Addressing legal issues with the latest technological developments and social media trends.
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One of the primary concerns that companies have regarding patent filings is the time it takes to get a patent. Recent changes to the patent laws have created a fast track option to “whisk” your patent through the process. To use this option you must file a petition and pay a fee.

According to the PTO:

Following passage of the Leahy-Smith America Invents Act in
September 2011, the United States Patent and Trademark Office (USPTO)
began accepting requests for prioritized examination of patent
applications through the Track I Prioritized Patent Examination Program.
Simply put, Track I allows inventors and businesses, for a fee, to have their patents processed to completion in 12 months.

According to a recent update from the PTO many applicants have used the fast track process and the results are summarized as follows:

  • 1,218 of the 1,231 requests for prioritized examination that have
    been decided were granted, which represents a 98.9% approval rate.
  • 648 have already received a first office action, and
    another 34 will be mailed within days.
  • On average, the PTO is getting a
    first action out in Track I cases just 30.7 days after approval of the
    petition – for a total elapsed period to first action of 66.4 days after filing of the request-petition, with the longest time to  first action being 70 days from grant of the
    petition.
  •  23 allowances have already been mailed on Track I applications, the fastest of which was mailed just 37 days after the
    application was filed and 7 more allowances are currently in the pipeline.
  • Of the Track I cases
    allowed so far, the average time to allowance is 39.2 days from petition approval.
  • As for rejections, so far there have been three final
    rejections issued on Track I applications. The average time to final
    rejection has been 34.3 days, and the longest time to final was 50 days,
    both measured from approval of the Track I petition.
  • The first Track I application is due to issue on Jan. 10, 2012.
    This application was filed Sept. 30, 2011.

Given the fast paced developments in areas such as social games, augmented reality, mobile applications and other hot sectors, it may be worth considering use of this procedure to get your patents issued more quickly.

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PhoneDog LLC filed a lawsuit last July against a now former employee,
Noah Kravitz. PhoneDog, which reviews mobile devices, including phones and tablets, is claiming ownership of Kravitz’s Twitter followers. They claim he owes them $340,000 based on an assumed value of $2.50 per follower per month.

The dispute arose when Kravitz resigned and allegedly changed his Twitter name from PhoneDog_Noah to noahkravitz, to keep the 17,000 followers that he built up since 2006 when he started with the company. The company is alleging that the followers should be treated like a customer list, and therefore PhoneDog’s property. The fact that Mr. Kravitz used the company name in his Twitter handle likely will not help him. However, the company probably could have done more to ensure that they owned the account and followers.The outcome of this case will likely be based on the specific facts here.

But regardless of the outcome, companies should take away a very important lesson from this case. The lesson is that it is critical to address employee social media issues. Lawsuits and their costs and uncertain outcomes can be avoided by having well thought out and clear policies and agreements with employees who use social media in connection with company activities. Don’t wait until an issue like this is upon you to focus on a social media policy.

Companies that do not have a social media policy need to fix that as soon as possible. Those that have cobbled one together but without expert advice, need to have the policies reviewed to plug the holes. In short, all companies using social media would benefit from spending a little time having their social media policies and agreements reviewed by an attorney who spends time everyday on social media issues. 

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On December 6, 2011 Zynga settled its copyright suits against Vostu USA Inc. and others.  The first suit, case number 5:11-cv-02959,
filed in the U.S. District Court for the Northern District of California back in June, alleged that several of Vostu’s games infringed Zynga’s copyrights.
Specifically, Zynga had alleged, that Vostu’s MegaCity, Cafe Mania, Pet Mania, Vostu Poker and MiniRazenda games are merely clones of Zynga’s popular titles.
Zynga followed this suit with another one in Brazil claiming copyright infringement and unfair competition.  Vostu initially responded to the suits asserting that its games were non-infringing but has ultimately agreed to settle the US and Brazilian matters by compensating Zynga and altering some of its games.

The parties have issued a joint statement that “Zynga and Vostu have settled the copyright lawsuits and counterclaims against each other in the United States and Brazil”.
Additionally, “[a]s part of the settlement, Vostu made a monetary payment to Zynga and made some changes to four of its games” but the parties did not elaborate on the amount of the payment or the nature of the changes.

This settlement followed (and may have been prompted by) some early success in the cases by Zynga.  Zynga was able to obtain a preliminary injunction from the Brazilian court ordering Vostu to cease making the challenged games available.  In response Vostu initially convinced a U.S. District Judge to grant a temporary restraining order prohibiting Zynga from enforcing the Brazilian court’s order; however this TRO was quickly dissolved.  The Brazilian order was stayed by the appeals court pending Vostu’s appeal.

This settlement is a good example of how IP rights can be used to protect a video game from being cloned.  There is a history of successful games being the subject of imitation which goes back to the earliest days of the industry.  Many companies have come to believe that cloning is just part of business and there is nothing that can be done to stop it.  However, this is not entirety true.  Copyright, trademark,
trade secrets and patent rights can all provide differing levels of protection for games.  Copyright can protect a game from literal duplication or use of its protected images, code, literary elements, music, etc.  Trademark can protect the actual name, logo or certain other identifying elements from a competitor’s potentially confusing use in a game (or elsewhere).  Additionally, trade secrets can be used to protect a company or game’s “secret sauce” from being co-opted.
Finally, patents may be used to protect features and functions of a game, including game mechanics, business methods and other functionality and processes.

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Facebook recently filed a Patent Application that Triggered a Congressional inquiry.  The patent application, which describes technology for tracking users on other websites,
resulted in a letter from Reps. Edward Markey, D- Mass., and Joe Barton,
R-Texas, seeking information on its current privacy practices and future intentions for tracking user activity and data. Markey and Barton co-chair the Congressional Bipartisan Privacy Caucus.

The application
was published on Sept. 22, 2011 and describes a method “for tracking information about the activities of users of a social networking system while on another domain.”

In the letter to facebook CEO Mark Zuckerberg, Markey and Barton sought clarification on the purpose of the patent and how Facebook intends to use it. They also inquired about how Facebook intends to integrate the location data of its users into its targeted advertising system, noting that Facebook has previously stated that it does not track people across the Internet.

It is important to note that just because Facebook has filed a patent does not necessarily mean that they have commercially implemented what the patent discloses. However,  this action is just one of the latest from Washington focusing on privacy. There seems to be a very focused effort by legislators and regulators to ensure that companies only collect user information needed for legitimate business purposes and that the information collected is not retained indefinitely. 

As with many other aspects of social media, the laws and regulatory climate are continuing to evolve.  If you have not recently reviewed your data collection, privacy practices and privacy policies, now is a good time to do so. 

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On September 30, 2011, a new set of digital marketing guidelines went into effect for distilled spirits companies in the United States and Europe.

 

The self-imposed guidelines,
detailed below, were developed jointly by the Distilled Spirits Council of the United States (DISCUS), the national trade association representing America’s leading distilled spirits companies and nearly 70% of all distilled spirits brands sold in the United States, and the European Forum for Responsible Drinking (EFRD), an alliance of Europe’s leading distilled spirits companies.

The guidelines consist of a set of “basic principles” together with definitions and directions for implementing those principles. They aim to protect consumers’ information while urging responsible marketing practices in the context of digital media such as websites, social networks, blogs and mobile apps. Furthermore, the issuance of these guidelines reflects the fact that digital marketing is increasingly a valuable and appropriate tool for reaching consumers who are legally old enough to purchase distilled spirits.

Per the guidelines, distilled spirits companies should:

1. intend their digital marketing communications for adults of legal purchase age;

2. place their digital marketing communications only in media where at least 71.6% of the audience is reasonably expected to be of the legal purchase age (and DISCUS notes that Nielsen online syndicated data from August 2011 disclosed that 82.22% of the Facebook audience, 86.86% of the Twitter audience, and 80.96% of the YouTube audience,
was 21 years of age or older);

3. require age affirmation (full date of birth to determine if a user is of legal purchase age) when a user first reaches the companies’ interactive webpages;

4. display, on their webpages that permit the posting of user-generated content, a disclaimer stating that all inappropriate user-generated content will be removed;

5. monitor and moderate,
preferably every business day but no less than every five business days,
user-generated content on the companies’ webpages and promptly remove inappropriate material;

6. instruct users that digital marketing communications should not be forwarded to individuals below the legal purchase age;

7. respect user privacy in their digital marketing communications;

8. ensure that their digital marketing communications and product promotions are identified as brand marketing;

9. include social responsibility statements in their digital marketing communications where practicable; and

10. display, follow, and encourage users to read before submitting their information, a privacy policy that provides for the following: age affirmation will be used prior to the collection of any other information; user information can only be collected from people who are of the legal purchase age; an “opt-in” mechanism will be used before the user receives a direct digital marketing communication,
and an “opt-out” mechanism will be available if a user wants to discontinue receiving such communications; clear information must be provided about the collection and use of personal data; information collected shall never be sold or shared with unrelated third parties; and steps will be taken to keep user information secure and protected from loss or theft.

Although the guidelines are self-imposed and do not constitute a legal regulation, law or statute, failure to comply with these guidelines may have adverse consequences. DISCUS, for example, has said that it will (i) investigate U.S. distilled spirits companies that are reported to be not in compliance with the guidelines and (ii) disclose the results of such investigations on its website. Consequently, we recommend that distilled spirits companies in the United States and/or Europe review the new guidelines and seek counsel on how they might impact current company practices.

 

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The Supreme Court has validated the ability of software developers to prevent customers from owning the copy of software they acquire. Because software developers can limit the customers rights to a mere license, they can impose restrictions that can prevent the customer from reselling the software. This is a huge win for software companies as it limits the resale market, which cuts into sales of new software. This ruling may also benefit the virtual goods industry which also commonly uses a licensing vs. sale model. However, it is important to note that in order to get the benefits of this decision, the software distributor must carefully craft their End User License Agreement.

On October 3, 2011, the U.S. Supreme Court declined the petition for certiorari regarding the Ninth Circuit Court of Appeals decision in Vernor v. Autodesk,
Inc. As we outlined in a previous post, the Vernor decision held that software developers can grant mere licenses and that doing so does not violate the First Sale Doctrine,” which states:

“[T]he owner of a particular copy…lawfully made under this title…is entitled,
without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy…”

This doctrine applies if the initial distribution is a sale. As the Ninth Circuit held in Vernor, software developers can legally prevent customers from owning (and distributing) the copies of software that they purchase. This is accomplished by drafting software purchase agreements (e.g., End User License Agreements) in a way to avoid the first-sale doctrine, such as by structuring the agreement as a license or placing valid restrictions on the customer’s use of the software. Under such an agreement, software developers can retain ownership in the copies they distribute and customers merely have a license to use the software.

Extending the Vernor holding to virtual goods and currency, this ruling seems to provide additional ammunition for the validity of merely licensing virtual items to users instead of selling the items. This approach is commonly used with virtual item models.  In light of Vernor, it is clear that the “license” which is included in the terms of service must be carefully drafted.  But if done properly,
this can help prevent unauthorized resale of virtual items via secondary markets or otherwise.

For more information on the legal issues with virtual goods, click here.

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Given the great interest in “the cloud” from a business perspective, as well as Microsoft’s popularization of the concept with its “To the Cloud!” advertising campaign, it’s no wonder that many game providers are looking to the cloud as the next viable and profitable gaming platform. The cloud movement not only provides economic incentives through various subscription and pay-to-play models,
but also helps defeat piracy by locking down game code and other intellectual property from potential thieves.

Cloud game providers have a lot to gain from virtualization, but moving to a cloud-based framework raises potential legal issues that should be considered.

Latency

The first big issue for gaming providers considering moving to the cloud is both a practical one and a legal one – latency. Unlike digital downloads, streaming games require both down and upstream communications. Further, gaming often demands instant, real-time action, so any material latency will be noticed, especially for multi-player, FPS-type or other real-time games. Currently, some game providers have tried to satisfy gamers’ demand for real-time, low-latency play by operating in data centers that are physically close to the gamer. From a technical perspective, cloud gaming may present an issue because it could involve moving the game servers much farther away from the gamer, thus having the potential to lead to increased, or even significant latency. Another technical fix may be to use “tricks” similar to those used in non-cloud gaming to compensate for latency issues.

From a legal perspective,
however, the move to the cloud could bring such “tricks” into the realm of patents held by the gaming company OnLive–patents which cover “twitch gameplay” over a cloud-based system. When porting a game from client-server or mobile-based platforms to a cloud-based platform, game providers should be sure to investigate whether the conversion will expose them to potential infringement liability, including the OnLive patent portfolio.
This is especially important because most game providers are not the actual game developer, so game providers should also review their agreements with the game developer to understand whether indemnification or re-development are options. Further, if the agreement is with a small game developer, the developer may not have the financial resources to indemnify the game provider,
and thus the game provider should be aware of the potential risks before embarking on a cloud-based venture.

To read this publication in its entirety, click here.

 

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The Digital Millennium Copyright Act, 17 U.S.C. § 512 provides many benefits to copyright holders. Add one more to the list. In Xcentric Ventures LLC v. Karsen Limited et al (2011), the court refused the let the Russian Defendant play hide-and-seek to avoid service of process and authorized the Plaintiff to effect service by email due to a provision in the DMCA.

Plaintiff XCENTRIC VENTURES is the operator of a consumer complaint website. It discovered that a website owned and operated by defendant allegedly contains certain copyrighted material. Pursuant to the DMCA, it sent a series of DMCA take-down notices to non-party Google, Inc. to remove the infringing content from its search index and inform defendant that it is infringing on plaintiff’s copyrights. Google complied. Pursuant to the DMCA, defendant responded by serving a counter-notice on Google to contest the accuracy of the initial notice. To be effective, the counter-notice must contain certain things including: “the subscriber’s name, address, and telephone number, and a statement that the subscriber consents to the jurisdiction of the Federal District Court . . . and that the subscriber will accept service of process from the person who provided notification under subsection (c)(1)(C)
or an agent of such person.” §
512(g)(3)(D).

Plaintiff filed a suit alleging copyright and trademark infringement. See §
512(g)(2)(C) (stating that unless a party files an action seeking a court order to prohibit the infringing activity, the service provider can restore the removed material). Plaintiff attempted to serve defendant a copy of the summons and complaint via Federal Express delivery to the address provided in St.
Petersburg, Russia and via email. Delivery at the Russian address was unsuccessful because the address was “incorrect” according to FedEx.
On June 13, 2011, defendant emailed plaintiff in response to plaintiff’s emailed service of process. Defendant generally objected to the lawsuit and included a response, which it asked plaintiff to file with the court. In a later email correspondence, defendant argued that it never waived service of process and any service must be in compliance with the Hague Service Convention.

Plaintiff moved for an order determining whether it has effectively accomplished service of process on defendant Karsen or for leave to perform alternative service. Defendants did not respond or otherwise appear in the case.

The court found:

It is clear to the court that defendant has notice of the lawsuit and is evading service of process. By filing the counter-notice, defendant expressly agreed to accept service of process at its Russian address. Plaintiff attempted to perform service there but was unsuccessful. Defendant also purports not to understand the English language or the American court system, yet it corresponds sufficiently in English and appears capable of drafting a responsive pleading, as evidenced by the response it emailed plaintiff. Plaintiff has made other diligent, but unsuccessful, efforts to locate an alternative mailing address. In the absence of a correct address, plaintiff cannot personally serve defendant in Russia. It seems the only medium effective at reaching defendant is email.

We cannot, however, find that plaintiff has already accomplished service of process. While defendant did agree to accept service of process when it filed the counter-notice, plaintiff was unsuccessful in serving defendant by conventional means at its Russian address. [*3] Service by alternative methods, such as email, is only effective after court approval. See Rio Props., Inc. v. Rio Int’l. Interlink,
284 F.3d 1007, 1018
(9th Cir. 2002) (stating that email service is not available absent a Fed R.
Civ. P. 4(f)(3)
court decree); see also Fed.R.Civ.P. 4(h)(2)
(authorizing service of process on a foreign business in the manner prescribed by Rule 4(f)).

The court granted plaintiffs leave to serve defendant via email, stating “Service by email in circumstances where the defendant is evading service of process and it is the only method reasonably calculated to appraise defendant of the pendency of the action is permissible. See Rio Props., 284 F.3d at 1017 (approving an order granting leave to serve by email under similar circumstances); see also Liberty Media Holdings, LLC v.
Vingay.com, No. CV-11-0280-PHX-LOA, 2011 WL 810250 (D. Ariz. March 3, 2011) (permitting service by email). Moreover,
alternative methods of service in Russia, even those not required under the Hague Service Convention, are permissible, since Russia unilaterally suspended all judicial cooperation with the United States in 2003. See Nuance Commc’ns., Inc. v. Abby Software, 626 F.3d 1222, 1237-38
(9th Cir. 2010) (holding that a district court erred in requiring service upon a Russian corporation to be in compliance with the Hague Service Convention).
As the Ninth Circuit stated, “when faced with an international e-business scofflaw, playing hide-and-seek with the federal court, email may be the only means of effecting service of process.” Rio Props., 284 F.3d at 1018.

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Many people invest significant time, effort and in some cases real money to acquire virtual goods. There is great perceived value in these virtual goods. But there are a growing number of cases, where users have been the subject of hacking and other situations where they have had their virtual property stolen. See for example our prior blog entry on a massive theft of 400 billion poker chips from Zynga users.

Most game and virtual world operators try to shield themselves from claims of loss by their users through effective legal strategies embodied in their terms of service. In most cases, users are only granted a license to use the virtual goods, but they do not own them and the terms often make clear that there is no independent value to goods. Additional disclaimers and liability avoidance language may also be included. Yet, this has not stopped some users from suing for the loss of the perceived value of their virtual goods.

Given these potential claims, what else can companies do to protect themselves from such risks? Apparently, this risk may now be insurable – at least in China – thanks to a collaboration between Sunshine Insurance Group and Gamebar.  According to a report, by China Daily a Sunshine Insurance spokesperson said “The insurance will help to reduce operating risks for online games
companies as the companies which purchase the insurance will be covered
to compensate customers in the event of lost or stolen property.”

It will be interesting to see if that catches on in the US and elsewhere, and if so, what will be covered and what will not. Check back for updates.