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Social Media & Games: 2013 Year in Review

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2013 was an incredibly active year for social media legal issues. Below are selected highlights on some of the more interesting legal issues that impacted social media, along with links to reference material relating to the topics.

1.
Virtual Currency/Bitcoin

FinCEN Virtual Currency Guidance and Enforcements - FinCEN published legal guidance  on virtual currency making clear that existing regulations regarding money transmitter and anti-money laundering laws apply to certain virtual currency activities. Shortly after issuance of the guidelines, a wave of enforcements shut down non-complying entities. [BLOG]

Congressional Hearings on Virtual Currency - Congressional hearings were surprisingly more friendly and receptive of Bitcoin and other virtual currencies.

2.
Privacy - Guidance and Enforcements

COPPA - The FTC issued new guidance and FAQs for children's online protection due to evolving technology and changes in the way children use and access the Internet, mobile devices and social media.

CA Privacy Law - California passed new privacy laws.

3.
Intellectual Property/Patents

Patents - The number of social media patent filings continued to increase. The America Invents Act (AIA) fully kicked in, providing a greater ability to challenge patents believed to be invalid without going through district court litigation. The Fast Track process to get patents issued more rapidly (often in less than a year) continued.

Ownership of Social Media Accounts and Followers - Despite a number of cases (including ones involving LinkedIn and Twitter) relating to ownership of social media accounts, the law remained murky and fact specific. This uncertainty can be avoided by proper attention to social media policies before issues arise.

4.
Employment Law and Social Media

National Labor Relations Board (NLRB) - The NLRB continued to issue surprising guidance and decisions on social media usage. In many cases, some or all provisions of employers' policies governing the use of social media by employees were found to be unlawful. [BLOG] The NLRB affirmed that workers have the right to discuss work conditions freely without fear of retribution, whether the discussion takes place in the office or on Facebook. But later in the year it actually found some uses of social media for employment (firing) decisions to be okay.

Employer Access to Social Media User Names and Passwords - By year end, 36 states had passed or initiated legislation prohibiting employers from requesting personal social media account information or passwords in connection with employment decisions.

National Conference of State Legislatures Report - Some states have similar legislation to protect students in public colleges and universities.

5.
Online Gaming

First mover states forged forward with online gambling.

·         Nevada - Legalized online poker and granted its first licenses for interactive gaming.

·         New Jersey - In February, passed legislation (signed into law by Governor Chris Christie) allowing on-line wagering. Subject to certain limitations, licensed operators are permitted to offer online versions of a wide variety of games currently permitted in Atlantic City casinos (e.g., roulette, craps, black jack, and slots).

·         Delaware - On October 31, launched what Delaware officials call a "full suite" of internet gambling.

Zynga - In September, Zynga withdrew its bid for a gambling license in Nevada

Federal Gambling Legislation - The prospects for a federal law for online gambling remain elusive.

6.
Mobile Health Applications

FDA Guidance - The Food and Drug Administration (FDA) issued guidance that focused on applications that present a greater risk to patients if they do not work as intended or that cause smartphones or other mobile platforms to impact the functionality or performance of traditional medical devices.

FTC Guidance - The FTC issued guidance in April focusing on truthful advertising and privacy.

7.
Gamblification/Sweepstakes

Florida prohibited gaming promotions in a cause-related marketing campaign (where purchase of a good or service benefits a charitable cause).

Internet Sweepstakes Café Conviction in Florida - Lawyer Kelly Mathis was convicted on 103 of 104 counts related to illegal gambling based on his role in Internet Sweepstakes Cafés in Florida. He faces up to 30 years in prison. CA, OH, SC and other states moved quickly to shut down similar operations.

8.
Equity-based crowd funding legalized in the United States

SEC Rules - In October, the SEC voted unanimously to propose rules under the JOBS Act to loosen the rules and permit companies to offer and sell securities through equity crowd funding.

Note: Equity crowd funding is much like crowd funding, which has been popularized in the United States through sites such as Kickstarter and Indiegogo. The difference is that instead of individuals supporting campaigns through donations, numerous investors are purchasing small stakes in startups or small businesses.

Critics Emerge - Critics of equity crowd funding worry that the industry will be rife with Ponzi schemes or that having too many investors will hurt startups' prospects for future funding.

Pillsbury originally discussed this in a January 2012 client alert and March 2012 Blog Post.

9.
Endorsements

FTC Enforcements on Fake Endorsements - In February, the FTC permanently stopped a fake news website operator that allegedly deceived consumers about acai berry weight loss products. The settlements will yield more than $1.6 million and conclude a sweep against online affiliate marketers and networks. The sites falsely claimed endorsements from ABC, Fox News, CBS, CNN, USA Today and Consumer Reports.

Many companies' understanding of and compliance with the FTC Endorsement Guidelines remains lacking, yet enforcements continue.

10.
Wearable Computing Lawsuit

Google Glass Liability? - In what may be a foreboding development, a California woman received a traffic ticket for wearing Google Glass while driving. Many states have broad distracted-driving laws or bans on certain monitors that may apply to Google Glass and similar wearable computing devices.

Blurry Lines: Legal and Business Uncertainty in Social Media - Event #2: Gamblification

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The intersection of social games and gambling is moving forward at a torrid pace. Yet, there are many blurred lines with respect to the legal boundaries for permissible game mechanics used in social games and online gambling offerings. The use of virtual goods and virtual currency further complicates the analysis. Additionally, some companies are pushing the envelope with various forms of prediction markets and online sweepstakes/contest-based business models. Florida recently adopted new rules to close some perceived loopholes. Will this prompt other states to act as well?

Check out our video:

Join us for the Social Gambling & Gaming Summit!

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Pillsbury attorney, James Gatto, is presenting a session at the Social Gambling & Gaming Summit titled, "Gamblification! Interaction between Social Games and Online Gambling."

Pillsbury is sponsoring the Social Gambling & Gaming Summit, a two-day conference focused on the intersection of casino-style social games, mobile gaming, virtual goods, and the bridge between mainstream and social gambling and gaming. This event unites established industry leaders and developers in free-to-play mobile games and social casino games to discuss the future of real-money gaming, cross-platform integration, game design, and player conversion.

For more information and to register, please visit the event page.

New York Appeals Court Reinstates Poker Conviction

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The NY appeals court reinstated a gambling conviction against a man who ran an illegal Texas Hold'em lounge. Originally, the gambling conviction was dismissed, largely based on the argument that poker was a game of skill, and therefore not illegal gambling. However, the appeals court overturned the dismissal based on NY State law, rather than federal gambling laws, stating the "the question of whether skill or chance predominates poker is inapposite to this appeal." NY State law is fairly strict when it comes to gambling, which is basically illegal unless it is explicitly authorized by NY law.

For more information, read NY Appeals Court Reinstates Poker Conviction.

GiGse and Social Casino Summit 2013

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Please join us April 24-25 at the Social Casino Summit.  Pillsbury will be participating in the Global iGaming Summit and Expo as an exhibiting sponsor

James Gatto will be presenting a session titled, "Clarifying the blurred legal boundaries between various forms of social, virtual currency, prediction, sweepstakes and other forms of gaming - what you can and can't do," at 3:30pm PT, Thursday, April 25. 

With social casino games monetizing five times better than other social games, whether on Facebook or other online and mobile platforms, the opportunity is the lucrative one, but the market is getting very crowded.

Join the early adopters, established leaders and new comers in the social casino space at this inaugural Social Casino Summit and:

·         Bring the 'social' to social casino - take your games to the next level with more sophisticated game design and enhanced virality features

·         Transform your games so they offer a truly cross-platform and cross-product experiences

·         Learn what works in real casino properties to keep players engaged and loyal - could these lessons help you build games that will retain customers better?

·         Crack the social sportsbetting challenge and tap into the lucrative male demographic

·         License well recognized brands to create branded games to tap into new customer bases and increase customer loyalty

·         Understand how the business of social and real-money gaming converge - is there really a proven case for player conversion

·         Assess the real-money gaming opportunity to understand whether you should exploit it through a partnership or on your own

·         Network with real-money gaming operators and suppliers - find partners for your foray into the real-money gaming world

·         Understand the future of regulated internet gaming in the USA by attending the co-located GiGse - learn about the regulatory landscape and business opportunities

Register for GSummit 2013 today!

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gsummit.pngPlease join us at GSummit 2013 (SF, April 16-18) for 3 days of workshops, sessions, panels and networking dedicated to understanding how to drive behavior in consumers, employees and stakeholders. Top experts in the fields of gamification, loyalty, CRM, enterprise, human resources and training converge at this one-of-a-kind event to share best practices, startling insights and the science of behavior in a unique, engaging and jam-packed format

·         Gamification has become an essential strategy for startups, Fortune 500s and non-profits alike, with investment (and job growth) up over 300% in the last year alone. Come to GSummit (April 16-18) and earn your official gamification design certification, hear detailed practical examples of what works and what doesn't from the experts themselves, network with the world's top gamification designers and vendors, and get inspired. As consumer & employee attention has been harder and harder to obtain, you'll learn how many companies have utilized gamification to create loyal customers & engaged employees. Gamification is becoming a necessary strategy in order to stay competitive and to grow your business--and GSummit is the only place to get this needed, hands-on learning. REGISTER NOW!

James Gatto will be speaking on the topic of "Gamblification: Legal Concerns" which is scheduled for 2:10pm, Thursday, April 18. 

 

Casinos Go Virtual

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Online-Gambling.jpgIn late February 2013 the New Jersey Legislature passed legislation allowing on-line wagering, subject to certain limitations.  This legislation was signed into law by Governor Chris Christie.  Under the new law, licensed operators will be allowed to offer online versions of a wide variety of games currently permitted in Atlantic City casinos.  This includes table games like roulette, craps and black jack as well as slot machine games. The new law will not take effect until the State Division of Gaming Enforcement sets a start date, which is expected to be from 3 to 9 months away. A year ago Governor Christie vetoed similar legislation on state constitutional grounds.  Supporters of the legislation argued that the constitutionality was not in question as the law requires the computer equipment being used to be located in Atlantic City.  According to the new law, by having the computer equipment in Atlantic City, the bets placed using that equipment would be deemed to have been placed in Atlantic City.

The new law purports to avoid running afoul of the 1961 Federal Wire Act by requiring the gamblers to be in New Jersey to place bets and by not allowing sports betting.  This results from a 2011 Department of Justice opinion that held that intrastate on-line gambling does not violate the Wire Act unless it involves sports betting.  Notwithstanding the in-state gambler requirement, the proposed law would allow out of state bets from other states that have a reciprocal agreement in place with New Jersey.

New Jersey's new law represents another significant step forward for on-line gambling in virtual casinos.  Nevada and Delaware already have enacted legislation to allow on-line gambling.  Given the proliferation of state authorized gambling, other states are expected to follow and enact similar legislation and enter into reciprocal agreements to allow interstate gambling between those states. However, most if not all of this legislation will also require operators to be licensed. In Nevada, for example, even though the law that was passed is broader, licenses are only being accepted for online poker.  While Nevada has approved a number of licenses, it has not authorized any entity to actually commence online poker operations.

Pillsbury Rocks Social Media Week in NY and DC - Game On!

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Thank you to everyone who joined us in both New York and Washington, DC for our Social Media Week events - Game On!

Special thank you to all of our panelists: Randy Leibowitz, Mike Scafidi, Tim Ettus, Lou Kerner, Peter Corbett, Jim Gatto, Sean Kane, Lauren Lynch Flick and Tina Kearns (many featured in the picture and video below).  

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As promised, we recorded our DC program Social Media Promotions, Contests and Sweepstakes and Social Media Audits. Check it out!

(Part 1) Emerging Legal Issues in Social Media: Social Media Contests, Sweepstakes, and Promotions please click here
http://youtu.be/_Uts2BT542M

(Part 2) Social Media Audits please click here http://www.youtube.com/watch?&autoplay=1&v=_Uts2BT542M#t=2489s

If you would like any additional information about these topics or the events, please contact the Social Media, Entertainment & Technology team.

 

 

Nevada Legislature Passes Online Poker Bill

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The Nevada legislature unanimously passed the online poker bill. The impact of this legislation is that it will would allow Nevada to proceed with online poker and enter into interstate compacts to enable Nevada casinos to target cutomers in other states within the compacts. With this action, instrastate online gmabling continues its slow march forward.

Will Australia Ban Non-Real Money Gambling Apps?

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poker images.jpgAs real money online gambling remains bogged down in the legislative and regulatory morass, social gaming applications have been on a tear. As we have previously reported, major players are leveraging social gaming applications in preparation for the legalization of online gambling. One of the emerging leaders, Caesars Interactive Entertainment recently acquired Playtika and Buffalo Studios. Casino equipment manufacturer IGT acquired Doubledown, a Facebook casino app developer a year ago for a reported $500 million. Social game giant Zynga has announced that it is preparing to enter the online gambling world. 

These games typcially do not involve real money gambling. Often either the user can play for free or buys chips or credits but can not cash them out. These games leverage what we refer to as "gamblification" to create a simulated experience that leverages the fun aspects of gambling without legally constituting gambling.

While this trend is great for social game companies that are leveraging this phenomena, not everyone is happy about this. In Australia, Senator Nick Xenophon reportedly intends to introduce legislation to prevent such "gambling apps."  As reported by The Sydney Morning Herald, a virtual poker-machine game that children and teenagers can easily access was the highest-grossing phone and tablet app in Australia, prompting outrage from gambling critics and the established "pokies" industry (as they call it down under).

Such games have escaped gambling classification because even though users pay real money to but credits, they cannot cash out any winnings. Similar models are widely used by many social gaming applications such as Zynga Poker and many other such games.

In most jurisdictions, these types of games are not specifically covered by the gambling laws and are typically legal if certain precautions are taken in the business model. Perhaps Australia will change that. Stay tuned for further developments.

Gambling and Social Games Continue to Unite: Caesars Interactive Entertainment has acquired Buffalo Studios LLC

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According to a report on Inside Social Games, Caesars Interactive Entertainment has acquired Buffalo Studios LLC, a social and mobile games developer most known for its Bingo Blitz and Bingo Rush. The terms of the deal were not disclosed.

caesers interactive ent.jpg"The Bingo Blitz business represents a unique opportunity for Caesars Interactive Entertainment to add to our portfolio of social and mobile game assets and to grow our market share across all interactive platforms," said Mitch Garber, Chief Executive Officer for Caesars Interactive Entertainment.

This acquisition comes on the heels of CIE's acquisition of Playtika and its vow to be Number 1 in the space. According to its website, CIE is actively pursuing further expansion and acquisitions to build upon its capabilities and product portfolio.

buffalo studios.jpgThe intersection of gambling and social games remains a growing area as the legislation to permit real money gambling in the U.S. crawls along at a snail's pace. Check out our previous posts on this topic.

Annual Games Summit: 2013 International CES

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Jim Gatto will be participating in a roundtable discussion at the upcoming 2nd Annual Games Summit at 2013 International CES on January 10, 2013 at 2:35 pm. The featured roundtable, "Viva Las Vegas - Monetization 3.0: Opportunities in Online Casinos and Gambling for Games and Media Companies", will feature experts in the fields of monetization, online games and online gambling. The panelists will answer questions like: What would it mean if the U.S. were to legalize online casinos currently doing business in Europe and Asia? What is the future of monetizing game content across platforms? How will gambling change the game?

This panel will include the following:

MODERATOR

Michael Pachter, Managing Director, Equity Research, Wedbush Securities

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Brock Pierce, CEO, Playsino and Managing Director, Clearstone Global Gaming Fund

Jeremy Avin, Co-Founder/CEO, Mobile Vegas Mitch Garber, CEO, Caesars Interactive Entertainment

James Gatto, Leader, Social Media, Entertainment & Technology, Pillsbury

David Goldberg, CEO, Spring Valley Partners

Pillsbury's Social Media, Entertainment & Technology Team has prepared a white paper on legal issues associated with social gaming and media companies leveraging online casinos, gambling and gambling-like activities. To request a copy, please click here.

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Pin to Win - Do's and Don'ts of Pinterest Contests and Promotions

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With the meteoric rise of Pinterest, many companies are leveraging its popularity. One way this is happening is that Brands are creating contests and promotions around users "pins." This is a growing trend in the use of social media for contests, promotions and sweepstakes. However, this is an area that is highly regulated, and the law can vary widely from state to state. As a result, Pinterest has issued new Promotions and Marketing Policies.

Among other things, Pinterest has provided the following list of Do's and Don'ts

Do:

  • Encourage authenticity: Reward the quality of pinning, not just the quantity of it.
  • Promote your contest: Link to your Pinterest account or contest board from your website, social media and marketing channels.
  • Prevent spam: Read up on our anti-spam measures to help keep your contest fun and useful.
  • Make getting involved easy: Create clear instructions and a simple process.

Don't:

  • Encourage spam: Steer clear of contests that encourage spammy behavior, such as asking participants to comment repeatedly.
  • Run a sweepstakes where each pin, repin, or like represents an entry. Ask pinners to vote with a repin or like.
  • Overdo it: Contests and promotions can be effective, but you don't want to run a contest too often.
  • Suggest that Pinterest sponsors or endorses you: Make sure you don't say or imply this anywhere in your marketing materials or branding.

Additionally, the Pinterest policies state: 

If you use Pinterest as part of a contest or sweepstakes, you are responsible for making sure it complies with all legal requirements. This includes writing the official rules, offer terms and eligibility requirements (ex: age and residency restrictions), and complying with marketing regulations (ex:, registration requirements and regulatory approvals). These rules can vary from place to place, so please work with a lawyer or other expert to make sure you're in compliance. You should also always comply with our Terms of Service. Please note that Pinterest isn't responsible or liable in any way to you if you use us as part of your promotion.

The rise of promotions and contests on Pinterest is part of an overall trend regarding the increased use of gamblification. For more information on the legal issues with gamblification, please email us for a copy of our Client Advisory on Legal Issues with Gamblification.

Zynga Prepares to Offer Real Money Gambling

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As the online gaming market slowly evolves, many companies are preparing to capitalize on it once the legislative process moves forward. In one of the latest announcements, Zynga has applied to get licensed in Nevada. According to a recent statement from Zynga:

Zynga has filed its Application for a Preliminary Finding of Suitability from the Nevada Gaming Control Board. This filing continues our strategic effort to enter regulated RMG markets in a prudent way. We anticipate that the process will take approximately 12 to 18 months to complete. As we've said previously, the broader U.S. market is an opportunity that's further out on the horizon based on legislative developments, but we are preparing for a regulated market. We've also recently partnered with bwin.party to bring the highest quality real money gaming experiences to our UK players in the first half of 2013.

Social gaming has been an active field in 2012 and from what we are seeing 2013 will likely see even more activity.The legal issues and regulatory enforcements will continue to increase.

While many companies are focusing on real money gambling, many other companies are focusing on various forms of gamblification - the use of gambling mechanics for non-real money gambling purposes.  The use of virtual goods and virtual currency in gamblification models, though prevalent, further complicates the legal issues. Our team has advised numerous companies on the legal issues with gamblification, including the use of virtual goods and virtual currency. If you would like more information on thees issues please contact us.
Or come to the G Summit to hear Jim Gatto speak on legal issues with Gamblification.

ALL BETS OFF!

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Due to "legal and regulatory pressure" Dublin-based Intrade will no longer accept bets from US customers and all existing US customers must exit their trades and close their accounts. Intrade operates a real-money based prediction market. This announcement from Intrade came just hours after U.S. regulators filed a civil complaint against it.  

This action is another example of how gambling and gambling related activities are being subject to regulatory scrutiny. This trend is important for companies to note, particularly as a broader range of companies get involved in on line gambling. This is also important for companies involved in "gamblification." Gamblification is the use of gambling mechanics for non-gambling purposes, i.e, leveraging the fun of gambling without real money at stake. Gamblification raises a whole host of legal issues, of which companies leveraging this phenomena must be aware.

The lawsuit was filed by the Commodity Futures Trading Commission, which accused Intrade and its parent company of violating its ban on off-exchange options trading, by enabling users to bet on predictions relating to commodities prices. But commodity trading is just one aspect of Intrade's business. Intrade's prediction market also enables users to bet on "predictions," ranging from who will win presidential elections or Academy Awards or whether a dictator will be toppled by a certain date.

"It is against the law to solicit U.S. persons to buy and sell commodity options, even if they are called "prediction" contracts, unless they are listed for trading and traded on a CFTC-registered exchange or unless legally exempt," Enforcement Director David Meister said in a statement. However, the CFTC has previously rejected exchange applications from companies that wanted to sell options on political outcomes, because they involve gaming and are contrary to the public interest.

A number of US-based companies operate prediction market platforms that enable users to make predictions on a range of activities, but sports-related predictions are among the most popular.  However, most of these platforms do not enable users to wager and/or win real-money. Some use virtual currency that users "wager" in connection with a prediction, but usually the virtual currency cannot be cashed out. The "win" that keeps users coming back is the bragging rights for those who are most accurate in their predictions.

While many of these models steer clear of the gambling laws, they must be done right to avoid crossing the line. Getting it right is especially tricky when virtual goods and/or currency are involved. Pillsbury's social media team has prepared a client advisory on gamblification and the use of virtual goods/currency in these gamblification models. For a copy email us.