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James Gatto
1. Gamblification!
Interaction between Social Games and Online Gambling
James Gatto
Leader, Social Media & Games Team
Social Gambling & Gaming Summit
December 10, 2013
Pillsbury Winthrop Shaw Pittman LLP
3. Enforcements are Increasing
Internet Sweepstakes Enforcements – FL, OH, CA, NC ….
Internet Gambling Arrests
Prediction Markets – Intrade
And the list goes on!
3 | Gamblification!
4. Key Takeaways
The law lags innovative technology/business models
Recognize there is great risk … including jail
Understand that there is subjectivity in the law
Details make a difference
May not get certainty, but can certainly minimize risk
if …..
Get knowledgeable counsel and follow advice
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10. Patents
Where there is rapid innovation…
there are significant patent filings
Gamblification is no exception!
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11. What CAN be patented?
Short answer:
If you can build it, you can patent it!
Features
Functions
Processes
Business methods
More
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12. What CANNOT be patented?
The only three categories the Supreme Court has ruled to be
not patentable:
Abstract Ideas
Laws of Nature
Natural Phenomena
What these exclusions have in common is all are not tangible
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13. US Patent Office
Entire Classifications Related to Aspects of Gamblification
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14. US PATENT CLASSIFICATIONS
Class: 273 Amusement Devices: Games
Sub-class
Title
269
Lotto or bingo type
270
With attached pieces
271
Alignment games (e.g., tic-tac-toe, go-moko)
272
Word, sentence, or equation forming (e.g., SCRABBLE, hangman)
273
Memory or matching games (e.g., concentration)
274
Betting or wagering board (e.g., casino)
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15. US PATENT CLASSIFICATIONS
Class: 463 Amusement Devices: Games
Sub-class
9
Title
In a game requiring strategy or problem solving by a participant (e.g., problem eliciting response, puzzle, etc.)
10
With chance element or event (e.g., backgammon, Scrabble, etc.)
11
Card- or tile-type (e.g., bridge, dominoes, etc.)
12
Ultimate outcome dependent upon summation of plural card or tile values (e.g., blackjack, etc.)
13
Ultimate outcome dependent upon relative odds of a card or tile combination (e.g., poker, etc.)
16
In a game of chance (e.g., lot, etc.)
17
Lot match or lot combination (e.g., roulette, lottery, etc.)
18
Plural lots (e.g., keno, etc.)
19
Plural matches create pattern (e.g., bingo, etc.)
20
Lot-to-lot combination (e.g., slot machine, etc.)
21
Having means to alter combination probability
22
Lot generator (e.g., card distribution, simulated dice, random number generator, etc.)
25
Credit/debit monitoring or manipulation (e.g., game entry, betting, prize level, etc.)
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16. US PATENT CLASSIFICATIONS
Class: 700 Data processing
Sub-class
Title
90
Specific Application, Apparatus or Process
91
Contest or contestant analysis, management, or monitoring (e.g., statistical analysis, handicapping, scoring)
92
Scoring
93
Probability determination or handicapping
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17. US PATENT CLASSIFICATIONS
Class: 705 Data processing: financial, business practice,
management, or cost/price determination
Sub-class
14.1
Title
Discount or incentive (e.g., coupon, rebate, offer, upsale, etc.)
14.11
Trade or exchange of a good or service for an incentive
14.12
Incentive awarded or redeemed in connection with the playing of a video game
14.13
Determining discount or incentive effectiveness
14.14
Chance discount or incentive
14.16
Referral award system
319
Social networking
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18. US PATENT CLASSIFICATIONS
Class: 715 Data processing: presentation processing of document,
operator interface processing, and screen saver display processing
Sub-class
Title
700
Operator Interface (e.g., graphical user interface)
757
Virtual 3D environment
848
Interface represented by 3D space
850
Navigation within 3D space
851
On-screen navigation control
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19. US PATENT CLASSIFICATIONS
Class: 902 Electronic funds transfer
Sub-class
23
Title
Electronic transfer of funds for an entertainment, amusement, or gambling application
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20. Common Misconceptions | Patents Take Too Long
Misconceptions
Truth
Getting a patent takes too long
The games industry moves so
quickly that patents are obsolete
before they issue
Can take 2-5 years to obtain a
patent under normal process
Properly drafted patents apply to
more than one game
Innovative features, functions, and
mechanics typically last through
several generations of games within
a genre
Track I procedure can cut time to 69 months
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21. Common Misconceptions | Only Valuable if Enforced
Misconception
Truth
Patents are only valuable if they are
enforced
Patents have many types of value –
offensive and defensive
Patents can act as a deterrent for
competitors with patents
Filing patent applications can make
obtaining patents harder for
competitors
Patents are assets that add to the
overall value of a company
New patent rules enhance defensive
value of patents (First to File)
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22. Legal Issues with Gamblification
How do you ensure that you stay on the legal side of things?
Comply with U.S. Federal and State Law
and Foreign Laws
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23. Overview of US Federal Laws
Most federal laws do not define gambling
Most federal statutes facilitate enforcement against activities that
violate state (or federal) gambling and illegal lottery laws
except sports betting
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24. Overview of Federal Laws
UIGEA
prohibits businesses from knowingly accepting payments in connection
with the participation of another person in a bet or wager that involves
the use of the Internet and that is unlawful under any federal or state
law.
Targets financial institutions/payment processors
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25. Overview of Federal Laws
UIGEA
Does Bitcoin get around this?
No payment processor?
Even if so, need to address state law
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26. Overview of Federal Laws
Important UIGEA exclusions for Gamblification
participation in any game or contest in which participants do not stake or
risk anything of value other than:
i.personal efforts of the participants in playing the game or contest or
obtaining access to the Internet; or
ii.points or credits that the sponsor of the game or contest provides to
participants free of charge and that can be used or redeemed only for
participation in games or contests offered by the sponsor
The points or credits exclusion may cover various forms of
virtual currency
But still need to consider state law
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27. Overview of State Laws
State Lottery/Gambling Laws
Most substantive law is state law
Most states have laws prohibiting illegal lotteries
Many have separate anti-gambling laws
Many state laws were written pre-Internet
Some states are now crafting specific legislation to address online
gambling
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28. The Formula for Gambling
Consideration + Chance + Prize = Illegal
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29. The Formula for Gambling
Typical scenario
User pays money to participate in an activity
Receives a chance to win
A cash prize or valuable tangible goods
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30. The Formula for Gamblification
Remove one of the three components
Remove consideration/payment: prize + chance = Sweepstakes
Remove chance: prize + consideration = skill-based contest
Remove prize: consideration + chance = ???
(who would pay for a chance to win nothing of value?)
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31. Consideration
not every time a user pays money
is there the type of consideration that triggers gambling
money is not the only type of consideration that may be relevant
(consideration can be non-monetary)
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32. Consideration?
Examples: Product Promotion Sweepstakes
McDonald's Monopoly Game
Buy Big Mac/fires; get prize token for
chance to win $$$
Illegal? – pay, chance to win, prize
No! – because free AMOE (no purchase necessary)
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33. Consideration?
Examples: Text to Win Sweepstakes
Get chance to win by sending text
Illegal?
Yes (in some states because
premium text charge)
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34. Consideration?
Examples: Fantasy sports
pay entry fee
for chance to win league
monetary prize
Illegal gambling?
No – payment for services/predetermined prize not based fees
Humphries v. Viacom (NJ)
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35. Chance vs. Skill
Some states:
Predominantly skill = skill even if some chance
Material degree of chance
Any chance
Pure chance
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36. Prize
Prize must be something of value
Zynga poker - buy chips for real money, earn chips, but can not cash
out
Man convicted in UK for stealing $12 million Zynga poker chips
Virtual goods usable only in game = value?
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37. Impact of Virtual Goods/Currency
When virtual goods or currencies are used, determining if there is a
payment or prize can be more complicated
Does virtual good/currency have value?
How did the player acquired the virtual good/currency?
What can the player do with the virtual good/ currency?
With whom can the virtual currency be used?
Is it a “dual currency” model?
Is there a secondary market?
Check out our paper: Overview of Legal Issues with Virtual Currency
(www.socialgameslaw.com)
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38. Secondary Markets
Online markets where virtual goods, virtual currency, accounts, avatars,
etc. are bought, sold, traded
Most contravene the terms of service and can result in termination of
user account
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39. Impact of Second Markets on Value
Do Secondary Markets create “value” for virtual goods?
What if you can sell Zynga poker chips for real money?
Could this impact a lottery/gambling analysis?
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40. Impact of Secondary Markets on Value?
NCAA Lottery Case
People interested in NCAA Final Four tickets sent in $150 per ticket
and $6 handling fee (consideration)
Winners determined “randomly” (chance)
For losers, NCAA returned the $150 but kept the $6
For winners, NCAA kept the $150 + the $6
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41. Impact of Secondary Markets on Value?
NCAA Lottery Case
Illegal Lottery?
Consideration = ($6)?
Chance (random draw)
Prize (ticket that can be scalped for multiples of face value)?
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42. Impact of Secondary Markets on Value
NCAA Lottery Case
Court concluded the tickets were not prizes
NCAA created the primary market for the tickets, and the value
realized by the NCAA is in fact the face value of the tickets
But for the NCAA issuing tickets to one of its events, there could
never be a secondary market
Mere speculation that the tickets would have an increased value in a
secondary market
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43. Impact of Secondary Markets on Value
Key Takeaway from NCAA Lottery Case?
An item is not a prize in a lottery if no market exists for the item before
it is offered by the person running the purported lottery
Beneficial ruling for social media and game companies that issue
virtual goods or currency in certain gamblification models
Caveat: these facts, this court; others facts/states might differ
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44. Internet Sweepstakes Cafés
pay for time
chance to win
free AMOE
like
McDonald’s
Monopoly
Sweepstakes
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45. Kompu Gacha
Creative monetization model
Could only win virtual goods – no cash out!
Declared illegal – Japanese FTC
Several major game companies
Stocks dropped 20%
Targeted kids?
No fixed odds/consumer complaints?
If consumers complain – regulators will focus
Just cause others are doing it … doesn’t make it legal
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46. Check out our blog for more on gamblification
www.socialgameslaw.com
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47. Questions?
James Gatto
Pillsbury Winthrop Shaw Pittman LLP
Social Media & Games Team Leader
Tel: 703-770-7754
1650 Tysons Boulevard, McLean, VA 22102-4856
Email: james.gatto@pillsburylaw.com
www.pillsburylaw.com/socialmedia
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