Addressing legal issues with the latest technological developments and social media trends.
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In the fast and furious world of app development, time is of the essence. So claims the Plaintiff YoHolla in a lawsuit against an app developer Pinwheel Designs Corp. and its subcontractor Burton Design Group (BDG). Allegedly the defendants’ inability to produce a bug-free app in a timely manner delayed YoHolla’s launch of its social network.

This case involves a classic fact pattern of a development contract gone awry. YoHolla claims that BDG missed several deadlines for completion of an Iphone and Android app, that what BDG produced was riddled with bugs and required additional payments well beyond the initial estimates. YoHolla further alleges that the contract stated that TIME WAS OF THE ESSENCE and that these delays caused delay of YoHolla’s planned launch of its social network and over $550, 000 in delay damages.

After things escalated, YoHolla went elsewhere to get the development finished and formally terminated the development contract.

BDG demanded final payments and ordered YoHolla to cease and desist from use of any source code developed by BDG, alleging that such use would constitute copyright infringement (despite an apparent assignment of all rights to YoHolla in the contract).

Where this gets more interesting is that BDG contacted Apple and alleged that YoHolla’s iphone app infringes BDG’s copyrights. After 3 or so rounds of “he said, she said” regarding copyright ownership, to no avail, YoHolla filed suit.

The Yohalla Complaint raises claims for declaration of ownership of copyright and non-infringement, breach of contract, tortious interference with a business relationship (for BDG’s allegedly false notices to Apple), defamation and a claim for indemnification against Pinwheel.

This will be an interesting case to watch.

 

 

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On March 15, hours after its asserted
patent was issued (U.S. Patent No. 7,908,342), Wireless Ink Corp. filed a
complaint for patent infringement against Facebook, Google, YouTube, and MySpace
in the U.S. District Court for the Southern District of New York, Case No.
1:11-cv-01751-PKC. Wireless Ink is a mobile content management and social
networking software company that operates Winksite.com.

If this scenario sounds familiar, it’s
because Wireless Ink has a pending lawsuit against Facebook and Google in the
same court, before the same judge, and for
infringement of a related patent (U.S. Patent No. 7,599,983), Case No.
1:10-cv-01841-PKC (filed Mar. 9, 2010). 

In this newest action, Wireless Ink
alleges that each Defendant directly infringes several claims of its ‘342 patent
(titled Method, Apparatus and System for Management of Information Content
for Enhanced Accessibility over Wireless Communication Networks) by, among
other things, (i) providing a user-accessible content management website, (ii)
generating a mobile website that is accessible independently of the content
management website via a mobile device, (iii) where the mobile website is
configured to receive data automatically from external data sources designated
by the user at the content management website, and (iv) where the content
management website permits the user to upload information items and enter
messages which are included in the mobile website.

Wireless Ink also alleges that
Defendants’ infringing activities are willful, and that Defendants have induced
infringement by actively encouraging their users to use their mobile websites,
even after having knowledge of Wireless Ink’s patent rights. As characterized in
the complaint, the Defendants’ alleged infringing activities “involve hundreds
of millions of users and potentially billions of acts of
infringement.”

Interestingly, in exhibits to its
complaint, Wireless Ink points out that all of the known relevant prior art to
the related ‘983 patent produced by
Facebook and Google in the 2010 litigation was disclosed by Wireless Ink to the
U.S. Patent & Trademark Office during prosecution of the application that
issued as the now-asserted ‘342 patent. The ‘342 patent’s application was a
continuation of the ‘983 patent’s application. Whether this has any impact on
the validity of the ‘342 patent remains to be seen. 

This action is currently scheduled to
have its initial pretrial conference on May 9, 2011.

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Microsoft Corp. has recently won a bid to force Datel Holdings Ltd.
to produce documents and sample products in an action involving Datel’s Xbox 360
accessories.  The Judge has ruled in favor of
Microsoft and ordered that certain documents must be produced on behalf of Datel relating to allegations that it hacked the Xbox security system in order to produce its line of Xbox accessories.  Datel must also produce information and
materials concerning its inventory of current and past product samples and any
offers to sell its technology.  In certain
circumstances, the Judge said, Datel will be able to let Microsoft inspect
Datel’s products at its counsel’s office in San Francisco or charge Microsoft
for the products.

The underlying suit, Datel Holdings Ltd. et al. v. Microsoft
Corp., case number 09-cv-5535, is currently pending in the United States
District Court for the Northern District of California.  In it Datel is alleging
that Microsoft reconfigured its Xbox system to
allow only the use of Microsoft memory cards, which Datel claims pushed it out
of the market for Xbox accessories in violation of, among other claims, the
Sherman Act.  Additionally, Microsoft has filed counterclaims alleging that
Datel breached its contractual obligations as a subscriber to the Xbox Live
service and violated the Digital Millennium Copyright Act. 

Previously, Microsoft’s bid to dismiss Datel’s
antitrust case failed when the presiding Judge ruled against its motion to
dismiss the tying, unfair competition and intentional interference with
prospective economic advantage allegations.  The ruling was based on the Judge’s
determination that the Xbox license agreement was somewhat ambiguous.  However,
Microsoft was able to obtain a partial dismissal of Datel’s Sherman Act claims
as the court found that Datel was not a direct participant in the
respective market. 

The mater is currently
scheduled to go to trial in or about October 2011.

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Congressman Edward J. Markey (D-Mass.), a senior member and former chairman of the Energy and Commerce Committee’s Communications, Technology and the Internet Subcommittee, sent a letter dated February 8, 2011 to the Federal Trade Commission (FTC) requesting more information about possible consumer protection issues related to “in-app” purchases, particularly relating to kids.

The following is an excerpt from the letter:

“I am disturbed by news that in-app purchases may be taking advantage of children’s lack of understanding when it comes to money and what it means to ‘buy’ an imaginary game piece on the Web.  Companies shouldn’t be able to use Smurfs and snowflakes and zoos as online ATMs pulling money from the pockets of unsuspecting parents.  The use of mobile apps will continue to escalate, which is why it is critical that more is done now to examine these practices. I will continue to closely monitor this issue and look forward to the FTC’s response.”

Click here for a copy of the letter

It is important for companies to understand the potential legal issues with innovative business models and to ensure clarity so that consumers understand

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Originally posted on the Gamification Blog.

Many people are aware that in 2009,
the FTC implemented guidelines that addressed the use of endorsements and testimonials by bloggers. The main stream press highlighted just the part of these guidelines that require disclosure by bloggers of compensation received for recommending a product or service. However, the guidelines include some lesser known provisions which apply more broadly to consumer generated media and relate to gamification.

  • The guidelines are not limited to bloggers, but cover any advertising message,
    including consumer-generated media,
    that consumers are likely to believe reflects the opinions, beliefs, findings,
    or experiences of the endorser. This includes consumer testimonials, such as reviews or recommendations endorsing a product or service on any social media site, not just blogs.
  • When a connection exists between the endorser and the seller of an advertised product that might materially affect the weight or credibility of the endorsement, such connection must be fully disclosed. In one example, the FTC says that if a blogger gets a free video game to evaluate and review, he must clearly and conspicuously disclose that he received the game for free. In another example, it states that if someone receives redeemable points each time they tell friends about a product, this fact needs to be clearly and conspicuously disclosed.
  • In these examples, the FTC also states that the company needs to advise the consumer giving the testimonial that this connection should be disclosed,
    and it should have procedures in place to try to monitor the consumer’s postings for compliance.
  • Advertisers are subject to liability for false or unsubstantiated statements made through endorsements, or for failing to disclose material connections between themselves and their endorsers. Endorsers may also be liable.
  • Whenever an advertisement represents, directly or by implication, that the endorser is an expert with respect to the endorsement message, then the endorser’s qualifications must in fact give the endorser the expertise that he or she is represented as possessing with respect to the endorsement. This raises potential gamification issues with leader boards, badges and expert status to the extent that this implies an “expert”
    status that the user does not actually posses.

This is just one of many examples of little known laws that relate to gamification.

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A UK court entered  a guilty plea against Ashley Mitchell, an IT guy who hacked into Zynga’s servers last year and stole 400 billion virtual poker chips. His efforts to resell them, which is against Zynga’s terms of service, netted him $86,000 and a yet to be determined jail sentence.

To avoid issues with the gambling laws, Zynga sells poker chips to users for real money (and in some cases to reward user actions), but prohibits any cash out or resale of the chips.

Zynga’s Terms of Service states:

“Zynga owns, has licensed,
or otherwise has rights to use all of the content that appears in the Service or the Zynga games. Notwithstanding any provision to the contrary herein, you agree that you have no right or title in or to any content that appears in the Service, including without limitation the virtual goods or currency appearing or originating in any Zynga game, whether earned in a game or purchased from Zynga, or any other attributes associated with an Account or stored on the Service.

Zynga prohibits and does not recognize any purported transfers of virtual property effectuated outside of the Service, or the purported sale, gift or trade in the “real world” of anything that appears or originates in the Service, unless otherwise expressly authorized by Zynga in writing. Accordingly, you may not trade, sell or attempt to sell in-game items or currency for “real”
money, or exchange those items or currency for value of any kind outside of a game, without Zynga’s written permission. Any such transfer or attempted transfer is prohibited and void, and will subject your Account to termination.”

With respect to chip “purchases”, Zynga states:

“The purchase of Zynga Poker
chips from a third party seller is a violation of Zynga’s Terms of Service. We are  not responsible for any losses incurred and will not restore chips.

The only safe method of purchasing our chips is directly through the application, via the Buy Chips tab.”

As virtual currencies proliferate, it is important for companies to ensure that they think through their business models, develop and enforce effective terms of service and consider up front how they can use technological measures to deal with people who inevitably will try to beat the system. This requires a careful integration of business, legal and technical strategy.

For more information on legal issues with virtual currency, see Pillsbury’s Virtual Currencies Overview.

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According to a recent study by OpenDNS,
Facebook is both the most widely blocked site in enterprises today and the second most widely allowed site in enterprises today. The study goes on to report that more than 14 percent of all enterprises that block websites on their networks choose to block Facebook, and MySpace and YouTube round out the top three most commonly blocked websites for business users.

The OpenDNS findings are consistent with those reported in ProofPoint’s 7th Annual Survey on Outbound Messaging and Content Security, which broke the blocking statistics down by company size:

And there’s a good reason for companies to be blocking that access. According to the ProofPoint report, in 2010:

  • 25%
    of US companies investigated exposure of confidential/proprietary info via blogs/message boards
  • 24% disciplined employee for violation of blog policy w/in last 12 months
  • 11% terminated employee for violation
  • 20% of US companies investigated exposure of confidential/proprietary info via social networks
  • 20% disciplined employee for violation of social network policy w/in last 12 months
  • 7% terminated employee for violation
  • 18%
    of US companies investigated exposure of confidential/proprietary info via video/audio sharing services
  • 21% disciplined employee for violation of media sharing/posting policy w/in last 12  months
  • 9% terminated employee for violation
  • 18%
    of US companies investigated exposure of confidential/proprietary info via SMS/web-based messaging

So what should your company be doing?

First, have a social media policy. Talk to employees and solicit ideas for the corporate social media policy. You want to encourage all personnel to think and act like an official company spokesperson, but make sure they know they are not an official company spokesperson and cannot claim to be. The company should designate social media representatives and give them limitations what they are and aren’t supposed to do.

Identify off-limit subjects ahead of time and share that with your company’s social media representatives. Employee training and communication are key to compliance.

Second, have a monitoring policy. From a company perspective, the policy should state that all use of company-provided equipment or services can be monitored, but limit searches of communications/devices to where there is suspicion of misconduct, and limit those searches so that they are consistent with the purpose of the investigation.


Third, make disciplinary consequences clear in your policies, and be consistent in application of the policies. Turning a blind eye to executive violations of the policies, or applying different disciplinary consequences to executives who violate policies can undercut both the company’s moral authority in the eyes of the employees who are subject to those policies and the company’s legal ability to enforce those policies.

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Gibson Guitar Corp. recently filed suit in the U.S. District Court for the Middle District of Tennessee alleging that Seven45 Studios’ video game “Power Gig: Rise of the SixString,” infringes Gibson’s concert simulation patent.  Gibson filed its complaint againgibson.jpgst 745 LLC (d/b/a Seven45 Studios) asserting “Power Gig” violates its U.S. Patent Number 5,990,405, titled “System and method for generating and controlling a simulated musical concert experience.”  The claims center on “Power Gig” and its related components, which includes a guitar-style controller.  Gibson is claiming that the game, in conjunction with a gaming console (Sony’s Playstation 2 and Microsift’s Xbox 360), contains elements that infringed its rights under the ‘405 patent.  In addition to a claim for direct infringement, Gibson alleges contributory patent infringement and inducement of infringement.  Gibson is seeking a preliminarily and permanently injunction, treble damages and attorneys’ fees. 
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Despite supposedly having millions of users (to Facebook’s 3/4 of a billion), social networking pioneer MySpace appears to be headed out to pasture. Last week, the company laid off 47 percent of its workforce, lopping off 500 employees from its nearly 1,100-person payroll. Rumors that MySpace’s parent company News Corp. wants to sell are all over the tech and mainstream media. (see Link)
This is despite a widely publicized “redesign” intended to focus the site on “social entertainment.”

Assuming the redesign doesn’t provide the boost News Corp. (or a potential buyer) would be looking for, what will happen to all of the material on users’ MySpace pages if the service shuts down? A similar question faced users of Second Life’s Teen Grid when Linden Labs announced that portion of the virtual world would be shut down. (See Link).

But closing down Teen Grid doesn’t come close to the scale of shutting down MySpace. If done right (i.e.,
with plenty of notice and providing members a user-friendly option to export content), the passing of this early social media icon could be the model of the right way to wind things down.

The idea that a social media platform with millions of members (and millions more still joining),
could “go gently into that good night” should serve as a warning to those investing time, energy and money into virtual assets – if you’re on someone else’s platform, and you’re not big enough to get anything other than their standard user agreement, you need to plan for the day when your platform could turn off.

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A new survey by Interactive Age about the best law firms advising on video games and other interactive entertainment named Pillsbury one of the Top 3 firms in the nation.

According to the survey, more than 530 attorneys at 30 major law firms now practice in the area of video games, new media and interactive entertainment, so it is increasingly important to know which firms have the most experience and widest range of offerings. With over 30 attorneys on Pillsbury’s multidisciplinary team, it is also one of the largest and most diverse in the nation.

“The numbers indicate that big firms are staking a claim and operating significant video game practices. The appeal for these big firms is that this sector lets them leverage all of their expertise across the board for a single client,” said Interactive Age’s Evan Van Zelfden in the press release announcing the survey results.

“We are delighted that Pillsbury ranked among the foremost video game and interactive entertainment law firms in the United States, said Pillsbury partner Jim Gatto. “We have been involved in this space for a long time, but this recognition validates our firm’s decision to formally create and invest in the nation’s first multidisciplinary team focused on Virtual Worlds & Video Games more than three years ago, and our recent decision to expand the team to cover other aspects of Social Media, Entertainment and Technology.”

Pillsbury’s Social Media, Entertainment and Technology team includes the Virtual Worlds & Video Games team and also covers other emerging areas such as: Virtual Goods and Virtual Currency; Location-Based Services and Mobile Applications; Augmented Reality and Mirror Worlds and other aspects of social media and interactive technology.