Changes in the Gaming Industry Call for New Strategies for Intellectual Property Protection and Enforcement
By Scott Popma and James Barney
The gaming industry is changing rapidly. The emergence of open source gaming consoles, the increasing popularity of mobile gaming platforms, and tools such as crowdfunding and crowdsourcing, are all working to decrease market entry barriers. These same factors, however, threaten to cause price erosion, creating a need for non-traditional revenue streams. To compete in this environment, gaming companies must update their intellectual property (“IP”) strategies to protect their brands and technology and to protect and diversify revenue streams.
Strategies for Protecting IP
In today’s gaming industry, creativity is key. Small developers with good ideas can turn to crowdfunding sites to get the capital needed to develop their products. Games with compelling story lines, familiar or well-developed characters, and appealing graphics are more likely to get funded. But what happens if these proposed games look like someone else’s?
Respecting the IP of others may be an afterthought for small developers that are focused primarily on the technical elements of the game. These developers may “borrow” certain features from other games to use in a crowdfunding pitch or to make their games more interesting or familiar. Developers may (or may not) recognize that they could be infringing someone else’s IP (even if borrowed elements are used only as a place filler), but they may be willing to take that risk, believing that enforcement is unlikely and that the potential rewards outweigh the risk. The industry should take steps to change this attitude and to protect its IP.
As detailed below, there are two IP strategies that every gaming company should pursue: protection of copyrights and trademark through enhanced End User License Agreements (EULAs), and protection of technological innovation through patents.
Update and Expand EULAs
Many existing gaming industry EULAs don’t go as far as they could to protect against infringement. As users sometimes forget, games are not “sold;” they are licensed. These licenses often take the form of a click-through EULA that users must accept in order to gain access to the game. Once accepted, the EULAs set limitations on the use of the game. Although basic EULAs are a good first step, they can be enhanced to provide more protection.
Some in the gaming industry are already using EULAs to protect elements such as characters, artwork, and storylines, but this is a strategy all developers should employ. To maximize protection, EULAs should include express prohibitions on the export of protected IP for use in other games and the use of characters, artwork, or depictions of the artwork to raise money on crowdfunding sites. EULAs also should contain User Created Content Clauses, which assign the rights to IP created by players back to the developers. Note that EULAs can be an effective tool for developers of games big and small; as market entry barriers decrease, it is increasingly likely that even non-blockbuster games could be knocked-off for use on new platforms, or that appealing elements could be exported for use in fan fueled mash-ups. For this reason, even EULAs for older or underperforming titles should be updated.
Develop a Patent Strategy That Is Both Offensive and Defensive
Patents may be used to provide another layer of protection. Clever developers may be able to get around the copyright and trademark protection afforded by even strong EULAs to knock-off of a game or to export popular features to a competing product, but patents, which protect ideas, are harder to circumvent. Although patents have fallen out of favor in the gaming industry in the past decade, with the recent patent reform effort, patents have become a viable tool for protecting gaming innovations. Before patent reform, there were limitations on the usefulness of patents in the fast-paced gaming industry because the patent application process was lengthy, and by the time a patent issued, gaming technology often had become obsolete. The Patent and Trademark Office (PTO) now offers an expedited application process that promises to cut the time for patent review to about 12 months. These “Track One” applications should allow patents to track more accurately the life cycle of a game or gaming technology.
An effective patent strategy will enable innovators to use their patent portfolios to protect market share, increase pressure on their competitors, and generate revenue. But the key is not just to obtain patents, but to obtain the right patents. There is likely little utility in pursuing a patent for a unique but limited feature that may be of use in only one game. The real value is in patents that could be widely applicable to many games, such as in-game purchases, security features, social networking, or graphics generation.
Gaming companies also should monitor their competitors’ portfolios. Though patents have been asserted only rarely in the gaming industry in the past decade, it only takes a spark to ignite—as has been evidenced in the smart phone industry—an industry-wide war. Knowing the types and quantities of patents a competitor is pursuing can provide insight into the competitor’s strategy and can inform decisions on how to tailor a portfolio with both offensive and defensive elements. Additionally, companies that monitor their competitors’ activity at the PTO now are able to challenge applications through new administrative proceedings made possible by the recent patent reforms – generally a more cost-effective option than defending a charge of patent infringement down the road.
Developing and Protecting New Revenue Streams
Patents can be used to protect new revenue streams, which have become increasingly important as the average price of games has declined. This decrease is due, in part, to lower price expectations on mobile platforms, and prices likely will continue to drop as open-source hardware and software enter the mainstream. To increase revenue, the gaming industry has been developing new methods for charging existing customers (including subscriptions, in-game purchases, micro-transactions, and cross-platform access charges) and methods for attracting new customers (including partnerships with third-party developers for in-game applications, generating and selling data and services through crowdsourcing, and advertising). Technology related to these new methods will have industry-wide value and may be patentable. These patents themselves could provide licensing revenue.
Crowdsourcing is an increasingly popular method of revenue generation in the gaming industry, but gaming companies using crowdsourcing must consider ownership issues when relying on the power of the crowd to develop content, provide services, or solve complex problems through gamification. To minimize ownership disputes that may arise, companies should utilize EULAS that clearly assign all ownership rights in any IP or data created through the platform.
Strategies for Overcoming Challenges Related to Patent Enforcement
There are challenges inherent in patent enforcement in the gaming industry that will increase as companies implement the strategies recommended in this article. It can be difficult for a company to know when its IP is being used when each game it develops has potentially hundreds of protectable elements. And it is not clear that a company should take steps to stop its IP from being used in all cases. There are steps a company, or its outside counsel, can take to overcome, or at least minimize, those obstacles. Here are some practical tips:
· Early identification and action is critical. It is easier to convince unauthorized users to cease activity before they have invested substantial time and effort into a project, and certainly before they begin generating a revenue stream from a product or service that includes someone else’s IP.
· There are services that can help. Gaming companies should explore the possibility of investing in IP monitoring services. Law firms often work with third-party services that specialize in scouring the net for unauthorized use of trademarked or copyrighted material, and can issue cease and desist letters and initiate litigation when necessary.
· Be mindful not to alienate the customer base unnecessarily. The challenge for the gaming industry is finding a way to protect its IP without alienating its customer base. Customers are now more than a source of revenue; they are sources of content. The key is selective enforcement; companies should allow users to generate content and expand and use content and should crack down only if revenue streams are compromised.
· Consider intervention at the distribution or cash collection point. Games generally are dependent on an application store for revenue collection, even games that are “free.” Notify the application stores of the alleged infringing activity and ask that the distribution and cash collection be suspended. These stores deal in volume, and they may make a rational business decision to avoid being dragged into a lawsuit.
· When crowdfunding is involved, detecting violations before a project is fully funded is critical. Most crowdfunding portals hold money in escrow until a short time after the target fundraising goal has been achieved. If violations are detected before this time, companies can request that portals delay release of the escrow account. The aim is to detect and stop violations before a game is completed. Once a game is distributed, any borrowed material could live on forever on file sharing sites.