Lawyers in Canada: Davis LLP - Legal Advisors Since 1892

Microsoft Motion to Dismiss

According to Gamasutra, in October 2009, Microsoft removed support for third-party memory cards on Xbox 360 through a software update. As a result, it is reported that Datel, a memory card maker, filed an antitrust lawsuit against Microsoft alleging that said lock-out is deliberately harming competition. Microsoft is reportedly arguing that the lock-out was implemented to prevent cheating and to maintain tighter control over compatibility, safety and compliance and that it has a right to do so.

It has been reported that Microsoft recently filed a motion to dismiss the antitrust suit, using a precedent set by Apple to build its case. Apple sued Psystar last year for having manufactured devices that ran Mac OSX without Apple's authorization and was reportedly successful, despite Psystar's allegations of antitrust. It appears that Microsoft's argument is that, just as the Court ruled that only Apple machines can run Mac OSX, so should Xbox 360 consoles only use first-party accessories.

Microsoft has apparently also taken exception to Datel's definition of the field in which it claims anti-competition because it has only included Xbox 360 and PlayStation 3 and fails to include the Nintendo Wii, the Nintendo DS, the Sony PSP and Sony PlayStation 2 in its definition of "Multiplayer Online Dedicated Gaming Systems". Microsoft is allegedly arguing for the inclusion of the Wii, inter alia, in the category, because it has outsold both the Xbox 360 and the PlayStation 3, which may weaken the antitrust claims.

Coverage at: Gamasutra.com

Some Xbox 360 users losing their memory

Microsoft locks out aftermarket Xbox 360 memory units; Datel objects, launches antitrust lawsuit

Are you one of thousands of Microsoft Xbox 360 users that have recently purchased a third-party memory unit for the Xbox 360 to store data and saved games? If so, you are likely suffering from memory loss. As a consequence of a recent mandatory update of Xbox 360's firmware, all third-party memory units have been disabled by Microsoft. Datel Design & Development ("Datel"), for one, is not taking this development sitting down. Having sold over 50,000 of its Memory Max cards to Xbox 360 users since May of 2009, Datel has responded by initiating a an antitrust lawsuit pursuant to the California Unfair Competition Law alleging that Microsoft has unfairly targeted Datel and its customers, and that permitting Microsoft to go ahead with its lock-out will "forestall innovation, and deprive future consumers of the benefits of competition."

It will certainly be interesting to see how this battle plays out in the courtroom; though I'm rooting for the little guy, my money's squarely on Microsoft. Check back regularly for further updates.

Gamasutra coverage here

Sharp Feels Sharp Pain

Submitted by Karine Bellavance

It has been reported by PC World that Japan's Fair Trade Commission (the FTC) has slapped Sharp with a fine of over $2.9 million pursuant to Japan's Antimonopoly Act, to be paid by March 19, 2009. An investigation into price-fixing of LCD modules that are used in the Nintendo DS resulted in this fine. It has also been reported that a cease-and-desist notice has been sent by the FTC to Sharp in relation to LCD modules sold to Nintendo from January to March 2007, for the DS Lite.

However, it is reported that Sharp denies having maliciously violated Japan's Antimonopoly Act, stating the following: "We understand there is no precedent in Japan that a cartel in violation of Antimonopoly Act was found for a specific product which was sold to one private company for use of a single product model".

Coverage at GameDaily.com>GameDaily.com

Scrabulous removed, but returns under a new name

Facebook users in Canada and the US were blocked from using the extremely popular Scrabulous application earlier this week. Facebook blocked the application pursuant to Hasbro’s request, as the company has taken the matter to Court with claims that RJ Softwares and the Agarwalla brothers’ game infringes on their Scrabble intellectual property rights.

Hasbro owns the rights to the Scrabble game in North America and Mattel owns the rights to it in the rest of the world. Mattel has yet to file a formal lawsuit against the Scrabulous creators. Since the application was blocked earlier this week, the two official games offered on Facebook by Hasbro and Mattel have gone from having fewer than 25,000 users between them to having 60,000 users in Canada and the US alone.

According to CBC, the Agarwalla brothers agreed to have the application blocked in response to Hasbro’s lawsuit. They have now come back with a retooled game with a new look and an adjustable board called Wordscraper. The game is available on Facebook and to date, has fewer than 4,000 users.

Coverage here (GameDaily).

Submitted by Tania Da Silva, Articled Student

A Simply Scrabulous Lawsuit

A lawsuit has been filed in U.S. District Court in New York by Hasbro Inc. against the creators of “Scrabulous”. Although an official version of Scrabble was issued last week by Electronic Arts Inc. for Canadian and American Facebook users, online players have continued to play Scrabulous. Hasbro alleges that Scrabulous is a copyright infringement and is trying to have the game shut down. The toymakers are also seeking an unspecified amount in damages from the creators.

Scrabulous is the most popular game on Facebook, attracting more than 600,000 players daily. It was created during the summer of 2007 by two young brothers from Calcutta India, Rajat and Jayant Agarwalla. The brothers and their company RJ Softwares are all named as defendants in the lawsuit which was filed on July 24, 2008.

Submitted by Sylvie Lang, Summer Student

Coverage here (Associated Press)

Two Gamers File Class Action Lawsuit Against Electronic Arts

The claim alleges that Electronic Arts' exclusive rights agreement with the NFL, NCAA football and the Arena Football League, which grants EA the sole right to publish games featuring the thoe leagues' teams, players and stadiums, amounts to "blatantly anticompetitive conduct".

How so, you might ask yourself, given that other publishers are free to make football video games? Counsel for the plaintiffs acknowledges this, but argues that there isn't a "market for interactive football that is not based on real players and teams."

The claimants seek "restitution and damages for those who purchased an Electronic Arts football game since August of 2005, disgorgement of all profits made as a result of anticompetitive actions, and that the infringing agreements be declared null and void."

Coverage at: SF Gate and Cinemablend

EA sued re Madden 2006

In an earlier posting, we reported that the video game industry has seen some huge exclusive agreements, such as EA’s exclusive video game rights to the NFL, NCAA football, and ESPN. We noted that there are concerns that exclusive licences like this might diminish the quality of games by reducing the number of competing games (for example, buyers are more likely to buy a football game using real NFL players and teams than one that does not), and that there might be anti-competition concerns with such licences.

We now understand that EA was recently hit with a class-action lawsuit in California and Washington DC for allegedly anticompetitive conduct in respect of Madden 2006. The plaintiffs claim that EA significantly raised the price of the game after signing an exclusive deal with the NFL which prevented other game companies from getting NFL licences for their games.

Coverage here: http://tinyurl.com/65vzyn (East Bay Business Times)

Video Game Trade War?

The governments of Canada and the United Kingdom are engaged in a increasingly heated dispute about the success of the Canadian video game industry. In particular the U.K. government has accused Canadian governments of unfairly subsidizing video game developers through tax credit programs.

These programs, which have been set up by various provincial governments including British Columbia, Quebec and Ontario, have been very successful in helping build the Canadian video game industry.

We can attest to the importance of these programs as we have several clients who have relied on a provincial tax credit programs to attract investors.

The success of the programs has now caught the attention of foreign governments who are alleging that the tax credits amount to an indirect subsidiary.

After a lengthy war of words the U.K. government has ratcheted up the dispute by making a formal complaint to the European Commission.

While the generally glacial pace of trade disputes suggest its unlikely that the various provincial programs are in any imminent danger, one wonders if eventually the current model of tax credits will have to eventually be overhauled or even replaced.

Coverage at Vancouver Sun and Game Politics

PATENTS AND GAMES

Gamasutra has an interesting article about the US patent regime and how it does more harm than good, especially in high-tech industries such as video gaming. Note that some of the criticisms raised in the article are not fully applicable to other jurisdictions -- for example, Canada has a more restrictive approach to software patents and business ...

5 YARDS FOR ILLEGAL Wii BUNDLING?!

Toys "R" Us is said to be under investigation by the Better Business Bureau over its Wii bundling practices. Some Chicago consumers are complaining of having been misled and railroaded into purchasing Wii bundles costing about $200 more than an advertised price (not for a bundle).

The BBB is reported to now be 'apparently challenging Toys "R" Us on its advertising of the Wii"? while Toys "R" Us has apparently told NBC that it was not an advertising problem and that it was simply a "misunderstanding"?, that consumers that wish to return the bundle and purchase the cheaper product will be allowed to so.

Mere bundling is not necessarily illegal.

coverage at http://shorl.com/bobrybigamoda (GameDaily)

MUCH ADO ABOUT EXCLUSIVITY

There has been some recent hubbub over whether Konami's Pro Evolution Soccer 6 will be exclusive to the XBOX 360. Microsoft has announced that the game will be a 360 exclusive in Europe for the first year of its release; Konami, on the other hand, says that it will be releasing the game on multiple platforms. It's not clear why the parties aren't all on the same page, but the situation demonstrates that exclusivity is an important issue when it comes to licensing software and products.

Generally speaking, in Canada licences can be non-exclusive, exclusive, or sole.  In a non-exclusive licence, the licensor retains the right to use the licensed property and to grant licences to other parties. An exclusive licence means that only the licensee is able to use the licensed property "? the licensor cannot use it or license it to others. A sole licence allows the licensor to use the licensed property, but prohibits the licensor from licensing to other parties. Other jurisdictions may use different terms, or give different meanings to these terms.

Exclusivity is a key point in any licence agreement. Obviously licensees prefer exclusive licences, as that gives them a lock on the particular content or technology. Licensees expect to realize more return from an exclusive licence, because they will not have to compete with others using the same matter. The flip side, of course, is that licensors expect to be paid more for an exclusive licence because their income stream is limited to the single licensee.

Exclusive licences can be restricted in different ways. For example, an exclusive licence can be limited to a certain geographical area (e.g., North America, Europe). This gives licensors the flexibility to parcel out rights as they see fit.

The video game industry has seen some huge exclusive agreements in recent years. For example, EA has obtained exclusive video game rights to the NFL, NCAA football, and ESPN (see here ).  There is concern that exclusive licences like this might diminish the quality of games by reducing the number of competing games (for example, buyers are more likely to buy a football game using real NFL players and teams than one that does not), and there have even been claims that exclusive licences are anti-competitive (see here ). Some organizations take a different approach "? last year, for example, the NBA entered into non-exclusive licences with five different game publishers (see here ).

Coverage of the PES6 issue http://shorl.com/hinolydetejy (GamesIndustry.biz)

JESUS WANTS ROYALTIES TOO

Several professional poker players, including Chris 'Jesus"? Ferguson say they will file a lawsuit against the World Poker Tournament organizers today. The players are upset because they say the tournament organizers used their names and likenesses in a video game without any compensation. The players did sign waivers, but they claim the casinos colluded to prevent players from participating in tournaments unless all players waived their rights to compensation in these circumstances. 

Personality rights lawsuits are becoming more common in the video game industry. For example, last year, Vili the Warrior, a mascot for the University of Hawaii, sued EA for $75,000.  He claimed that EA used his character without permission on NCAA Football '06.

Another good example is the Guy Game lawsuit. In that case an anonymous teenager won a injunction against Topheavy for including topless footage of her in The Guy Game.  She had been videotaped while competing publicly in a topless contest during spring break.  The problem was that she was a minor at the time of the contest, so her lawyers successfully argued that the waiver she signed was void (despite the fact that she provided ID at the time which showed she was an adult). 

Every publisher will want to get waivers signed by people who appear in their games. But the Topheavy lawsuit and the poker lawsuit show that getting waivers might not be enough it's also important to confirm that the waivers are enforceable.
Coverage of the poker lawsuit at  http://www.shorl.com/fytypribrystuli (Mercury News)

TABLE OF VIDEO GAME CASE LAW

We're pleased to report that our blog now contains a table of video game law cases.  It's a work in progress (we have a bunch more cases to add) but we're so excited that we just can't wait to share.  So here's the link  http://www.davis.ca/community/blogs/video_games/files/blogtable.htm

Keep checking back for updates.  There's also a link on the homepage of the blog. 

THE GTA COMPLAINT

In an earlier posting , we reported that Rockstar andTake-Two Interactive had been sued by the LA city attorney.  The lawsuit claims they made misleading statements and engaged in unfair competition in marketing the popular Grand Theft Auto San Andreas game.

For your reading pleasure, we can now provide you with a copy of the complaint.  Here it is http://www.shorl.com/jatinudurede

It's a big file, so be patient.

Jamdat Not Acquired So Ea-sily

As previously reported (see  here ), EA has entered into an agreement to acquire mobile gaming provider Jamdat for an estimated US $680 million. However, a Jamdat shareholder is suing to prevent the sale, alleging that Jamdat's directors did not attempt to find the highest price reasonably available for the company, and employed a process which would tend to result in Jamdat's acquisition by EA. Although financial analysts have categorized EA's offer as generous, the issue of whether others had an opportunity to make any offer is apparently live.

Coverage at http://www.shorl.com/jekijohesugi

Electronic Arts' Empire Goes Wireless

Just when you thought monolithic publishing emperor EA couldn't get any bigger, it goes and purchases mobile gaming company Jamdat for a reported $680 million, or USD $27 per share. Jamdat, created in 2000, will add a significant mobile gaming component to EA, which has thus far been unable to create a dominant position for itself in that area. It is expected that Jamdat will benefit from EA's host of gaming rights, EA will benefit from Jamdat's technical expertise and strong position in the mobile space, and cell phone users everywhere will benefit from having Madden with them during awkward visits from in-laws.

Coverage at http://shorl.com/duprobudyfrasty

Sony Acquires Guerrilla Games

Sony Computer Entertainment Worldwide Studios has announced that it has acquired developer Guerrilla Games from its parent, Media Republic. Guerrilla Games, known for its creatively-named Playstation 2 title 'Killzone"?, is apparently hard at work developing further Killzone properties for the Playstation Portable and the upcoming Playstation 3.  Soon, there will be no Playstation zones in which killing is impossible.

Coverage at http://www.shorl.com/hedrymegynotre

MICROSOFT AND REALNETWORKS SETTLEMENT

Microsoft and RealNetworks have settled their antitrust dispute (to the tune of US $761 million moving from Microsoft to RealNetworks) and have created a new partnership to innovate and promote consumer choices in digital music and games. Part of the settlement involves an agreement that Microsoft will offer RealNetworks' digital games through MSN Games and Xbox Live Arcade for the Xbox 360.

The dispute between the two powerhouses includes a lawsuit by RealNetworks against Microsoft almost two years ago in the United States and RealNetwork's participation in the antitrust proceedings against Microsfot in the European Union and Korea.

Press releases at http://shorl.com/fojostilegrijo and http://shorl.com/bigofrogryryla

Don't Mess With Texactivision

Looks like the giant woke up. As previously reported, Spark Unlimited launched a lawsuit against Activision, alleging that Activisionfailed to pay promised royalties for the first title developed under that deal (the console edition of Call of Duty Finest Hour), and took Spark's proposals for a sequel and gave them to its own developers.. Now, Activision has filed a counter-suit against Spark, allegingfraud, breach of contract, trade secret misappropriation, trademark infringement, false designation of origin, and false advertising. In a lengthy statement of claim, Activision refutes virtually everything alleged by Spark, and paints an interesting alternative perspective of Spark's claims. Activision also argues that Spark's refusal to return Activision development kits, mixed with the fact that Spark is generating new content for Atari, may result in Atari unwittingly violating Activision's intellectual property. Ultimately, Activision has requested that damages be calculated through a full trial, which indicates a potentially lengthy (and potentially difficult for Spark to finance) legal battle between the two companies.

Coverage at http://shorl.com/fetanihirete

Previous Coverage at http://www.davis.ca/community/blogs/video_games/archive/2005/08/30/283.aspx

Ebstop Closing In...

Earlier this week, the SEC approved the merger of EB Games and Gamestop, which leaves final approval in the hands of shareholders of both companies, to be determined at a simultaneous annual meeting to be held on October 6.  If approved by shareholders, the merger will result in one company holding approximately 20% of the retail video game market in the USA.

Coverage at http://www.shorl.com/fidramirisuhi

AMD V. Intel

Chip-maker AMD recently filed an antitrust lawsuit against Intel in the US District Court in Delaware. AMD claims that Intel threatened AMD's customers and used other unfair tactics in an attempt to secure a monopoly. AMD has pointed to a recent report from Japan's Fair Trade Commission which found that Intel had given rebates to five PC manufacturers in exchange for their promise to restrict or stop their use of AMD chips. 

The case probably won't make it into court for another year or two. In the meantime, 'the men and women of AMD will continue to drive innovation"? (according to AMD's CEO) and 'the men and women of Davis& Company's Video Game Law Group will continue to driveGTR" (according to us--watch for our press release). 
AMD's press release at  http://www.shorl.com/dekovyvebista

Consequences Of Nakeder Tecmo Games

May 18 was a sad day for video game lawyers, because on that day US Federal Judge Charles Kocoras permitted a settlement of a case between Tecmo and video game modders. NinjaHacker.net, whose webmasters Mike Greiling and Will Glynn were named as defendants in the lawsuit initiated by Tecmo, offered a community to create and distribute mods for Tecmo games such as Dead or Alive 3 and Dead or Alive Xtreme Beach Volleyball. Tecmo, famous for making electronic near-naked characters fight and... play extreme beach volleyball, argued that NinjaHacker.net's mods violated US intellectual property and unfair competition laws, and of course the DMCA. Now that the case has settled, we may never know the legal accuracy of Tecmo's claims.  As video game lawyers in search of truth and justice, we can thus only hope that this settlement collapses and everyone involved is ruined.

Full coverage at http://www.shorl.com/fugesolatusta

DO EXCLUSIVE LICENCES VIOLATE US ANTITRUST LAW?

Maybe.

For many years, American Needle was a non-exclusive licensee of the NFL and was permitted to sell hats bearing the names and logos of NFL teams. But recently, the NFL stopped granting non-exclusive licences, opting instead to give Reebok an exclusive licence. (Sound familiar?) So American Needle sued the NFL, Reebok and other related parties, claiming that the exclusive licence violates US antitrust law. 

The NFL and the other defendants applied to dismiss the lawsuit, claiming that there were no legal grounds to proceed with the lawsuit. The court disagreed and allowed the lawsuit to proceed.

EA is probably following this case with great interest, given its recent acquisition of several long-term exclusive licences with the NFL, AFL and ESPN. 

Coverage at  http://www.shorl.com/hirevagesovi

 

The Courtship Of EIDOS Ends Without A Kiss

After months of competition, Elevation Partners has withdrawn from bidding for EIDOS Interactive, leaving SCi alone in the buying battle. EIDOS's shareholders are expected to vote on SCi's proposal on May 13, 2005. See previous coverage here .

Coverage at http://www.shorl.com/gepidrilibahi  

Gamestop To Acquire Eb Games

A few years ago, PC game boxes were shrunk and standardized so game stores could cram more of them onto their tiny shelves.  But today, one game retailer has grown so large that its inventory could be sold on punch cards stuffed in refrigerator boxes and still have enough room for copies of Steel Battalion for everyone.

America's largest video game retailers, GameStop Corp. and Electronic Boutique Holdings Corp., have signed a Definitive Merger Agreement under which GameStop will give EB shareholders $38.15 in cash and 0.78795 of a GameStop Class A common share in exchange for each share of Electronics Boutique. This consideration represents approximately $55.18 per EB share, which is a 34.2% premium to the company's closing price last Friday.

By 2006,GameStop will be the world's largest video game retailer, with over 3,800 stores - and thousands of unsold copies of Daikatana - worldwide.

Coverage at  http://www.shorl.com/jehatatidrily

SONY CRACKS DOWN ON CRACKS DOWN UNDER

Australia's position on mod chips just became more interesting. In 2002, the Australian Competition and Consumer Commission intervened in a case launched by Sony Computer Entertainment Australia against Eddy Stevens, who was supplying mod chips to the Australian market, on the grounds that the PS2's region coding created artificial trade barriers which deprived Australians of their chance to purchase games and DVDs overseas. Unfortunately for Stevens, the ruling was overturned, and he has now filed a further appeal in Australia's High Court.

Sony, who is awaiting the decision of the Stevens appeal before proceeding, claims that recent changes to copyright laws, enacted by Australia to comply with its Free Trade Agreement with the USA, offer a fresh opportunity to bring the pain to Australia's nefarious mod chippers.

 
Coverage at http://shorl.com/bibrityprefroste

EA ROLLS THE DICE

EA has made an offer to buy all the outstanding shares of Swedish developer Digital Illusions CE, known for its Battlefield and Rallisport Challenge series.

Coverage at http://shorl.com/balimytetuta

NINTENDO ANTI-TRUST ARGUMENT NOT FAIR?

(This is an archived case summary.)

The plaintiffs objected to the notice to consumers and terms of a proposed settlement between Nintendo and the fifty state attorneys general over a national antitrust action. The court found that the content of the notice to consumers of the proposed settlement met the notice requirements under antitrust legislation. In addition, the court held that the plaintiff's objection against the terms of the proposed settlement offer was premature as the fairness and adequacy of the offer would be considered once the parties sought final approval of the offer.

New York ex rel. Abrams v. Nintendo of America, Inc.
1991, US Dist. Ct., SD NY
1991 U.S. Dist. LEXIS 10426
Summary by Chris Metcalfe

NINTENDO ANTITRUST SETTLEMENT UPHELD

(This is an archived case summary)

Numerous states sued Nintendo under antitrust laws. The parties agreed to settle, and drafted a settlement agreement. The Attorneys General of all 50 states objected to certain provisions in the settlement agreement, and brought this action. In the agreement, Nintendo had agreed to give $5 coupons to every person who bought a Nintendo game between June 1st, 1988 and December 31st, 1990. Nintendo would also pay monetary damages in the order of $3 million to the Attorneys General for use in antitrust enforcement, as well as $1.75 million in administrative costs. The Attorneys General also relinquished their rights to sue Nintendo for antitrust infringement during the relevant time period.

The court concluded that the settlement agreement was fair due to the fact that the negotiations had been conducted in good faith and at arms length.

State of New York v. Nintendo of America, Inc.
1991, US Dist. Ct., SD NY
775 F. Supp. 676
KEYWORDS: anti-trust - Nintendo - settlement
SUMMARY BY: Byron Yep

NINTENDO ARGUES NO JURISDICTION

(This is an archived case summary.)

On behalf of retail purchasers in California, the plaintiffs alleged that Nintendo had violated California antitrust laws through its monopoly on video game cartridges created by the use of “lock-out" technology and marketing practices that increased the price and limited the number of video games available to consumers. Nintendo applied to have the matter removed from state court to federal court.

First, Nintendo argued that the doctrine of “artful pleading" should apply (drafting claims so as to qualify for state law rather than federal law). The court held that this doctrine should only be applied in exceptional circumstances and is only available where federal law completely pre-empts the state law claim, and the federal law provides the plaintiff a remedy. The court dismissed Nintendo's argument that a decision by the California court would affect interstate commerce, which is governed by the US Constitution and therefore should be decided under federal jurisdiction. The court held that the California courts are competent to determine the extent to which California antitrust laws may be enforced without violating the Commerce Clause of the US Constitution.

Second, Nintendo argued that the plaintiffs' allegations arose under federal patent and copyright laws, as Nintendo's copyright and patent of its lock-out system granted it the right to exclude others. The court dismissed this argument as well, stating that the plaintiffs were not alleging that Nintendo did not have valid copyright and patent rights over the technology, but rather, were challenging the anti-competitive manner in which Nintendo was using the technology.

Morse v. Nintendo of America, Inc.
1990, US Dist. Ct., ND Cal
1990 US Dist. LEXIS 5200
KEYWORDS: anti-trust - jurisdiction
SUMMARY BY: Chris Metcalfe