Legal Things To Consider When Running Your Own MMO

Jim, from the Pillsbury Law Firm, talks about the legal issues with online games

You can download the podcast here…
http://www.indiegamepod.com/podcasts/engage-expo-pillsbury-law-firm-interview.mp3

Or listen to it here…

Show Notes:
Interviewer: I’m here at Engage Expo and with me today is a special guest. How about you introduce yourself?

Jim: Hi, this is Jim Gatto from Pillsbury Law Firm.

Interviewer: What are you guys about? How do you relate to gaming?

Jim: Pillsbury is one of the first major law firms to develop a team specifically focused on virtual worlds and video games. We represent many of the leading companies in the space, including companies like Activision.

We also work a lot with startups and emerging growth companies to really help them understand the legal issues that are unique to their business, how to protect their IP and position themselves to leverage their business. But also to play defense and avoid liability for issues where they haven’t really thought through how they might be impacting the rights of others, for example.

Interviewer: Can you talk about some of the challenges that smaller teams may have or encounter or surprises that they may need to look out for as they develop their game, release their MMO?

Jim: Sure. There’s many, just like any other business, but particularly in this space. There’s a combination of things, I think, that are a challenge. One is making sure that you really have a comprehensive IP strategy to protect what you’re doing. That’s one important thing and, of course, then having the ability to finance that once you develop the strategy.

We work with companies in ways to do things on a fixed fee basis. We defer payments from time to time so we’re used to working with small companies, and we try to help them do what they need to do but in a way that matches their financial situation.

The other thing is that there’s a lot of evolving legislation out there that companies need to be aware of, and many companies we find don’t focus on these things until it’s too late. And so, working with a firm that is knowledgeable of these issues and is staying on the cutting edge, and that’s going to be proactive and help advise them and help minimize some of those unexpected surprises.

Interviewer: Can you talk about some of those unexpected surprises, some of the issues, in terms of service, stuff like that? What are issues that a lot of game developers don’t even think about but are very important?

Jim: Sure. So, with respect to terms of service, for example, terms of service, a lot of people, we’ve seen, will cut and paste from someone else’s site and say, if it’s good enough for them it’s good enough for us.

The problem with that is that each business model is different. Second life terms of service doesn’t work for some other companies, and even then the first time that Linden went to enforce their terms of service in a lawsuit with Mark Bragg, that you may be familiar, one of the provisions was struck down. Even they’re not infallible, right?

The key is to understand what you’re doing, what you need to protect, what your business model is, and the terms of service really need to be customized.

One of the other things that extends to virtual goods involved in a game or virtual world, there’s a lot of issues there in connection with virtual currency and, for example, taxation. China imposed a 20 percent tax on games from virtual goods. The U. S. is looking at imposing something similar.

A lot of the states in the United States actually have pending legislation relating to the tax on digital download, and the scope of what that covers, whether it’s just software and music or whether it’s also going to cover virtual items. Some of that is still being worked out.

Interviewer: What are the top three things then you would recommend small game development companies to consider legally as they develop their company?

Jim: Well, I think the number one thing, really, is to work with an attorney who understands the issues, and then to sit down and understand what is important that you need to do. One of the things that’s important always is to protect your IP and have a strategy for doing that. It’s a combination of patent, trademarks, copyrights, trade secrets, and then the agreements that you use is important IP provisions there as well.

Then, make sure you have a solid business model and that you have the agreements and the other documents in place that you need to deal with the initial stages of your formation and doing business.

Interviewer: What do you see then, moving forward; what are some of the, you feel, major hurdles that are going to come up for these virtual worlds and MMOs?

Jim: Well, one of the things we’re seeing right now is there’s an increase in the number of patent infringement lawsuits. As recently as this week, there was a big lawsuit against Facebook, for example. Maybe not strictly gaming, but NC Soft has been sued and a number of others have been sued on a number of patents, so having both an offense and defensive patent strategy, position yourself that if you do get sued, what are some of the things you can do now to position yourself better is a critical thing. Patents are going to be a continued important factor in this area.

Terms of service, there’s been a number of cases, the Blizzard MDY case and others, where some terms of service disputes have been resolved by the courts now. Some of the issues have been clarified. There’s certainly other areas where there’s still some uncertainty or conflict among different courts on how things are going to go. So, understanding what is permissible and what’s not permissible and what the options are I think is important in connection with terms of service.

And then, just looking at all the legislative issues, data privacy, the COPA if you’re dealing with kids. There’s a lot of COPA issues. There’s some pending changes that may come down the road on that; tax issues as we mentioned, et cetera. So, it’s really – I wish there was a simple answer and a single answer – but the key is if you work with a firm that understands these issues, they can help guide you in what you need to know now and what you need to be looking for down the road.

Interviewer: Speaking of COPA, what are the major issues? The biggest thing that I heard is one company actually got fined quite a bit for violating COPA’s laws. They didn’t really mean to. When you’re thinking about COPA, when your firm thinking about COPA, what do you look for? Isn’t it pretty straightforward? What’s in the law?

Jim: Well, aspects of it are pretty straightforward. A lot of it is about notification and consent and making providing mechanisms to ensure that bad things don’t happen to kids online.

One of the things – in fact, there’s a company we work with called Privo. I don’t know if you’re familiar with them, but they’re actually one of the few COPA safe harbor things. They’ll come in and do some of the compliance policies, but the companies really care about this, making sure that you have an effective strategy and policy and that you’re actually following it is going to put you in a good position.

With the safe harbor provision under the FCC, even if you intend to comply you take steps. If you’ve got the safe harbor even if you’re not in compliance. Typically, you’re going to get an opportunity to fix it, and you’re not going to put yourself in a situation of being in the headline of the company who is next to not comply with COPA.

Again, there’s reasonable steps that you can take to comply. It’s not necessarily that difficult, but it is meaningful and it’s important and just knowing what you’re doing and making sure you do it is the key.

Interviewer: One other key is the question: since these MMOs span the whole world, do you run into companies that have to… How do they deal with the legal structures of all these different governments? Do they think about that?

Jim: Yeah, that is a challenge. We have offices around the world, you know, China, Japan, London and the Middle East, so we have good international reach. Some of these issues are, I would say, there are similarities in the laws, let’s say, on the IP side but there’s also some differences.

And so, you need to try to take these into account and know where the differences apply and then how to deal with that. It’s not always easy to do it, but having the ability to recognize the issues is kind of the most important first step.

Interviewer: Where can people find out more about your law firm?

Jim: Our law firm, you can go to our website at www.PillsburyLaw.com, and we actually have a virtual worlds video game component to that website that you can find out, or you can send me an email at james.gatto g-a-t-t-o @pillsburylaw.com.

Interviewer: And that’s p-i-l-l-s-b-u-r-y.

Jim: Correct. Thank you.

Interviewer: Thank you.