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Litigations that Changed the Games Industry


December 18, 2006 Article Start Previous Page 3 of 3
 

Games and Patent Trolls

The final group of cases to discuss are the newest type in this article. These cases have developed over the past few years and that will probably continue in coming years. These cases may be referred to collectively as “patent troll” cases.

The term patent troll is a very dirty word in IP law, and no one wants the name applied to them. Definitions of the term vary, mostly because companies want to find a way to define it so their own company falls outside the definition. For the purposes of this article, a patent troll is a company that has four characteristics:

  1. it holds patents
  2. it does not invent anything itself
  3. it does not manufacture its own products
  4. it threatens to sue people with those patents

Another less derogatory name for this type of entity is “patent licensing company.” Some people would say these companies do not really contribute anything of substance (beyond the promise not to sue) to the creative endeavor. Many people in the game industry consider them sand in the wheels of progress.

Under any definition, the general idea behind a patent troll is easy to understand. A person raises money to fund a company, uses that money to buy patents (often from failed businesses), then threatens successful companies with litigation unless they pay for a license to the patents. If those companies do not pay, they get sued for patent infringement, a cost that can easily reach into the millions of dollars before judicial decision.

Views on this type of practice vary. Some describe it as a game of chicken combined with elements of highway robbery. Others see it as protecting the ideas of small inventors from being stolen and used by large companies without paying the proper fee. Under any description, this type of litigation was unheard of at the start of the game industry, but is becoming increasingly common.

The goal of this type of litigation is to sue a large number of game companies with a group of patents that arguably cover a very basic technology (such as panning and zooming in three dimensions). This leads to the greatest potential exposure for game companies and yields the greatest potential profit for the trolls.

The patent troll also takes advantage of plaintiff economies of scale in the litigation process. By that, I mean that the cost to sue 20 companies is not 20 times greater than the cost to sue one company. Yet, defending a case can be almost as expensive (sometimes more expensive) if there is a large group of co-defendants. This gives a patent troll the incentive to bring the case against as many deep-pocketed companies as it can plausibly bring the case against. Since the patent troll has no products, no inventions, and no purpose beyond these litigations, a good portion of the litigation process is fairly easy for the company.

The patent troll does have to work on showing the patents are valid and infringed, but giving up all company records can be as simple as giving up the patents, patent purchase agreements, and the letters the company has written to the accused infringers. The patent troll can literally turn over every company record in just a few boxes and wash its hands of the most burdensome part of the discovery process.

On the other hand, the defendants are also responsible for turning over the relevant information for all of their accused games/products (often including game code, marketing material, and sales figures). Keep in mind also that patents are presumed valid in litigation and the defendants have to show by “clear and convincing” evidence that the patents are invalid – a lot of hard work. Imagine the burden that all of this puts on a company like Microsoft, Nintendo, or a large developer. Furthermore, imagine how asymmetric the burden (and cost) is when compared to the patent troll.

All of this motivates defendant companies to settle the litigation and license the patents as quickly as possible. Even if a game company is reasonably certain that its products do not infringe certain patents or that the patents are invalid, trial is an expensive, complicated, and unpredictable process. These patent troll licensing cases are certain to increase the importance of patents in the game industry and change the way we do business in the coming decades.

Wrapping Up

Litigations have always been part of the game industry, just as they are part of every successful commercial endeavor. Yet, fighting through these controversies using the litigation process has helped bring about important decisions that shape the work we do every day.

I am not proposing we embrace litigation as positive, but I do mean that it is a fact of any successful industry that needs to be respected and understood as we move forward. In some instances, such as in copyright registration and First Amendment protection, the results can be a great boon for the industry as a whole. Furthermore, increasing litigation is an indicator that the industry is growing in financial and cultural importance. Acknowledging this historical importance and industry shaping power of litigation is critical to any thorough understanding of the game business.

DISCLAIMER: This article is written for educational purposes. Nothing herein should be considered as legal advice or as forming an attorney client relationship. The author’s views are his own and do not represent those of CMP, Gamasutra, Kenyon & Kenyon or his clients. Every situation is different and the author strongly urges you to seek competent specialized advice for legal issues.

Resources for Further Reading:

Books

  • Business and Legal Primer for Game Development edited by S. Gregory Boyd and Brian Green, Charles River Media, 2007
  • Video Game Law by Jon Festinger, Lexis Nexis Canda, 2005

Webpages


Article Start Previous Page 3 of 3

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