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poker images.jpgAs real money online gambling remains bogged down in the legislative and regulatory morass, social gaming applications have been on a tear. As we have previously reported, major players are leveraging social gaming applications in preparation for the legalization of online gambling. One of the emerging leaders, Caesars Interactive Entertainment recently acquired Playtika and Buffalo Studios. Casino equipment manufacturer IGT acquired Doubledown, a Facebook casino app developer a year ago for a reported $500 million. Social game giant Zynga has announced that it is preparing to enter the online gambling world.

These games typically do not involve real money gambling. Often either the user can play for free or buys chips or credits but can not cash them out. These games leverage what we refer to as “gamblification” to create a simulated experience that leverages the fun aspects of gambling without legally constituting gambling.

While this trend is great for social game companies that are leveraging this phenomena, not everyone is happy about this. In Australia,
Senator Nick Xenophon reportedly intends to introduce legislation to prevent such “gambling apps.”  As reported by The Sydney Morning Herald, a virtual poker-machine game that children and teenagers can easily access was the highest-grossing phone and tablet app in Australia, prompting outrage from gambling critics and the established “pokies” industry (as they call it down under).

Such games have escaped gambling classification because even though users pay real money to but credits, they cannot cash out any winnings. Similar models are widely used by many social gaming applications such as Zynga Poker and many other such games.

In most jurisdictions, these types of games are not specifically covered by the gambling laws and are typically legal if certain precautions are taken in the business model. Perhaps Australia will change that. Stay tuned for further developments.

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User endorsements are becoming a more and more popular form of “advertising” as the use of social media and user-generated content continues to increase.  These endorsements often take the form of reviews via blogs or Yelp, but can also include other less conspicuous communications. These endorsements can be quite powerful. As a result some companies will compensate users for giving them.  In some cases, the compensation can bias the endorsement. While this is not illegal, it creates issues that need to be considered.

In some cases, user endorsements leverage social media features.  For example, a company’s website may include a button that, when clicked by a user, causes a positive message about the company to be posted via the user’s Facebook, LinkedIn, Twitter, or other social media account. When there is compensation for that endorsement–even soft compensation such as through loyalty program points or virtual goods–federal laws may come into play.

The Federal Trade Commission’s endorsement guidelines impose requirements on both the endorser and the advertiser if there is a “material connection” between the two parties.  A material connection exists when there is a commercial link that consumers would not expect.  A commercial link may arise when an endorser is compensated for the endorsement, for example, by payment, free samples, coupons, or other benefits.  Several factors must be considered when determining whether there is such a consumer expectation to trigger the FTC requirements.

One of the requirements identified by the FTC is that any material connection must be “clearly and conspicuously” disclosed.  The advertiser has affirmative duties to advise the endorser regarding the disclosure requirement and to have procedures in place to monitor compliance by the endorser.  While both the endorser and the advertiser are subject to liability, the FTC has indicated that its enforcement activities will generally focus on advertisers.

Contact us for more information on compliance with the FTC guidelines.

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According to a report on Inside Social Games, Caesars Interactive Entertainment has acquired Buffalo Studios LLC, a social and mobile games developer most known for its Bingo Blitz and Bingo Rush. The terms of the deal were not disclosed.

caesers interactive ent.jpg“The Bingo Blitz business represents a unique opportunity for Caesars Interactive Entertainment to add to our portfolio of social and mobile game assets and to grow our market share across all interactive platforms,” said Mitch Garber, Chief Executive Officer for Caesars Interactive Entertainment.

This acquisition comes on the heels of CIE’s acquisition of Playtika and its vow to be Number 1 in the space. According to its website, CIE is actively pursuing further expansion and acquisitions to build upon its capabilities and product portfolio.

 

 

buffalo studios.jpgThe intersection of gambling and social games remains a growing area as the legislation to permit real money gambling in the U.S. crawls along at a snail’s pace. Check out our previous posts on this topic.

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twitter phone dog.jpgWe previously reported on the lawsuit over ownership of Twitter followers, when an employee left PhoneDog and changed the twitter handle of an account that had been used to tweet to PhoneDog customers. That case has now settled on confidential terms, but it appears the employee came out ahead. According to a statement from the employee, Noah Kravitz: “I’m very glad to have worked this out between us,” Kravitz said in a statement. “If anything good has come of this, I hope it’s that other employers and employees can recognize the importance of social media … good contracts and specific work agreements are important, and the responsibility for constructing them lies with both parties.”

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According to a recent report, Instagram lost nearly 25% of its users (as tracked by AppData) nearly overnight. The cause is believed to be due to a very unpopular change to its Terms of Service. Prior to this, Instagram was one of the most popular and fastest growing social media sites. 

Many companies overlook the importance of terms of service. They are, and always have been, critically important from a legal perspective. But so too are they important from a customer relations perspective as the Instagram incident illustrates. Many companies (and their lawyers) bank on the fact that most users do not read the terms of service.  The problem with this approach is that some users DO read them. And more frequently, consumer watchdog groups do as well.

When someone flags a problem or change as occurred here, then the issue goes viral in a hurry. Ironically, the same advantages of the virality of social media that helped Instagram with its meteoric growth, were disadvantages when this news broke and apparently lead to an immediate 25% decline in users.

This is not the first company, and likely will not be the last, to have a fiasco due to issues with its terms of service and/or privacy policy. If you want to avoid being one of these companies, do it right! Get solid legal advice on your TOS and Privacy Policy and make good business choices that do not offend your customers. Contact us for additional information.

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Binary world  A weekly wrap up of interesting news about virtual worlds, virtual goods and other social media.

 

 

Union Facebook Page Not Picket Line Extension: NLRB Judge
A National Labor Relations Board judge ruled Wednesday that federal labor law did not require a union to disavow statements posted on its Facebook page by its members that threatened workers who chose to continue to work during a strike.

Parody New York Times Twitter Account Restored
You can’t keep a good Twitter account down, it seems. According to Politico, the micro-blogging site has restored a New York Times parody account one day after it was pulled amidst complaints from the paper.

How to Account for a Virtual Good
U.S. market regulators are demanding more details about how companies account for virtual goods — the virtual clothing, food, tools or powers sold in online or in social media networks and games.

Zynga Takes Gambling Step in Nevada
Zynga Inc. has taken its first official step toward offering real-money gambling games in the U.S. by filing preparatory paperwork in Nevada, as the embattled firm maneuvers to take advantage of a shifting legal landscape.

In D.C., Social-Media Surveillance Pays Off
The local government in the nation’s capital is paying hundreds of thousands of dollars to a startup to gather comments on Twitter, Facebook and other online message boards as well as the government’s own website. The data help form a letter grade for the bureaucracies that handle drivers licenses, building permits and the like.

Zynga to Bundle Games with Cable TV
Social-games provider Zynga Inc. and Synacor Inc. reached an agreement to make Zynga game currency available to pay-TV and high-speed internet providers as part of their consumer bundles, a move that could reduce Zynga’s heavy dependence on Facebook Inc.

Study Points to Videogame Popularity Among Boomer Women
A new study of more than 32,000 videogame players has found that women make up a solid majority of “baby-boom” gamers, aged 50 or more, and they spend far more time playing than their younger counterparts.

Netflix CEO Hastings Faces SEC Action Over Facebook Post
Netflix Inc. (NFLX) and Chief Executive Officer Reed Hastings said they may face a U.S. Securities and Exchange Commission civil claim over a July Facebook post that coincided with the stock’s biggest gain in almost six weeks.

PokerStars In Talks to Buy Atlantic City Casino
Online poker company PokerStars is in talks to buy the troubled Atlantic Club Casino Hotel in Atlantic City, N.J., just four months after forking over $731 million to the government in order to settle fraud allegations, according to Friday news reports.

Facebook Says Teens Have No Personal Claims In Game Suit
Facebook Inc. on Thursday said a proposed class action alleging the company improperly profited from game credits unknowingly purchased by minors with their parents’ credit cards should be tossed because the minors want to recover money paid from their parents’ accounts but aren’t seeking a remedy of their own.

FTC looks at mobile apps firms over child privacy concerns
An agency report shows that a majority of app developers may have violated laws aimed at kids’ apps.

Opponents say ITU treaty threatens Internet freedom
The United States joined 20 other countries in refusing to sign a treaty that the objectors say will harm Internet freedom. The proposal was hammered out at an international communications conference that ended Friday in Dubai.

Guardian nixes its Facebook social reader, regains control over its content
After a year-long experiment that saw its Facebook “social reading” app gain more than six million monthly users – and then lose more than half of those after the network changed the ways those apps work – the Guardian has decided to take back control of its content.

 

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The Federation of State Medical Boards recently adopted Model Policy Guidelines for use of social media in medical practice.  The use of social media by medical practitioners and the number of mobile medical and wellness applications continues to increase. These factors are transforming certain aspects of the doctor patient relationship. However, this also creates legal issues of which practitioners and mobile app developers must be aware.

Among other things, these policies make clear that:

·         provider organizations should develop social media policies

·         patient privacy and confidentiality must be protected at all times

·         physicians should not interact with patients on personal social networking or social media websites such as Facebook

·         medical practitioners may use social networking sites to engage in peer-to-peer sharing with other physicians of experiences and education and to discuss areas of medicine and particular treatments, provided these sites are password-protected so that non-physicians do not gain access and view discussions implying medical advice

·         when using peer-to-peer physician sites, physicians must reveal any existing conflicts of interest and they should be honest about their credentials as a physician

With respect to mobile medical applications, the FDA has issued draft guidance.

Social Media HealthcareThe FDA currently plans to apply its regulatory oversight only to certain types of mobile apps, focusing on mobile apps that either have traditionally been considered medical devices or affect the performance or functionality of a currently regulated medical device.  For the subset of mobile medical apps that are subject to regulatory oversight, manufacturers must meet the requirements associated with the applicable device classification.

The following examples represent mobile apps the FDA considers mobile medical apps and that will be subject to its regulatory oversight:

  • Mobile apps that are an extension of one or more medical device(s) by connecting17 to such device(s) for purposes of controlling the device(s) or displaying, storing, analyzing, or transmitting patient-specific medical device data. Examples of displays of patient-specific medical device data include remote display of data from bedside monitors, display of previously stored EEG waveforms, and display of medical images directly from a Picture Archiving and Communication System (PACS) server, or similar display functions that meet the definition of an MDDS. Examples of mobile apps that control medical devices include apps that provide the ability to control inflation and deflation of a blood pressure cuff through a mobile platform and mobile apps that control the delivery of insulin on an insulin pump by transmitting control signals to the pumps from the mobile platform.
  • Mobile apps that transform the mobile platform into a medical device by using attachments, display screens, or sensors or by including functionalities similar to those of currently regulated medical devices. Examples include a mobile app that uses a mobile platform for medical device functions, such as attachment of a transducer to a mobile platform to function as a stethoscope, attachment of a blood glucose strip reader to a mobile platform to function as a glucose meter, or attachment of electrocardiograph (ECG) electrodes to a mobile platform to measure, store, and display ECG signals; or, a mobile app that uses the built-in accelerometer on a mobile platform to collect motion information for monitoring sleep apnea.
  • Mobile apps that allow the user to input patient-specific information and – using formulae or processing algorithms – output a patient-specific result, diagnosis, or treatment recommendation to be used in clinical practice or to assist in making clinical decisions. Examples include mobile apps that provide a questionnaire for collecting patient-specific lab results and compute the prognosis of a particular condition or disease, perform calculations that result in an index or score, calculate dosage for a specific medication or radiation treatment, or provide recommendations that aid a clinician in making a diagnosis or selecting a specific treatment for a patient.

The FDA plans to address in a separate issuance mobile medical apps intended to analyze, process, or interpret medical device data (electronically collected or manually entered) from more than one medical device. The implications of these analyses and interpretations may pose a wide range of risks to public health and patient safety.

The use of social media in health care and the number of mobile medical and wellness applications are sure to increase. If you are leveraging either or both of these trends, please make sure you consult with knowledgeable social media/health care attorneys to understand the legal issues.  

Pillsbury’s social media team includes a number of attorneys who regularly assist clients in these areas.

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With the meteoric rise of Pinterest, many companies are leveraging its popularity. One way this is happening is that Brands are creating contests and promotions around users “pins.” This is a growing trend in the use of social media for contests, promotions and sweepstakes. However, this is an area that is highly regulated, and the law can vary widely from state to state. As a result, Pinterest has issued new Promotions and Marketing Policies.

Among other things, Pinterest has provided the following list of Do’s and Don’ts

Do:

  • Encourage authenticity: Reward the quality of pinning, not just the quantity of it.
  • Promote your contest: Link to your Pinterest account or contest board from your website, social media and marketing channels.
  • Prevent spam: Read up on our anti-spam measures to help keep your contest fun and useful.
  • Make getting involved easy: Create clear instructions and a simple process.

Don’t:

  • Encourage spam: Steer clear of contests that encourage spammy behavior, such as asking participants to comment repeatedly.
  • Run a sweepstakes where each pin, repin, or like represents an entry. Ask pinners to vote with a repin or like.
  • Overdo it: Contests and promotions can be effective, but you don’t want to run a contest too often.
  • Suggest that Pinterest sponsors or endorses you: Make sure you don’t say or imply this anywhere in your marketing materials or branding.

Additionally, the Pinterest policies state:

If you use Pinterest as part of a contest or sweepstakes, you are responsible for making sure it complies with all legal requirements. This includes writing the official rules, offer terms and eligibility requirements (ex: age and residency restrictions), and complying with marketing regulations (ex:, registration requirements and regulatory approvals). These rules can vary from place to place, so please work with a lawyer or other expert to make sure you’re in compliance. You should also always comply with our Terms of Service. Please note that Pinterest isn’t responsible or liable in any way to you if you use us as part of your promotion.

The rise of promotions and contests on Pinterest is part of an overall trend regarding the increased use of gamblification. For more information on the legal issues with gamblification, please email us for a copy of our Client Advisory on Legal Issues with Gamblification.

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As the online gaming market slowly evolves, many companies are preparing to capitalize on it once the legislative process moves forward. In one of the latest announcements, Zynga has applied to get licensed in Nevada. According to a recent statement from Zynga:

Zynga has filed its Application for a Preliminary Finding of Suitability from the Nevada Gaming Control Board. This filing continues our strategic effort to enter regulated RMG markets in a prudent way. We anticipate that the process will take approximately 12 to 18 months to complete. As we’ve said previously, the broader U.S. market is an opportunity that’s further out on the horizon based on legislative developments, but we are preparing for a regulated market. We’ve also recently partnered with bwin.party to bring the highest quality real money gaming experiences to our UK players in the first half of 2013.

Social gaming has been an active field in 2012 and from what we are seeing 2013 will likely see even more activity.The legal issues and regulatory enforcements will continue to increase.

While many companies are focusing on real money gambling, many other companies are focusing on various forms of gamblification – the use of gambling mechanics for non-real money gambling purposes.  The use of virtual goods and virtual currency in gamblification models, though prevalent, further complicates the legal issues. Our team has advised numerous companies on the legal issues with gamblification, including the use of virtual goods and virtual currency. If you would like more information on thees issues please contact us.

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As the multi-billion market for virtual goods continues to grow, so too does the regulatory scrutiny. One area where many companies in this space may want to review is their SEC disclosure practices.

At a recent conference of the American Institute of Certified Public Accountants, a Securities and Exchange Commission representative stated:

“The sale of a virtual good represents a service, not the sale of an actual good” and that the SEC is seeking  “enhanced disclosure” about virtual goods accounting policies, including how the goods were purchased (e.g., with virtual currency, stored value or real time money purchase) and the time period over which they are recognizing revenue from the sale of a good. Brad Skinner, senior assistant chief accountant at the SEC’s Division of Corporation Finance added that virtual goods sellers should be disclosing whether the company is being charged processing fees by the platform it uses to sell the goods, and whether it faces any legal or regulatory requirements to refund consumer purchases.

As the use of virtual goods and virtual currency continues to grow, these and other legal and regulatory issues will continue to emerge. For more information on legal issues with virtual currency, see our guide to legal issues with virtual currencies.