July 2010 Archives

Boomshine Boomerangs (Part II) - Court Allows Copyright Complaint Against Facebook to Continue



On July 23, 2010, Judge William Alsup of the U.S. District Court for the Northern District of California entered an order denying Facebook Inc.'s motion to dismiss a second amended complaint alleging that Facebook is guilty of contributing to the copyright infringement of a video game. Judge Alsup denied Facebook's argument that, as the Plaintiff had failed to properly allege direct infringement by its Co-Defendant, no claim against Facebook for contributory infringement could be made. A copy of the decision can be found here: Miller v Facebook


The pleadings allege that Plaintiff, Daniel Miller, created the video game Boomshine in 2007 and was granted a copyright registration by the U.S. Copyright Office. Boomshine is a game in which players click on floating circles which cause them to expand resulting in the expansion of any other circles which come into contact. Miller's second amended complaint accuses Defendant,Yao Wei Yeo, of direct infringement by arguing a similar "look and feel" between his video game, ChainRxn, and Boomshine but provides no further evidence of copying. According to the allegations in Miller's filings, "ChainRxn copies the look and feel of Boomshine by incorporating almost every visual element of the game". Moreover, the second amended complaint accuses Facebook of contributing to the infringement of the video game by allowing Yeo's game to remain on its website after being notified that it infringed the copyright of Boomshine.  Miller alleges that "[a]fter defendant Yeo published ChainRxn on defendant Facebook's website, members of the public were deceived regarding the origin of ChainRxn." For more information about the history of the case see the previous posting prepared by the Pillsbury Virtual World Team.

The Court's Denial

Facebook filed a motion for dismissal of the suit on June 21, 2010. Its argument was founded on the position that, as Miller had not properly first pled direct infringement by Yeo, he could not sustain a claim for contributory infringement by Facebook. The basis for Facebook's argument was that Miller's mere allegation that ChainRxn "looks and feels" identical to Boomshine without further proof of copying was insufficient to allege direct copyright infringement of Boomshine's source code. Moreover, Facebook argued that the copyright registration Miller had obtained for the source code was limited to its literal elements and not audiovisual elements of Boomshine. Judge Alsup denied the first element of Facebook's motion as premature noting that a "plaintiff can rarely examine the underlying source code of an accused infringing software program without resorting to discovery." Specifically, Judge Alsup said it would be "unreasonable, if not impossible" for Miller to know with "exacting detail" how Yeo copied the Boomshine source code so early in the case. Additionally, Judge Alsup denied the second portion of Facebook's motion by clarifying that the Court's earlier order "did not hold that copyright protection for source code was limited to the literal elements of the work" but rather that "plaintiff's copyright appears to be limited to the source code rather than the audiovisual aspects" and further determination is necessary to decide if the audiovisual elements of the game were also protected.

Finally, the court reminded Miller to address the disputed service of the second amended complaint on Yeo by the July 30, 2010 deadline or suffer a "potentially fatal defect" to his case.


The above action is interesting for several reasons. Platform companies like Facebook generally rely on the "safe harbor" protections the Digital Millennium Copyright Act provides when an infringement claim is made for the postings of a third-party. In fact,YouTube recently obtained a favorable decision providing it with DMCA protection in a potentially billion-dollar copyright infringement suit brought by Viacom. Moreover, while the Courts may differ on copyright protection for audiovisual "screen displays" in video games, the Copyright office's consistent position is that "a single registration is sufficient to protect the copyright in a computer program and related screen displays, including videogames, without a separate registration for the screen displays or a specific reference to them on the application for the computer program." For further discussion you can review the Copyright office's Circular 61

That said, this case continues to demonstrate that social networking platforms and other websites displaying user generated content must be ever vigilant or potentially face suits arguing various copyright theories. As technology advances (as well as the means of infringement) it is likely the pleading requirements will remain relatively low and defer the need to demonstrate the how, when and why of the alleged infringement until the completion of discovery. Since this will likely increase the cost of litigating these matters, Platform operators and creators of user generated content need to understand and avail themselves of copyright (and other IP) protection, enforcement techniques and available defenses.

Disney To Buy Playdom for $563 milion


According to a press release today, the Walt Disney Company has agreed to acquire Playdom Inc., one of the leading companies in the fast-growing business of online social gaming for $563 million plus an earn out of up to $200 million more. 

According to the relaese, in just two and a half years of operation, Playdom has established itself as a pacesetter in building popular games for social networks enjoyed by consumers around the globe. Through well-known titles like Social City, Sorority Life, Market Street and Bola, Playdom engages an estimated 42 million active players each month.

Disney President and CEO, Robert A. Iger stated:

"We see strong growth potential in bringing together Playdom's talented team and capabilities with our great creative properties, people and world-renowned brands like Disney, ABC, ESPN and Marvel." said Robert A. Iger, President and CEO, The Walt Disney Company.

This deal is just the latest in what has been a rapidly growing and evolving industry segment.

Virtual Goods Trend -- UP!


The virtual goods market continues to grow. A recent Forbes article highlights some of what is happening. The article highlights some powerful facts including:          

  • Traditional game companies EA and THQ both have signed agreements with Live Gamer -good-ea.jpg a leader in handling micro-transactions for monetizing interactive and digital entertainment - to handle virtual goods transactions and provide virtual currencies. Click here for a copy of the EA Press Release and here for a copy of the THQ Press Release.
  • The worldwide virtual goods market is expected to top 7 billion - but others have estimated the market to likely exceed $10 billion
  • Zynga alone is projected to rake in around $600 million in revenue this year, largely from the news-thq.jpgsale of virtual goods.
  • Online game network Xbox Live has generated an estimated $625 million in virtual items sales, surpassing its subscription revenues.
  • Sony's sales of virtual goods for the PlayStation tripled in the first quarter.
  • The article concludes with a forward-looking quote that points to the emergence of cross-platform or cross-game virtual currencies. 
Click here for a copy of the article.

French Court Rules eBay is Liable for Counterfeit Sales of Hermes Goods


hermes.jpgInternet businesses that are more that passive host sites should take note that a French court found that eBay is a "publisher of online brokering services" because it goes beyond "purely technical, automatic and passive [site host] services." As a result it ruled that eBay did not qualify for the host services infringement liability exception.

For example, the court found that eBay suggests purchases based on visitors' previous purchases, and it enables sellers to employ cross-merchandising and to obtain litigation settlement services for payment or delivery disputes.The court found that eBay profited from the sale of counterfeit Hermès bags because it received commissions on such sales amounts and that its site did not  have a passive and automatic role. The court highlighted the fact that eBay "exercises a determining action on the content of advertisements, in that it reuses, on its own initiative, information aimed at attracting buyers" and that it misused Hermès trademarks by allowing users to list items, present them in an attractive way and route potential buyers to other Hermès offers.

The court found that as a publisher, eBay did not ensure the site was not used for unlawful sale of counterfeit products.

This decision could have significant ramifications for other site operators that are proactive in assisting sellers such that they are deemed to be a service publisher rather than just a internet host.

Facebook Loses Round One Against Power Ventures


We recently reported on the Facebook v. Power Ventures case, in which Facebook alleged, among other things, that Power.com using automated tools to populate a portal that aggregates a user's social networking profiles violates its terms of service and the Computer Fraud and Abuse Act and an analogous provision of the California Penal Code. On July 20, 2010, the court said it was unclear whether Power.com was a "user" for purposes of the terms of service, but even if it was, feared that finding all user violations of a terms of service as access "without permission," would create constitutional problems with the statute. The Court added that terms of service are not well equipped to inform users of what activities might subject them to criminal penalties. The court, in part, relied on the fact that site operators can unilaterally change the terms of service at anytime.

The court did find that Facebook has a potential claim under the California law based on Power.com accessing Facebook's site by circumventing technical or code-based measures. That claim will go forward.

The court rejected Power.com's argument that Facebook did not even have standing to bring the suit because it did not incur any damage or loss. The court found that because Facebook took steps to prevent access, even "a few clicks of a mouse" was sufficient to satisfy the requisite damage or loss for it to have standing, noting that the statute authorizes claims if there is "any amount of damage or loss."

This decision could have significant ramifications for social media platform providers. It highlights the need for a comprehensive strategy, including both legal and technical measures to prevent unwanted activity on their sites.

Here is a copy of the Facebook Decision


Who Owns Bratz - Does Assignment of Inventions Cover Ideas?



An appellate court ruled that an employee's agreement to assign "inventions" to Mattel may not cover "ideas" the employee had for the Bratz line of dolls. This ruling may impact many companies ownership of certain rights if their IP or invention assignment agreements are not clear enough.

In vacating the lower court ruling, the court stated:

Prior to trial, the district court held that Bryant's employment agreement assigned his ideas to Mattel, and so instructed the jury. What was left for the jury to decide was which ideas Bryant came up with during his time with Mattel. It found that Bryant thought of the names "Bratz" and "Jade" while he was employed by Mattel, and that MGA committed several state law violations by interfering with Bryant's agreement as well as aiding and abetting its breach. After trial, the district court imposed a constructive trust over all Bratz-related trademarks....

The appellate court added that:

A constructive trust would be appropriate only if Bryant assigned his ideas for "Bratz" and "Jade" to Mattel in the first place. Whether he did turns on the interpretation of Bryant's 1999 employment agreement, which provides: "I agree  to communicate to the Company as promptly and fully as practicable all inventions (as defined below) conceived or reduced to practice by me (alone or jointly by others) at any time during my employment by the Company. I hereby assign to the Company . . . all my right, title and interest in such inventions, and all my right, title and interest in any patents, copyrights, patent applications or copyright applications based thereon." (Emphasis added.) The contract specifies that "the term 'inventions' includes, but is not limited to, all discoveries, improvements, processes, developments, designs, know-how, data computer programs and formulae, whether patentable or unpatentable." The district court held that the agreement assigned Bryant's ideas to Mattel, even though ideas weren't included on that list or mentioned anywhere else in the contract.

In its legal analysis the appellate court stated:

Mattel points out that the list of examples of what constitutes an invention is illustrative rather than exclusive. Ideas, however, are markedly different from most of the listed examples. Cf. People ex rel. Lungren v. Superior Ct., 926 P.2d 1042, 1057 (Cal. 1996) (courts avoid constructions that would make "a particular item in a series . . . markedly dissimilar to other items on the same list"). Designs, processes, computer programs and formulae are concrete, unlike ideas, which are ephemeral and often reflect bursts of inspiration that exist only in the mind. On the other hand, the agreement also lists less tangible inventions such as "know-how" and "discoveries." And Bryant may have conveyed rights in innovations that were not embodied in a tangible form by assigning inventions he "conceived" as well as those he reduced to practice.

As a result the court concluded that the agreement could be interpreted to cover ideas, but the text doesn't compel that reading and that therefore the district court thus erred in holding that the agreement, by its terms, clearly covered ideas.

This case will get sent back to the District Court for further determination. However, regardless of the result, it may be a good "idea" to consult with an IP attorney to make sure that your IP assignment agreements give you the maximum benefit and ownership of all rights that you want to own.

Mattel Bratz Decision

Virtual Goods Survey


Venture Beat recently reported on the results of a virtual goods study that showed about 75% of online games users have bought virtual goods and that many users surveyed plan to spend more in the next 12 months.

This survey is one more confirmation of the rapid growth of virtual goods. There are a number of conferences this fall that will focus on the virtual goods industry. Members of our team will be speaking at Virtual Goods World Europe 2010 in London and the Virtual Goods Conference '10 in Santa Clara.

We hope to see you at one or more of these conferences.

Augmented Reality Applications for iPhone Surge



Augmented Planet Ltd. indicates that as of the end of June 2010, a search of the App Store revealed nearly 400 applications found by searching "augmented reality" and nearly 100 more that were augmented reality apps but didn't use those words. In comparison, prior to September 2009, there were less than 100.

This is one more indicator of rapid growth of augmented reality.

This data confirms the the sense of optimism that our team members experienced while we attended the Augmented Reality Event conference in early June this year.

Of course with the rapidly expanding business opportunities in this space come legal issues of which companies should be aware. Our team has prepared a Legal Issues with Augmented Reality fact sheet which highlights some of the common issues faced in this space.

German Data Privacy Officials Not Friends of Facebook



A German data protection official has initiated action against Facebook for its use and storage of information about people who are not members. The actions result in part from the ability for registered users to use a tool provided by Facebook that scans a user's existing email contacts and retrieves and stores that contact information, including information about non-user contacts.

Facebook faces potential fines for storing personal information of people who don't use the site and have not granted Facebook permission to access or store their details.

Facebook has until Aug. 11 to respond to the legal complaint.

This is another example of how certain technology, which may be useful to users of a social media site may adversely affect the rights of non-users.

Payment Provider Liability for Contributory Trademark Infringement



gucci.jpgIn Gucci America, Inc. v. Frontline Processing Corp., No. 09 Civ. 6925 (HB) (S.D.N.Y. June 23, 2010), a New York court denied a motion to dismiss contributory trademark infringement claims brought against the defendant credit card processing companies by Gucci. The court held that credit card processing companies may be held liable for contributory trademark infringement under the relevant Supreme Court test. See Inwood Laboratories, Inc. v. Ives Laboratories, Inc., 456 U. S. 844 (1982).

The court held that defendants (and others) who provide service to websites that sell counterfeit goods can be liable if the plaintiff can show that they:

(1) intentionally induced the website to infringe through the sale of counterfeit goods; or (2) knowingly supplied services to websites and had sufficient control over infringing activity to merit liability.

The court's decision relied on the "willful blindness" standard set forth in Tiffany v. eBay, 600 F.3d 93 (2d Cir. 2010) and distinguished the Ninth Circuit's decision in Perfect 10, Inc. v. Visa Int'l Serv. Ass'n, 494 F.3d 788 (9th Cir. 2007) due to the fact that in this case, unlike in Perfect 10, the infringement relied on credit card services because the infringement was based on the sale of tangible counterfeit products.

This and other recent cases highlights the need for credit card companies and other payment providers to carefully assess the steps they can and should take to limit liability for trademark infringement and other liabilities.

Criminal Liability for Not Reading or Abiding by Terms of Service?


agree.jpg Thumbnail image for gotojail.jpg

Many people routinely click on the Agree button without reading the terms of service. Doing so can be perilous for many reasons. A pending case highlights another potential reason to read and abide by the terms of service - potential criminal liability. Granted, there are some unique facts here as discussed below, but it is to everyone's benefits to read and understand terms of service. For example, for users of a social media site, it is crazy to not understand what personal data is being collected and how it is being used and make an informed decision whether to use that site. For businesses (and investors in businesses) that interact with social media sites, it is critical that you understand and abide by the terms of service to assess whether your business model is "legal" and in compliance with the relevant terms of service. If not, your business (or investment) may be in peril, and in a worst case scenario you may face personal liability. Such was the case for the CEO of MDY when it created a tool that engaged in unauthorized access to Blizzard's World of Warcraft client software in violation of the relevant terms of service and EULA. In addition to the company being found to infringe, the CEO was held personally liable for $6 million in damages.

In a pending case, Facebook v. Power Ventures dba/Power.com, Facebook is relying on its terms of service and the Computer Fraud and Abuse Act and an analogous provision of the California Penal Code to prevent Power.com from using automated tools to populate a portal that aggregates a user's social networking profiles. This is deemed beneficial by many users, but not by Facebook. In its complaint, Facebook alleges that it grants a limited license to create applications that interact with Facebook's proprietary network subject to various terms of use agreements which prohibit, among other things, requesting, soliciting, or otherwise obtaining access to user names, passwords or other authentication credentials.

Facebook alleges that Power.com induces visitors to surrender their Facebook user names and passwords in order to "integrate" their Facebook account into the Power.com website, in violation of the Facebook's terms of service.

After notification from Facebook. Power.com allegedly initially agreed to cease the activity and purge the "ill-gotten data," but apparently later changed its mind and continued its practices. In response, Facebook claims to have implemented technical measures to block access to the site by Power.com but Power.com then allegedly circumvented the technological security measures without authorization in violation of the Computer Fraud and Abuse Act. Facebook also alleged violation of CALIFORNIA PENAL CODE 502(c), the "COMPREHENSIVE COMPUTER DATA ACCESS AND FRAUD ACT" (including Sections 1-4 and 7) and the anti-circumvention provisions of the DMCA, among other claims.

Additionally, Facebook alleges that Power.com used the names to send unsolicited email messages to Facebook users that contained false header information in violation of the CAN-SPAM (CONTROLLING THE ASSAULT OF NON-SOLICITED PORNOGRAPHY AND MARKETING) Act.

Even though this is a civil action the penalties that can flow from a finding of violation of the Computer Fraud and Abuse Act include: (A) a fine or imprisonment for not more than ten years, or both (for a first conviction) and (B) a fine under or imprisonment for not more than twenty years, or both, in the case of a repeat offender. Violation of the relevant sections of the California Penal Code can result in fines and imprisonment up to three years.

The Electronic Frontier Foundation filed an amicus brief in support of Power Ventures; arguing:

Facebook argues that by offering these enhanced services to users, Power violated California's computer crime law. It grounds its claim in the fact that Facebook's terms of service prohibit a user from having automated access to a user's own information and that Power continued to offer the service to Facebook users even after Facebook sent Power a cease and desist letter demanding that it stop. Yet merely providing a technology to assist a user in accessing his or her own data in a novel manner cannot and should not form the basis for criminal liability.

Many commenters have pointed out that taken to an extreme, any online service provider can create ridiculous terms of service and allege that there is a violation. While this may theoretically be true, in reality a court could strike down a frivolous clause if that were the case. However, when a company has a legitimate business interest to protect, and the terms of service relate to that business interest, an argument can be made that such terms should be upheld. Here Facebook appears to be alleging that it has a legitimate right to prevent third party application developers from requesting, soliciting, or otherwise obtaining access to user names, passwords or other authentication credentials. Perhaps this case will shed some light on this issue. Check back as we will provide updates on this case as it progresses.

Facebook Complaint

Pillsbury Expands Its Virtual World Team with High Profile Lateral Hires



We are proud to welcome two high profile lateral hires to our rapidly growing Virtual Worlds and Video Game team. On July 1, Sean Kane joined our New York Office. This follows on the heels of Mark Litvack joining our LA office in June of this year.

Sean has a broad range of IP experience advising on copyrights, trademarks, digital rights, trade dress, trade secrets, unfair competition and publicity/privacy rights. He joins from Kane & Associates LLC, where he provided comprehensive legal and business solutions for start-up ventures, mid-cap companies, multinationals and individuals involved in various interactive entertainment and IP-related enterprises. Sean has also been active in various industry and legal organizations. For example, he is a member of the American Bar Association Section of Intellectual Property Law (Co-Chair of the Computer Games and Virtual Worlds Committee), a member of the Section of Science & Technology Law (Co-Chair of the Virtual Worlds and Multiuser Online Games Committee), a member of the Board of Editors of the LJN publication, Internet Law & Strategy and frequently writes and lectures on these subjects.

Mark has extensive experience in a wide range of IP litigation matters, including copyright and trademark infringement, Internet piracy and prosecution, and entertainment law and previously served as Vice President at the Motion Picture Association of America, where he focused on Internet piracy issues. He also advises video games and virtual world companies.

FTC Extends Time for Public Comment on COPPA Rule Review



The Federal Trade Commission has extended until July 12, 2010, the deadline for public comments on its review of the Children's Online Privacy Protection Act (COPPA) Rule. The request for comments was originally published in the Federal Register on April 5, 2010.

As stated on the FTC website:

The primary goal of the Children's Online Privacy Protection Act (COPPA) Rule is to give parents control over what information is collected from their children online and how such information may be used.

The Rule applies to:

* Operators of commercial Web sites and online services directed to children under 13 that collect personal information from them;

* Operators of general audience sites that knowingly collect personal information from children under 13; and

* Operators of general audience sites that have a separate children's area and that collect personal information from children under 13.

The Rule requires operators to:

* Post a privacy policy on the homepage of the Web site and link to the privacy policy on every page where personal information is collected.

* Provide notice about the site's information collection practices to parents and obtain verifiable parental consent before collecting personal information from children.

* Give parents a choice as to whether their child's personal information will be disclosed to third parties.

* Provide parents access to their child's personal information and the opportunity to delete the child's personal information and opt-out of future collection or use of the information.

* Not condition a child's participation in a game, contest or other activity on the child's disclosing more personal information than is reasonably necessary to participate in that activity.

* Maintain the confidentiality, security and integrity of personal information collected from children.

Many in the industry have complained that the FTC has not provided clear enough guidance on how to comply with COPPA.

However, in order to encourage active industry self-regulation, COPPA also includes a safe harbor provision allowing industry groups and others to request Commission approval of self-regulatory guidelines to govern participating Web sites' compliance with the Rule.

One of the few companies to have received Safe Harbor status is Pillsbury client Privo, Inc.




Often names can be misleading. So it is potentially the case with the federal CARD Act that will come into effect in August 2010. Although the name implies that it applies to cards such as stored value cards and gift cards, this Federal law will apply more broadly and has provisions that impact virtual currency models. In particular, this act mandates minimum levels of consumer protection for fees, forfeiture and other issues that can arise in connection with virtual currency accounts.

With regard to the minimum protection imposed by this federal law, states are free to adopt their own regulations to provide even greater protection. Now more than ever it is important to ensure that if you are offering virtual currency as part of your business model, that you ensure that you are in compliance with federal, state and international laws.

For more information see the CARD Act Advisory prepared by members of Pillsbury's Virtual Worlds team