Kids with Nintendo Switches. Team battles in Call of Duty. eSports. Wordle. The breadth of these images is the first indication that the gaming industry has grown. While we don’t normally think that games and movies are alike, to consumers, major game releases garner just as much hype as Oscar movie premiers. When Red Dead Redemption 2 debuted in 2018, it had the largest opening weekend in entertainment history with $725 million in sales. That is only second to Grand Theft Auto V, which boasts the largest game title release overall with $1 billion in sales over just three days.
You get the point: gaming is a massive part of the entertainment industry. In fact, the NPD Group reported that in 2020, the gaming industry surpassed the movie and music markets combined after growing around 27%. And with growth comes increased litigation.
As we often see with complex and emerging litigation, there are areas we think present threats to the market’s major players, and they are as follows:
Life in a Virtual World
Virtual worlds aren’t new – Second Life is 20 years old – but the push for the Metaverse may expand their audiences. Shockingly, people often behave badly in the Virtual World. Gamblers used Second Life as a way around federal prohibition on internet gambling until being shut down by Linden Lab after grabbing the attention of regulators, forcing the company to enact in-game banking policies.
Today, people are no longer cycling currency back to USD. Now, the currency may never be intended to be converted to fiat money but use the in-game currency for unlawful purposes. Further, the traditional accounting and law enforcement mantra of “follow the money” may no longer work as pools of in-game currency become so vast and so liquid, there is no traditional money to follow.
IP violations made in the virtual landscape have varied as ownership of certain copyrights and trademarks become more defined. Some of these offenses involve the inappropriate use of real-world trademarks inworld, and others point to fully inworld violations.
Unsurprisingly, sex plays an outsized role in these violations with hybrid applications (inworld and real-world) involving cybersex being aggressively monitored. Facebook’s Metaverse addition of virtual reality adds a level of intimacy to the inworld experience, but regulations surrounding this feature are still being formed. With instances of assault in the Metaverse already being reported, these interactions are challenging traditional thinking about the legal foundations of those crimes.
This begs the question: How much responsibility does Linden Lab or Facebook have in policing the behavior of its virtual citizens? There are two strong reasons why platforms are reluctant to do so. First, monitoring the actions of millions of participants is daunting. Second, there is arguably a Section 230 issue regarding user actions rather than content – mainly because the users’ actions are a form of content. Section 230 protects platforms from liability based on the content their users post, but within the last two years, Twitter, the FAANGs, and other tech companies have taken stances to selectively police content in preventing “fake news” and “misinformation”. While a precedent may be set regarding user content, user actions need to be addressed.
Copyright Comes Into Its Own
Wireless communications run on patents, but gaming runs on software. Modern software is a series of nested modules tasked with discrete executable functions with each element having the potential to be infringing on prior code.
Further, IP doesn’t just involve software; in Juracek v. Capcom Co., Ltd., et al., a photographer sued the developer of the Resident Evil franchise for using their photos in 200 different instances in Resident Evil 4. The complaint has some strong evidence for the plaintiff, but the use of real-world imagery is a minefield of copyright. Even Manuel Noriega sued the developer of Call of Duty: Black Ops 2 for the use of his likeness. He lost.
It isn’t just images. The National Music Publishers’ Association (NMPA) sued Roblox for $200 million for copyright infringement on music and battled Amazon’s Twitch for similar infractions. The NMPA asserted that Roblox developers were using members’ music without proper licensing and allowing users to upload music without protecting copyright.
The Amazing Vanishing Console
PS2 was the best-selling game console of all time and arguably started the Golden Age of consoles alongside Nintendo’s GameCube and Microsoft’s Xbox. The idea of purpose-driven home gaming platforms wasn’t new, but the late-2000 introduction of the PS2 represented the start of a 20-year console dominance over the lowly PC.
Traditionally, consoles were self-contained and purpose-built. But today, downloadable content is the norm, and the difference between console and PC gaming is in the controllers – DualShock v WASD.
Another challenge for consoles? eSports.
The future of gaming platforms will be defined by the evolution of eSports. Top players are making over $1M per year, and many major games are played on the PC. While we don’t see iOS or Android losing their grip on handhelds, the implications for the future of PlayStation, Xbox, and Switch are less clear. Despite projections that console use is expanding, some factors may affect that growth. Will the eSports industry drive a “unified” platform approach by the Big Three? Will PCs drive a new wave of human interface devices that fight to replace WASD? Where (or when) do VR and haptics come in?
Why Nerfing and Buffing Are Important
eSports, virtual worlds, and in-game purchases—in each of these instances, a consumer is investing in a game. Whether it is something like a skin, weapons, or virtual currency, “in-game purchases” or microtransactions are anything but small and capitalize on the impatience of the user. In 2020, these purchases amounted to over $30B.
The recent class-action suit against Take-Two Interactive’s NBA 2K loot boxes demonstrates that microtransactions related to gameplay are coming under increased scrutiny, potentially prompting regulations surrounding these addiction-enhancing elements of game design.
Whether “pay to play” or new content, these games often require patches or other enhancements that can lead to an “imbalance” of game dynamics in both a player versus environment and player versus player form. Game balance is critical to the game’s long-term viability; if the perception is that the program is too easy, too difficult, or unfair, it will be abandoned.
Game balance often means changing player attributes which results in “nerfing” (reduction of attributes) or “buffing” (improvement of attributes). No one complains about a buff. But after an investment of time and money to maximize your character’s configuration, a nerf becomes a major problem.
These actions trade-off game development against consumer issues, spawning protests. To be clear, the terms of service explicitly allow game developers to adjust the game as they see fit. Riot Games Terms of Service uses the term “nerf” for an action the user explicitly permits. Regardless, this area needs to be watched carefully.
A Long Way from Asteroids
Gaming has evolved into a major industry well beyond its arcade game roots, offering a synthesis of software, hardware, and human interaction that test the market’s legal bounds. In the coming years, gaming is set for the next generation of applications from virtual worlds to eSports, with each offering unique business and legal challenges to investors, developers, and players.