Avocats chez Davis S.E.N.C.R.L.

"Hot Coffee" Dispute Changes Industry

It has been reported that the class-action lawsuit opposing Take-Two and its shareholders has now been settled for $20 million. The dispute allegedly began when it was discovered that a sexual minigame hidden in the code of Grand Theft Auto: San Andreas could be unlocked by a downloaded hack. This discovery reportedly lead to the game being re-rated to "Adults Only", to copies being removed from store shelves and to a drop in stock price for the company.

The scandal was allegedly named "Hot Coffee" because the minigame was initiated by the game character agreeing to enter a woman's house for a cup of coffee.

Take-Two was reportedly accused of several missteps in this case, namely that its management was not cooperating or assisting with the company's audit committee, that its management was failing to keep the board of directors informed of important issues or failing to do so in a timely manner, that inventory and software development costs were misstated, that it did not have the ability to accurately report its financial results due to failing and deficient internal controls and procedures and that it lied about where the content of the game came from. It has been reported that a new management team was installed in 2007 as a result of these missteps.

Despite the end of this particular dispute, some have stated that the gaming industry has been forever changed in the way games are rated, because all of the content on a game disc now has to be disclosed and rated.

Coverage at Arstechnica.com

What can a team of two accomplish?

A lot, apparently, if you the Krabbits on your side.

Indie developer Krabbitsoft has done what some thought was impossible, developing and releasing an exciting, graphics-laden Action/RPG based on their own IP. In their words: "Hack n' slash combat focused, KWO now includes Battle Modes for those too twitchy to satisfy with Story Mode. New dash attack and combat magic jump & multi-shoot level the playing field for earthbound and aerial battler alike. Not for the faint of heart, not for the weak in spirit, for you will be pwned."

Gamespot listing is here.

Left 4 Dead 2 Appeal Unsuccessful

Valve to issue heavily edited version to satisfy Australian censors

It appears that Australian fans of Valve's critically acclaimed Left 4 Dead survival horror franchise will have to miss out on much of the blood n' guts that the rest of us have been eagerly anticipating in its latest installment, Left 4 Dead 2. On October 22, 2009, Australia's Classification Review Board unanimously upheld an earlier decision of its ratings board to refuse classification to the unedited version of Left 4 Dead 2, citing its frequent and often gratuitous violence. As a result of this decision, unedited versions of the game will not be available for sale in Australia. Gamers down under will instead have to settle for a toned down version of Left 4 Dead 2 that does not contain "depictions of decapitation, dismemberment, wound detail, or piles of dead bodies lying about the environment" and which has received an MA 15+ rating by Australian censors. Yawn.

Coverage from Gamespot.com here

Messy Fallout

Interplay Entertainment Corporation ("Interplay") has reportedly obtained a ten day extension to answer a preliminary injunction filed by Bethesda Softworks LLC ("Bethesda") in a court battle involving its licensing agreement with Bethesda for the rights to Fallout 3, Fallout 4 and Fallout 5. According to Gamepolitics.com, Bethesda is contesting the fact that Interplay sold the original Fallout games after the release of Fallout 3, while Interplay claims that it retained the rights on the previous Fallout games when it contracted out the rights to the subsequent Fallout games to Bethesda. It is also reported that Interplay is countersuing Bethesda over statements that it allegedly made to third parties which were harmful to Interplay's business. According to the Raging Bull forum, Interplay is also claiming that Bethesda is in breach of the contract, thus making it null and void, and that said breach of contract means that Interplay owns the franchise again. Interplay allegedly is also arguing that instead of owing Bethesda royalties for the upcoming Fallout MMORPG, Bethesda should pay Interplay royalties for Fallout 3 and damages for the injury it has caused to Interplay's name. Further developments will surely follow upon expiry of the aforementioned ten day extension.

Coverage at Gamepolitics.com

Ontario tax credits and assistance for tech companies

Ontario tries to show you the money (but for how long?)

In these turbulent economic times, it has never been more important to take advantage of existing government programs and tax credits. Ontario has a number of such programs and tax credits to assist emerging video game companies. With government belt-tightening in full swing, it would be wise to act quickly since, as they say, quantities are limited.

Assistance Programs:

The Ontario Media Development Corporation's ("OMDC") Interactive Digital Media (IDM) Fund is designed to provide Ontario interactive digital media content companies with access to the final piece of funding required to move their content projects into production. Successful applicants will receive a non-refundable contribution of up to $150,000 to a maximum of 50% of the project budget to create a market-ready interactive digital media content product. The deadline for applications is November 16, 2009. Almost two years ago, the Government of Ontario introduced The Next Generation of Jobs Fund ("NGJF") to support companies that would develop job-creating projects in Ontario. While companies in a broad range of industries can access the NGJF, digital media is a priority industry. Since the NGJF has been around for two years, there has likely been a material allocation of its funds (and further applications), so interested parties should act quickly before all of the funds are allocated. Finally, at least two game developers have received investments through the OMDC's Video Game Prototype Initiative.
Detailed IDM information here: http://www.omdc.on.ca/Page3215.aspx
Detailed NGJF information here: http://www.ontariocanada.com/ontcan/1med/en/nextgen_main_en.jsp

Tax Credits:

The OMDC also jointly administers with the Canada Revenue Agency a number of media related tax credits which may result in the recovery of a substantial amount of media development expenses. At least two of those tax credits may be of significant interest in the video game industry.

The Ontario Interactive Digital Media Tax Credit ("OIDMTC") is a refundable tax credit for up to 40% of eligible labour, marketing and distribution expenses. The Ontario Computer Animation and Special Effects Tax Credit ("OCASETC") is a refundable tax credit for up to 20% of eligible labour expenses. For both of those tax credits, the process involves first applying to the Ontario Media Development Corporation for a certificate of eligibility and then filing it with your T2 income tax return. The amount of the tax credit less any taxes owing is refunded to you. Generally speaking, qualifying applicants must be corporations with a permanent establishment in Ontario and eligible expenses must be consistent with the particular tax credit you are applying for and must be paid to persons in Ontario.

Detailed OIDMTC information here: http://www.omdc.on.ca/Page3400.aspx
Detailed OCASETC information here: http://www.omdc.on.ca/Page3402.aspx

Many thanks to our tax colleague Dennis Yee for his assistance with this posting

Jack Attack

Jack Thompson, the famous anti-videogame cruisader who has been sued by video game publishers and was disbarred last year by the Supreme Court of Florida, has now sued Facebook for $40 million, claiming that Facebook harmed him by failing to remove a poll asking whether he should be killed. Facebook recently removed a similar poll directed at President Obama, but chose not to remove the poll directed at Thompson.

Coverage here.

Australia Debates New Game Rating

The banning of Valve's soon-to-be-released Left 4 Dead 2 has spurred debate in the land down under as to whether Australia should adopt a "R18+" rating for video games. Although "R18+" is used for films, the highest classification available for video games is the "MA15+", meaning for audiences 15 or older. For games with adult doses of violence (say, for example, awesome zombie gorefests), the Australian Office of Film and Literature Classification Board has no choice but to refuse classification, which acts as a de facto ban.

Extending the R18+ rating to video games requires agreement by all Australian state Attorneys General. However, South Australian Attorney General Michael Atkinson has opposed such a move, stating that the while the lack of a R18+ rating restricts choice, "that is the price of keeping this material from children and vulnerable adults."

Valve has appealed the ruling but, like others before it, may have to release a modified version of the game in Australia in order to appease the censors.

Coverage from news.com.au available here.

California Ban May Reach US Supreme Court

California legislation prohibiting the sale of violent video games to minors may still have its day in the US Supreme Court. California legislators are hoping the big court will hear oral arguments in their appeal of the decision to strike down the legislation, upheld by the 9th Circuit Court of Appeal this year. Supreme Courts justices met on Tuesday to decide whether to put the case on the docket.

The law, which was signed by Governor Schwarzenegger in 2005, was bounced by the lower courts for violating First Amendment rights. The law would ban the sale of violent games to anyone under 18 and require manufacturers to label the games with an "18" sticker.

An order list issued September 30, 2009 did not include a decision on the application. A decision may be made public early next week.

Coverage from CNBC here.

EA wins Madden lawsuit

Former NFL player Jim Brown sued EA over its use of a character in Madden NFL. The character looks like Brown, but was not identified as Brown, and wore a different number.

A federal court judge in Los Angeles has now ruled in favour of EA, concluding that the First Amendment protected EA's expression in this case.

Brown had argued that EA's use of his likeness was a false endorsement of the game. If he had argued instead that EA had violated his right of publicity, the result might have been different. Likewise, if EA had used Brown's name (instead of only his likeness) the result could have been different as well.

Coverage here: http://tinyurl.com/ycrp4fc (Gamasutra)