from the limits of the NDA, and where they are included, are extremely difficult to enforce the confidentiality restrictions against. Ideally, to make it easier to find and, if necessary, legally challenge, third parties and affiliates, they are listed in the document. Where this isn’t possible, NDAs usually require third parties and affiliates be held to at least the same level of confidentiality as required by the NDA prior to the disclosure.

Some NDAs include strange provisions, the least unusual of which is a requirement that any dispute be settled in a nonstandard or biased forum, for example one with unusual laws or that is likely to give preference to one party. Another uncommon inclusion to NDAs is a license to use confidential information for testing purposes without limitation. This clause would allow a consultant, who isn’t legally bound to confidentiality, to determine how the confidential information functions and to attempt to reproduce it. Relatedly, and equally rare, some NDAs include assignments, meaning intellectual property transferred as confidential information becomes the property of the receiving party. Equally odd are indemnification provisions or restrictions on hiring practices, which, while common in business agreements or other contracts creating long term relationships, have no place in an NDA.

NDAs are necessary to conduct business while protecting ideas and technology, but they can also be deceptively dangerous. Even seemingly innocuous agreements, like the one between id Software and Oculus can lead to litigation. The shortest documents can hold the greatest power.

Flappy Bird’s Legal Green Pipes

Posted on by Thomas Ludan

Much to the delight of the app-gaming community, Dong Nguyen, the creator and designer of “Flappy Bird”, announced via Twitter on March 19th that the game will return to the app market, although “not soon”.  It had been suggested that he had been threatened with legal action for violating Nintendo’s intellectual property rights, including the “Cheep Cheep” character and green pipes from the Nintendo’s Mario series of games, which led to the removal of the popular game (subsequently denied by both Nguyen and Nintendo).  Nguyen maintained that while these elements served as inspiration for “Flappy Bird”, he ultimately removed the game for becoming too addictive.

When it re-enters the market, “Flappy Bird” will likely face two legal obstacles: 1) trademark infringement based on copycat games and naming rights; and 2) trade dress and “passing off” issues, especially as they apply to the aforementioned green pipes and “Cheep Cheep” character, given the track record and fame of Nintendo’s franchises.

One challenge it will most certainly encounter upon re-entering the market is competing with these clones the game itself inspired.  It is not the first game to encounter success followed by imitation and will likely not be the last, as similar claims are familiar to both the mobile app and home console markets.  In its absence, gamers have flocked to the app store to download various clone apps to satisfy their cravings.  Developers have responded to this need, submitting another knockoff of Flappy Bird every twenty-four minutes to Apple’s app store.  Similarly-named versions “Splashy Fish,” “Hoppy Frog” and “Fly Birdie” attempted to capitalize on the game’s popularity.  Versions featuring Kanye West and Justin Bieber have even appeared in the market (seriously).

Imitation is nothing new to the video game market, and often comes from independent developers, looking to cash in on the success and popularity of previous games.  Developers of classics such as “Tetris”, “Pac-Man” and “Karate Champ” have all had their day in court to protect the original expressions of their games.  On February 4th, 2013, the developers of the classic “Tetris” won their lawsuit filed in 2009 against Xio Interactive, Inc., for the copyright and trade dress infringement of Xio’s “Mino” game.  While Mino’s developers admitted they were inspired by “Tetris” (and its profitability in the app market), they argued that they merely copied the unprotected aspects of the game.  However, the court ruled that Xio unlawfully and wholly copied “Tetris”, showing side-by-side comparisons of the games, while distinguishing how developers still remain capable of expressing similar concepts in a unique way even with the court’s holding, as done successfully by Dr. Mario in the 90s.  Gameloft is one such developer that has succeeded in this manner,  as they continue to release mobile game versions of its “N.O.V.A.” series, which some argue infringe on the elements of similar console games, specifically Bungie’s “HALO” of Xbox fame.  Even larger and established game developers are not immune from lawsuits.  Also in February of 2013, Electronic Arts (EA) and social gaming heavyweight Zynga (of “FarmVille” fame) reached a settlement based on Zynga’s “The Ville” and claims that it ripped off EA’s “The Sims Social” game.  Had the parties not reached a settlement, it could have resulted in a precedent that redefined the market and costs associated in creating videogames, for mobile and console, large companies and independent developers alike.

Copycats are not the only obstacles “Flappy Bird” must dodge upon its re-release, as naming rights will almost certainly be a matter of future litigation between Nguyen and numerous developers who have rushed to fill the void “Flappy Bird” left.  Since its removal, Mobile Media Partners registered the “Flappy Bird” name hours after it was deleted, and Ultimate Arcade, Inc. is attempting to trademark the term “flappy” as well as enforce it by alleging infringement against other developers who use the term in their games’ titles.  “Flappy Wings,” “Flappy Bee” and “Flappy Plane” are other clone apps which have mimicked the “Flappy Bird’s” gameplay since its disappearance.

Issues over naming rights have been similarly resolved, as developers prefer that infringing elements such as titles and characters are changed, without seeing these lawsuits through to their expensive conclusions.  In 2011, “Doodle Jump” creators Lima Sky withdrew their infringement claims, having filed complaints only after competitors using “Doodle” in their titles attempted to trademark the term.  “Stick Cricket” creators Stick Sports filed similar claims on grounds of “passing off” and trademark infringement against developers who also used the term “Stick” in their game titles that resulted in their removal from app markets, a case that highlights even more potential legal complexity when considering the international market for these games.  An exact recent example of this is “Candy Crush” developer King, who recently abandoned their trademark application for the term “candy” here in the U.S. while concurrently defending their valid trademark in the European Union against ZeptoLab, the creator of the “Cut the Rope” franchise.

In addition to new competition, despite previous reports and comments to the contrary, “Flappy Bird” may well have its own intellectual property conflict with Nintendo whenever it does return.  As analyzed in the Tetris case, game elements must be inherently distinctive and unlikely to cause confusion to receive trade dress protection.  In this instance, Nintendo would have to show that use of the green pipes, “Cheep Cheep” character and background sprites are unusual and memorable, separable from the product and indicate that any product involving those originates with Nintendo.  This could pose quite the problem for “Flappy Bird” should Nintendo meet that standard, as the green pipes and “Cheep Cheep” character are elements that have been repeated in the uber-popular Mario franchise throughout its history since the first Super Mario Bros.” was released on the NES.  The use of such features by Nguyen could lead to a ruling that their inclusion confuses gamers into thinking that “Flappy Bird” is a Nintendo-related title.  Such a determination would then hold those green pipes and similarly-used Nintendo items are worthy of protection, as well as subjecting their reproduction by Nguyen to the aforementioned “passing off,” in that “Flappy Bird” misrepresents itself as a Nintendo-produced entry into the app market.

Whenever “Flappy Bird” hits the skies again, flying between those green pipes may prove easier than navigating the challenges Nguyen and other game developers face in today’s legal landscape.

You Don’t Own It

Posted on by Suzanne Jackiw

A few months ago, Valve successfully defended a suit in Germany effectively ensuring that Steam users will not have the right to resell the games they own on Steam. Since users own the license to play the game rather than the game itself, they don’t have the rights inherited with the first sale doctrine. Further, they’ve each agreed to Terms of Use (TOU), Terms of Service (TOS), and/or an End User License Agreement (EULA) regarding how they’ll use the software. EULAs are packaged with every piece of software and, based on some rulings of courts in both the US and abroad, may be able to limit your ability to redistribute what you have purchased.

In 2013, The Federation of German Consumer Organizations (VZVB) challenged Steam’s policy of attaching each game purchase to a particular account. VZVB wanted Steam users, primarily those in Germany, to be able to sell or share their games. Valve’s Steam terms of service explicitly forbid the sale or transfer of games. The court specifically differentiated between a Steam sale and a naked license. VZVB had attempted a similar challenge in 2010, which was dismissed at the time, but a recent decision out of the Court of Justice of the European Union, ruling that used software licenses are legal, fueled their second attempt. Sadly, their efforts were misplaced and the German court ruled that Steam can limit resale of products.

The case that fueled VZVB’s second attempt involved Oracle. Europe’s highest court found that software developers have no right to block the sale or transfer of “used” licenses. The court’s reasoning turned on the idea that the right to control distribution is exhausted in the first sale, known as the First Sale doctrine. The court determined that the resale of software licenses is comparable to the resale of a physical product, like a software CD; but, this reasoning only applied if the original copy was made unusable at the time of sale and the license was sold as a whole. The court specifically ruled against the ability to sell license piecemeal if, for example, they purchased licenses for more users than necessary.

The US has also ruled on the legitimacy of reselling content online, but to opposite effect. In US District Court, ReDigi, a company that resold “used” MP3s online, was found to be infringing the copyrights of the artists. ReDigi created a monitoring system to ensure that users selling files removed those files from their own system at the time of sale. The court, however, found that there was still a reproduction, since the file that the buyer received was not identical to the one formerly held by the seller; it was copied between the hard drives and is therefore new material. The court used similar logic, the idea that no transfer is being made but that the content is being copied, to remove digital goods from the realm of First Sale. Under this ruling, the only way to transfer digital goods is attached to their original state; selling your hard drive.

Another US District ruling, Autodesk, further clarified that the resale of goods sold under the terms of an EULA constitute a sale with restrictions on use. However, the court differentiated between sales and licenses, particularly as applies to different types of goods. For physical goods, even where the EULA limits transfer, the goods were deemed sold and could be resold.

Almost every game sold in the US, for PC, phone, or console, is licensed not owned. Even if a player buys a physical copy of a game, the player only owns that Disk and not the game itself. While this is usually a non-issue, it was dragged to the fore when Microsoft announced that Xbox One games would not be able to be shared or traded. While they backpedaled shortly thereafter to a chorus of angry gamers, the incident highlighted the power inclusive in never letting players own their games. The terms of the license for each game are contained in the Terms of Service (TOS) or End User Licensing Agreement (EULA); both of which function to limit what can be done with a particular piece of software.

EULAs grant the obvious: the player can use the software; and, from there, limit the software use and ownership as appropriate for the goals of the product. Some use happens locally, through the disk or an installed copy, while other types of use rely on the player accessing remote servers or connections. While this often makes little difference to the player, it impacts the enforceability of the EULA terms. It is much simpler to deny a player access to my servers then to convince them to remove my software from their hard drive. Some EULAs explicitly grant the rights of resale or transfer, some are silent on the issue, and others prohibit it. Most allow archival copies or back-ups, so long as these conform to whatever other limitations are set.

The contract is often only available in electronic form and presented to the user at the time of installation. Assent to the EULA is typically the only way to install the software. Beyond the restrictions on copying and transfer, these agreements usually include clauses about product liability and reverse engineering. The product liability is usually limited to the cost of the software, with no additional damages. Reverse engineering clauses are somewhat self-explanatory; licensors don’t want the inner workings of their software revealed. Some EULAs include limits on how you can litigate with the licensee. This includes limitations on forum and other restrictions, for example, you may only be able to arbitrate your case in California.

In the US, agreement to a contract comes with the assumption that you’ve read and understood it. This is clearly not the case with EULAS. The courts are inconsistent on whether or not an EULA can be enforced, and none have offered a broad decision, instead releasing only rulings on particular terms. Regardless of enforceability, you usually can’t use the software without agreeing to the EULA. Even if a clever user can bypass the EULA without assent, most programs include use of software as a definite indication of agreement to the terms.

Notwithstanding anything in an EULA, players can resell physical media, such as game cartridges or disks. The sum of these factors can indicate any number of things. Given the backlash for Microsoft’s move to block the sale or transfer of physical licensed media, the secondary market will likely not disappear. However, Steam, Xbox Live, app stores, and other online markets created a different set of rules and fostered different expectations from their inception. While their content is often licensed in much the same way as physical media, they have created far more significant limitations on how their products can be transferred, both in the US and abroad. With the shift to primarily digital distribution, the inability to resell purchased games may become a thing of the past, but does it matter? With an aging gaming audience, with more disposable income, the need to share or resell games may be becoming a token of our collective childhood.

Duke Nukem: Contractual Clarity

Posted on by Suzanne Jackiw

The issue of who owns what can be a sticky one, particularly when talking about something intangible, like intellectual property. Ownership can be transferred in just a few phrases. Ownership can be shared. Ownership can be divided piecemeal between several parties. Without seeing the written agreement that draws these lines, it’s impossible to determine where ownership lies; and, this is the problem facing Gearbox and 3D Realms, a subsidiary of Interceptor, over Duke Nukem.

In 2010, depending on who you ask, 3D Realms sold some or all of its Duke Nukem intellectual property rights to Gearbox. According to Gearbox, the acquisition was part of a bailout package meant to save 3D Realms and resuscitate the failing Duke Nukem Forever; it was all an attempt to help out a friend. Also, according to Gearbox, 3D Realms has worked hard to convince everyone that the transfer of the Duke Nukem IP never happened. Regardless of what exactly was transferred, both parties acknowledge that 3D Realms retained the rights to older franchise titles, including the right to rerelease.

3D Realms recently announced its plans to release a new game, Duke Nukem Mass Destruction, with a teaser site in tow, alloutofgum.com. On February 13, 2014, Gearbox sent 3D Realms a cease and desist letter demanding a stop to Duke Nukem Mass Destruction. Three days later, 3D Realms’ CEO signed a breach notice in which he apparently agreed to stop using the transferred Duke Nukem IP.

On February 21, 2014, Gearbox filed suit against 3D Realms to halt production. About a month later, 3D Realms released its response, in which it denies all the allegations set forth in the complaint. 3D Realms claims that it retained several rights, including the right to produce Duke Nukem Survivor, the working title for Duke Nukem Mass Destruction, and ownership of the Duke Nukem trademark. 3D Realms further claims that Gearbox had an obligation to enter into negotiations before filing suit.

So where does that leave us? Without access to the contract, it’s not readily obvious what was or was not transferred in any bailout that may have happened. The breach notice seems to indicate that both Gearbox and 3D Realms agree something was transferred in relation to Duke Nukem. The entire matter may actually be a matter of developer confusion on who owns what.

Transferring intellectual property is generally done by assignment or license, with an assignment actually causing ownership to change hands while a license does not. Each type of intellectual property, trademarks, copyrights, patents, and trade secrets, have different rights associated with them; and, just because a right is assigned or licensed, doesn’t mean the assignment or license is necessarily exclusive. For example, 3D Realms may have non-exclusively licensed the right to use the Duke Nukem trademark to Gearbox or they may have assigned some rights while reserving or requiring a license back of others, meaning in either case that 3D Realms could still use the mark. These contractual nuances can be hidden throughout a document, making it difficult to figure out where one party’s rights end and another’s begin. Similarly, issues like exclusivity may not be dealt with at all. 3D Realms may have transferred the use right without any note on exclusivity, leaving each side to rely on its expectations of what the contract meant.

Without reading the document, which is likely under a confidentiality agreement, it’s difficult to tell why there’s such a large discrepancy between the expectations of the two parties. It may be a matter of blatant infringement following a complete transfer of rights. But, it is also possible that the contract was unclear or misunderstood, so each party chose to interpret it in the way that most benefited their studio. It may have also been an assignment with a reservation of rights or a complex license. If it was an exclusive license, Gearbox likely had reason to believe the rights entirely belonged to them. On the other hand, if it were a non-exclusive license, 3D Realms may have an argument for continued use.  The key here is all in the document, which we will unfortunately likely never get to see.