Addressing legal issues with the latest technological developments and social media trends.
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Worlds.com has reportedly settled its patent infringement lawsuit with NCsoft. The terms remain confidential and as of this morning neither company has a press release on its website. Worlds.com filed the suit on Christmas eve in 2008 after rattling its patent saber months earlier. To some, it is surprising the case lasted this long, due to the extensive amount of prior art that surfaced after the suit was announced.

In March 2009, Worlds.com CEO Tom Kidrin also boldly proclaimed that if the litigation was successful it would also sue other industry leaders. If Kidrin remains true to his word, we will likely know soon if they deemed the litigation successful.

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In what will be the first such case heard by the Supreme Court, the highest court in the land will address in its October term whether a California state law that bans the sale and rental of violent video games to minors runs afoul of the First Amendment right to free speech and the Fourteenth Amendment protections. A petition for certiorari was filed by the State of California after the Ninth Circuit Court of Appeals nixed the law as being unconstitutional.

At issue are California Civil Code Sections 1746-1746.5, which if enacted, would have imposed restrictions and labeling requirements on the sale of “violent” video games to kids under 18. According to the statute “Violent video game” means a video game in which the range of options available to a player includes killing, maiming, dismembering, or sexually assaulting an image of a human being (subject to certain limitations). On December 21, 2005, Judge Ronald Whyte ruled the law unconstitutional, preventing it from going into effect, as scheduled, on January 1, 2006. On appeal, the Ninth Circuit also declared the law unconstitutional.

The case is Schwarzenegger v. Video Software Dealers Association (08-1448).

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In what turned out to be an April Fool’s prank, Gamestation modified its Terms of Service to include a provision that required users to sell their soul to Gamestation before they could make any online purchase. Pretty amazing prank! What’s more amazing is that nearly 90% of the users agreed! One can only speculate as to whether these user’s didn’t care about their souls or didn’t read the Terms of Service. But it is likely a safe bet that many didn’t bother to read the terms.

Gamestation of course announced the prank and stated that it does not intend to enforce the so called “immortal soul” provision. So these users got off easy. But such may not be the case if there was a real dispute. As Blizzard demonstrated when it successfully sued MDY (for use of a bot that helped users level up in World of Warcraft without actually playing, the Terms of Service can be outcome determinative in the event of a real legal dispute.

All pranks aside, it is critical for Virtual World and Online game companies to protect themselves and users through effective Terms of Service. It is also important for users, and businesses operating in these online spaces to understand the terms.

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This article from Slate.com provides an interesting discussion regarding the applicability of virtual worlds and MMORPGs to economics research. One of the things the article points out is that research in the real world must handle inevitable data loss – making calculations like GDP the result of estimates and approximations – while every transaction in a virtual world is tracked without error. Although some researchers are skeptical about the ability of virtual world economies to mirror the real world, the point of the article is that research tools like rat mazes and petri dishes don’t model the real world, either. What those tools provide are environments where basic principles of a given activity can be examined, so those general principles can be extrapolated and applied to the real world. Virtual worlds have an additional advantage for researchers and policymakers – the “laws” in the form of the terms of service and the general rules of the world, are both more simplistic than the real world and more malleable – making them a research tool for the intersection of law and economics, as well.

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Last Monday’s Washington Post article talking about making money by coding and selling Second Life products doesn’t provide any surprises for anyone familiar with virtual worlds. The most interesting thing about it was its placement – the front page. When articles about virtual worlds and gaming have historically been relegated to the Style section or some other back page, this article, which talked about a guy who sells virtual rain and “markets snow, clocks, University of Maryland basketball T-shirts, Duke basketball T-shirts (grudgingly), two-story Tudor-style homes, pinup posters from the 1930s and the sounds of barking dogs” in his spare time, made headlines. Although the article glosses over the learning curve associated with producing virtual goods, articles like this can lead to an upsurge in public attention to and adoption of virtual worlds.

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In a growing trend, another patent infringement lawsuit was recently filed against nearly two dozen companies involved in virtual worlds, video games, social networks and other websites. The plaintiff, Balthaser Online, appears to provide a web application that enables users to create Adobe Flash animations and interfaces for inclusion in websites. The patent in suit is U.S. Patent Number 7,000,180, entitled “Methods, systems and processes for the design and creation of rich-media applications via the Internet.”

In September 2009 the court split Balthaser Online Inc.’s patent infringement lawsuit against Friendster Inc., Nike Inc. and two dozen other defendants by sending more than 20 of them to a California federal court and keeping just four in the Texas federal court where the case originated. Click here for more recent developments on the procedural motions in the Balthaser Patent Infringement Case.

This and other cases evidence a growing need for virtual worlds, video games, social network companies to take proactive steps to prevent or deter patent infringement suits. Click here for a prior alert on the Worlds.com patent infringement case and elements of a comprehensive IP strategy to prevent or deter patent infringement suits.

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ftc-logo.gifThe Federal Trade Commission released a study raising issues regarding adult content in virtual worlds that virtual world providers should consider when evaluating their privacy, content storage, access, and age verification policies. The FTC also highlights “best practices” for virtual world providers dealing with these important issues. The full report (.pdf) is available at the FTC’s website.

From the FTC’s report:

The FTC surveyed 27 online virtual worlds – including those specifically intended for young children, worlds that appealed to teens, and worlds intended only for adults. The FTC found at least one instance of either sexually or violently explicit content in 19 of the 27 worlds. The FTC observed a heavy amount of explicit content in five of the virtual worlds studied, a moderate amount in four worlds, and only a low amount in the remaining 10 worlds in which explicit content was found.

The FTC recommends that virtual world providers:

  • Use more effective age-screening mechanisms to prevent children from registering in adult virtual worlds;
  • Use or enhance age-segregation techniques to make sure that people interact only with others in their age group;
  • Re-examine language filters to ensure that they detect and eliminate messages that violate rules of behavior in virtual worlds;
  • Provide more guidance to community enforcers in virtual worlds so they are better able to review and rate virtual world content, report potential underage users, and report any users who appear to be violating rules of behavior; and
  • Employ a staff of specially trained moderators who are equipped to take swift action against rule violations.

Many of the issues highlighted by the FTC’s report could have been avoided by addressing these concerns, from both a technical and legal perspective, early in the design process.

Pillsbury’s Virtual Worlds and Video Games team has helped many clients address these issues when building their virtual worlds, and has developed additional “best practices” regarding deployment of virtual worlds. Some of our recommendations include:

  • Seeking specific parental permission for youth visitors;
  • Deploying parental permission systems in conjunction with youth accounts;
  • Assigning specific staff responsibility for monitoring compliance with emerging legal trends.

It is best to address these questions early in the development cycle, when a potentially expensive problem can be averted with minimal expense.

For further information, please contact our Virtual Worlds and Video Games team.