Lawyers Weekly, December 3, 2007.

All in the (video) game
Serving the legal needs of a strange, expanding industry
By Dick Dahl Staff writer

Business has never been better for lawyers doing video-game law, in any of its varied manifestations.

According to PricewaterhouseCoopers, sales of video games in the U.S. this year will reach $10.4 billion, exceeding the 2006 figures by a whopping 15.5 percent. The firm projects that the game industry will surpass the music industry in sales sometime next year - and could jump ahead of movies soon after.

Lawyers working in the video-game business occupy a variety of roles and perform a variety of tasks, ranging from IP work to First Amendment litigation. But if comments to Lawyers USA by a diverse group of video-game lawyers are any indication, they apparently hold something in common: a fascination with the industry and the creative people working within it.

Thomas H. Buscaglia, a solo in Seattle, was an employment litigator for years in Miami and gradually began doing video-game work in the mid-1990s as a direct result of his own personal interest.

“I started playing games and I thought they were really cool,” he said.

Out of curiosity, he traveled to Atlanta in 1998 for the Electronic Entertainment Exposition, and the following year he went to the Game Developers Conference in San Jose.

“I never told people I was a lawyer. I felt like such a voyeur. I was surrounded by these people who take these pure ideas from their imaginations and manifest them in these games through magic and hard work. And there I was, just a lawyer,” he said.

But as Buscaglia met more developers, he realized that he had skills to offer them. He began volunteering with the International Game Developers Association, and soon his practice began to reflect his personal interest in the world of video gaming.

His client list was soon dominated by game developers - usually small shops of creative people hoping to land deals with video-game publishing companies willing to invest in their ideas.

But southern Florida isn’t exactly a prime area for this kind of work. Seattle is, and earlier this year Buscaglia and his wife made the move to the Pacific Northwest.

Working out of his home office, Buscaglia performs a variety of functions for his developer clients. He is the outside general counsel for some, providing business advice on an ongoing basis. For others, the focus is contract work.

“A lot of these guys get together and make a game and then they think the first contract they’re going to see is the publisher’s contract, and that’s a naí¯ve view,” he said.

Buscaglia has developed a “kit” for them that contains the kind of documents they’ll need before they go to a publisher - such as contributors’ agreements that transfer assets from the individuals to the company that owns the game.

Lawyers describe the video-game industry as being similar to the music and movie businesses. Like record labels and movie studios, developers finance projects they believe have a chance of success. Most fail, so they seek to recoup those losses by negotiating terms that give them a big pay-off if the product is a hit. Experienced developers - like famous-name musicians or directors - get better deals.

“There’s been this tradition in the [video-game] industry that everybody gets screwed on their first deal,” Buscaglia said. “I’m doing my best to make sure that that becomes a historical anecdote instead of the way we do business.”

Securing intellectual rights

Intellectual property law involving video games has changed dramatically over the years, according to John W. Branch, a partner in the Seattle office of Darby & Darby, an IP firm.

The earliest cases, in the 1970s, dealt with the simple question of whether video games were entitled to copyright protection, he said. Since then, cases have addressed questions involving “reverse engineering” of consoles by competitors to allow their games to be played on those consoles, devices that tweak games to give players more powers, and copyrights and trademarks of features within games.

Branch said one of the more interesting recent cases involved Immersion Corp.’s patents on “haptic feedback technology,” a feature that vibrates players’ video-game controllers when, for instance, they are hit by shrapnel from an explosion. In 2005 Sony Corp. was found to have infringed on those patents. The company has appealed that decision.

Meanwhile, a similar suit filed by Immersion against Microsoft Corp. recently settled, with Microsoft paying $25 million to acquire a 9 percent interest in the company and a license to use the technology.

Branch explained that most video-game developers don’t make their own technology - the raw stuff used to build their virtual worlds. Most buy “game engines” - the two most popular are called Unreal and Id - for which they pay licensing fees.

Since the raw material is already licensed, that aspect of the game isn’t relevant to the IP work lawyers do for developers.

“So what is there to protect?” Branch asked. “There’s the artwork, which people can get copyrights on to protect people from copying their characters. And you can trademark the names of games.”

But full-blown patents remain relatively scarce in the video-game industry. The majority of video-game innovations are unpatented, Branch said.

This is due partly to the nature of the industry. A video game can cost millions of dollars and require several years to create, with no assurance that it will succeed. In fact, most don’t. Patent applications can take three years or more. And even if a game is initially successful, it may not be by the time the patent is approved.

In the last few years, bigger video-game companies have begun to step up their patenting activity and Branch predicted that “as the industry matures, that’s when the patents are going to come into play and that’s when the long knives are going to come out.”

New developments

Video-game lawyers say the industry has begun to change dramatically in several ways.

Games have grown increasingly complex, requiring a greater investment of time and money to create a hit game. An industry dominated by cowboy entrepreneurs has recently become more sedately corporate.

But the popularity of new portable devices has created a rapidly expanding sector within the industry where the old cowboy spirit is thriving once again.

They’re called “casual games,” which are simple, fun, nonviolent and addictive. They feature repetitive activity, such as popping balloons, and they’re proving to extremely popular with women over 40, retirees and office workers.

The games are cheap to make and a couple of developers can produce a finished product in a couple of months.

“Guys are making them in their basements,” said Branch. “They don’t the need the publishers anymore.

“There’s a big change going on right now,” he continued. “People are trying to sell these games directly to the consumer. They’re trying to make end runs. The publishers are losing their grip.”

But according to Branch, the “real action” today is in PC games, which people download from a growing number of game sites.

Another factor pushing computer game playing is a hybrid form of online gambling. Gregory R. Gemignani, a partner in the Las Vegas law firm Lionel Sawyer & Collins, focuses much of his practice on the crossover of video games and online gaming.

“These are games where, generally, you have to pay to play in order to win,” he said.

The legality of these games varies from state to state, with the critical factor being whether the game is primarily one of skill or chance.

“It’s kind of a moving target,” said Gemignani. “In some states, it’s okay if the game is primarily skill-based, but in other states that can be a problem.”

Skill-based games - those in which players direct an avatar to slay monsters or hit a baseball - are legal in most states. But chance games, like poker, are not, said Gemignani.

When counseling the sponsors of these games, Gemignani provides “a survey of the different laws regarding the risks involved in running those tournaments. I can’t tell you whether your game is skill or chance; that’s a question of fact, rather than law. But I can tell you where the law comes down.”

He said online-gaming video games will always be risky, “particularly because a lot of the games appeal to children. There’s always a chance that a prosecutor somewhere will get upset.”

Video games and the First Amendment

The inherent violence of many video games has been the subject of an ongoing, intense debate: To what degree does video-game violence prompt violent behavior in players?

There have been many studies, with varying conclusions and interpretations. But the courts have been consistent. Without venturing into questions of causation, the courts have repeatedly found that efforts to pin responsibility on game makers do not pass constitutional muster.

Paul M. Smith, a partner at Jenner & Block in Washington, D.C., is a litigator who has represented industry groups in a variety of successful lawsuits filed against states and cities for passage of laws and ordinances restricting or banning the sale of violent video games to minors.

The first of these lawsuits resulted from an ordinance passed in Indianapolis in 2000 that applied only to arcade games. A group representing video-game manufacturers sued to enjoin the ordinance and Smith took the case. A U.S. District Court denied the motion, but Smith and the plaintiffs were victorious in an appeal to the 7th Circuit.

The courts have been unanimous since, and Smith hasn’t lost.

“The politicians love to pass these laws because it makes for good politics,” he said. “There’s really no down side to beating up on violent video games, so they’ll just keep passing them. But so far what the courts have said is that there’s no exception for violence in the First Amendment and parents are the ones who are supposed to decide these issues.”

On two occasions - in lawsuits stemming from school shootings at Columbine High School in Littleton, Colo. and Paducah High School in Kentucky - the video-game industry was named as defendant, but Smith prevailed at trial in both cases.

Questions or comments can be directed to the writer at: dick.dahl@lawyersusaonline.com

© 2007 Lawyers Weekly Inc., All Rights Reserved.