Serious games create many opportunities for innovative and creative functionality, content and business models. It is important to insure that you understand how to maximize IP protection for the fruits of your creativity and ensure that it does not run afoul of legal or regulatory issues. This presentation will map the legal landscape for serious games and provide practical advice for how to protect your IP and avoid legal problems.

1. © Sheppard Mullin Richter & Hampton LLP 2016
Don’t Play With the Law
Legal Aspects of Serious Games
Presented by:
James Gatto
Co-Leader of Games and Digital Media Team
Sheppard Mullin
jgatto@sheppardmullin.com
226875966.1

2. A bit about me
• Partner in the firm’s Intellectual Property Practice Group – DC
• Co-Lead the firm's Digital Media Team and its Social Media and Games
Team
• Over 30 years experience – developing and implementing IP and other
legal strategies, assessing legality of innovative business models;
negotiating business agreements and handling litigation; patent
licensing, litigation and sales
• Represent Major Game companies as well as start-ups
• I advise clients on key legal and business issues relating to the use of
social media, video games, social games and online gambling
(gamblification), virtual goods and currency, blockchain, social
networks, virtual worlds, augmented reality, virtual reality, user-
generated content, and gamification
• VSGI Executive Advisory Board

3. And my firm
Sheppard Mullin is a full service Global 100 firm handling
corporate and technology matters, high stakes litigation
and complex financial transactions.
From our 15 offices in North America, Europe and Asia,
we offer global solutions to our clients around the world,
providing seamless representation in multiple jurisdictions.
750 attorneys
Strong practices in entertainment and technology; about
100 IP attorneys

4. Serious Games
Games and Gamification

5. The use of game mechanics for non-game purposes to
encourage and reward/incent desired user actions - motivate
participation, engagement, and loyalty
Gamification
 leader boards
 points
 Levels
 Status (experts)
 badges
 free stuff (coupons.
discounts, etc)
 exclusive content
 loyalty programs
 UGC
 Contests/Sweepstakes
 Much more

6. Gamification
leverages people’s desire for:
 competition – leaderboards
 status – levels, badges, expert status
 achievement – progress bars
 Free stuff – give aways, redeemable points
 Being right – voting, predicting
 winning – gamblification!
6 | Gamblification!

7. Use of gambling mechanics for non-
gambling purposes – provide chance to
win to incent user actions
Gamblification
7 | Gamblification!

8. Striking a balance
User Experience
&
Business
Opportunities
Protect Assets/Users
&
Avoid Liability

9. Some Legal Issues with Games and Gamification

10. IP Protection for Games
Own It!
 Patents
- Absent an agreement or other legal obligation, patents are owned by the
inventor
 Copyrights
- Generally owned by the author

11. IP Protection for Games
OWN IT!
 Ensure you own the rights you think you do
- Get assignments in writing
Founders?
Work for Hire?
Developers?
Consultants?
Publishers?

12. IP Protection for Games
Own It!
 Be careful with the rights you grant to developers/publishers
– exclusives
– right of first refusal
– geographical rights
– adaptations, sequels, etc.

13. IP Protection for Games
Identify it!
 Games combine
- Interactive, functional aspects
- creative, artistic aspects
 Both types are protectable
 To protect IP you must identify it first

14. IP Protection for Games
Identify Your IP!
 Patents – Interactive, functional aspects
(Game mechanics, game play methods, hardware,
Processes, graphics generation techniques, UI features
Much more); and design patents
 Copyright – creative, artistic aspects (UI and code)
 Trademark – name/characters
 Trade Secrets - algorithms, data, etc

15. IP Protection for Games
Protect it!
To maximize protection…
 Develop Comprehensive IP Strategy
- That protects all types of IP You Generate!

16. Patents
Strongest form of protection for game mechanics
 But you must file for protection!!!
 You have One Year (or less)!

17. Patents
In general terms:
 a “utility patent” protects the way an article is used and works (35
U.S.C. 101)
 a "design patent" protects the way an article looks (35 U.S.C. 171).

18. Design Patents
Apple – Slide to Unlock

19. Copyrights
You have protection from the time you create the work…. but get
benefits if you promptly file
 Attorneys fees
 Statutory damages

20. Trademarks
 You have protection from the time you use the work in commerce….
but get benefits if you file for a federal registration
 Can file intent to use

21. Trade Secrets
 Must take reasonable steps to protect the confidentiality

22. IP Protection for Games
Repeat!
IP Protection is an ongoing process…not a one time event!

23. I’ve heard you cant patent software/games.
Is that true?

24. Game Patent Eligibility
McRO, Inc. v. Bandai Namco Games
America Inc. (Fed. Cir. 2016)
• Patentee McRO sued video game
developers and publishers for alleged
infringement of U.S. Patents
6,307,576 and 6,611,278
• Patents related to generating automated
lip-synchronization and associated facial
expression for 3D animated characters

25. Game Patent Eligibility
The defendants sought to invalidate the claims as allegedly being
directed to ineligible subject matter under 35 U.S.C. § 101 (abstract
idea)
District Court agreed and said not patent eligible
Federal Circuit Court of Appeals overturned the district court – found
the invention to be patent eligible!

26. Game Patent Eligibility
• The claimed improvement is allowing computers to produce accurate
and realistic lip synchronization and facial expressions in animated
characters that previously could only be produced by human
animators
• The computer automation and the prior human-performed methods are
different
• The computer automation is realized by improving the prior art through
the use of rules, rather than artists, to set the morph weights and
transitions between phonemes
• Processes that automate tasks that humans are capable of performing
are patent eligible if properly claimed

27. Patents - Strategy
 If claims are not properly drafted, this can adversely
impact whether you can prevail in the enforcement
of your patent
 Many patent attorneys that prepare and file patent
applications do not get involved in enforcing patents
 Patent examiners not trained on infringement
 Not all patent attorneys understand the nuances of
game technology and business methods
 These facts can create problems

28. Patents - Strategy
 Need to assess patentability at multiple levels
and from multiple perspectives (methods,
processing, systems, components, tools,
features, functions, etc.)
 It is critical to develop a comprehensive patent
strategy consistent with your business model
 Need to understand various ways in which you
can claim an invention and the ramifications of
different ways in which patent claims are drafted

29. Game Patent Eligibility
Key Takeaways
1. Software/Game Patents – still very viable…if done right!
2. Key to Patentability – how you claim an invention matters
3. Experience with Game Patents - is critical to maximize
likelihood of getting a patent
You have to know what is and is not patentable
You must do it right or don’t do it at all
Otherwise your are just wasting money

30. Video Game Patents

31. Class 463 – Video Game Patents

32. Game Patents
Growth in many aspects of game patents
 Game mechanics
 Gamification
 Monetization mechanics
 Esports
 Hybrid – skill/chance based games
 AR/Location-based games
 VR games/VR Arcades
 Much more

33. Patents Have Real Value
Swtich2 Health patent sale to Fitbit

34. Isnt it cheaper just to rely on copyright protection?

35. • Nintendo v. Elcon, 564 F. Supp. 937 (ED Mich 1982)
Copyright Infringement

36. Golden Tee lost!
• Functional aspects not protectable by copyright
• For functional aspects, consider patents
Copyright Infringement?

37. Patent Strategy
It is highly advisable to consult with a patent attorney who:
 Understands the scope of patentability for games
 Who handles patent licensing, litigation and sales
 Can provide proactive advice on the patentable aspects of your
games/technology/business model
 Work together with you to develop and implement a comprehensive IP
protection strategy
 Help you monetize your patents

38. Virtual Currency
Virtual Currency
Business Models
Federal & State
Regulations
Other Legal Issues

39. Points/Virtual Currency
Points can function as:
 Virtual currency
 Stored value
 Gift cards
39 | Gamblification!

40. Points/Virtual Currency
What other issues can arise with points/virtual
currency?
When do they have “value”
Do users own them?
40 | Gamblification!

41. Points/Virtual Currency
Incent users to take action by awarding points for
recommending product/service
Can this trigger a need for compliance with
the FTC Endorsement Guidelines?
The Guides say if there’s a connection between an
endorser and the marketer that consumers would not
expect and it would affect how consumers evaluate the
endorsement, that connection should be disclosed.
41 | Gamblification!

42. Example 1
A college student who has earned a reputation as a video game expert
maintains a personal blog where he posts entries about his gaming
experiences. Readers of his blog frequently seek his opinions about
video game hardware and software. As it has done in the past, the
manufacturer of a newly released video game system sends the
student a free copy of the system and asks him to write about it on his
blog. He tests the new gaming system and writes a favorable review.
Does this require disclosure?

43. Example 2
A young man signs up to be part of a “street team” program in which
points are awarded each time a team member talks to his or her
friends about a particular advertiser’s products. Team members can
then exchange their points for prizes, such as concert tickets or
electronics.
Does this require disclosure?

44. Example 1 – video game blogger
From FTC Guidelines:
Because his review is disseminated via a form of consumer-generated
media in which his relationship to the advertiser is not inherently
obvious, readers are unlikely to know that he has received the video
game system free of charge in exchange for his review of the product,
and given the value of the video game system, this fact likely would
materially affect the credibility they attach to his endorsement.
Accordingly, the blogger should clearly and conspicuously disclose
that he received the gaming system free of charge. The manufacturer
should advise him at the time it provides the gaming system that this
connection should be disclosed, and it should have procedures in
place to try to monitor his postings for compliance.

45. Example 2 – points for endorsing
From FTC Guidelines:
These incentives would materially affect the weight or credibility of the
team member’s endorsements. They should be clearly and
conspicuously disclosed, and the advertiser should take steps to
ensure that these disclosures are being provided.

46. FTC Endorsement Guidelines
Comprehensive - Covers consumer testimonials, such as reviews or recommendations
endorsing a product or service on any social media site, not just blogs
Disclosure - Need to disclose material connection between endorser and advertiser –
anything of value, including payments, free stuff, points!
Burden - Need to advise the consumer giving the testimonial that this connection should
be disclosed, and have procedures in place to try to monitor the consumer's postings for
compliance
46 | Gamblification!

47. FTC Endorsement Guidelines - "expert" endorsements
 Another aspect relates to "expert"
endorsements
 Whenever an advertisement
represents, directly or by implication,
that the endorser is an expert with
respect to the endorsement
message, then the endorser's
qualifications must in fact give the
endorser the expertise that he or she
is represented as possessing with
respect to the endorsement.
 May be relevant to status/levels

48. Does this stuff really matter?

49. FTC Endorsement Guidelines - Enforcement
Employee Posting Reviews
A public relations agency hired by video game developers agreed to pay $250,000 to settle
Federal Trade Commission charges that it engaged in deceptive advertising by having
employees pose as ordinary consumers posting game reviews at the online iTunes store,
and not disclosing that the reviews came from paid employees working on behalf of the
developers. The company also agreed to set up a monitoring program to ensure
compliance going forward.
49 | Gamblification!

50. FTC Endorsement Guidelines - Enforcement
Paid Marketer Needs to Disclose
A company selling a popular series of guitar-lesson DVDs agreed to
$250,000 to settle Federal Trade Commission charges that it deceptively
advertised its products through online affiliate marketers who falsely
posed as ordinary consumers or independent reviewers.
According to the FTC release:
 The Learn and Master Guitar program promoted by Legacy Learning and Smith is sold as a way to
learn the guitar at home using DVDs and written materials. According to the FTC's complaint,
Legacy Learning advertised using an online affiliate program, through which it recruited "Review Ad"
affiliates to promote its courses through endorsements in articles, blog posts, and other online
editorial material, with the endorsements appearing close to hyperlinks to Legacy's website. Affiliates
received in exchange for substantial commissions on the sale of each product resulting from
referrals. According to the FTC, such endorsements generated more than $5 million in sales of
Legacy's courses.
 "Whether they advertise directly or through affiliates, companies have an obligation to ensure that the
advertising for their products is not deceptive," said David Vladeck, Director of the FTC's Bureau of
Consumer Protection. "Advertisers using affiliate marketers to promote their products would be wise
to put in place a reasonable monitoring program to verify that those affiliates follow the principles of
truth in advertising."

51. FTC Endorsement Guidelines - Enforcement
Fake Consumer Reviews
Other regulators have taken similar actions. Lifestyle
Lift, a cosmetic surgery company, paid $300,000 to
settle with the State of New York over its attempts to
fake positive consumer reviews on the Web regarding
the results of face-lift procedures.

52. FTC Endorsement Guides
 FTC announced on April 19, 2017 that it had issued more than 90
letters reminding influencers and brands that “if there is a ‘material
connection’ between an endorser and the marketer of a product – in
other words, a connection that might affect the weight or credibility
that consumers give the endorsement – that connection should be
clearly and conspicuously disclosed, unless the connection is already
clear from the context of the communication containing the
endorsement.”
 The FTC explained that material connections could “consist of a
business or family relationship, monetary payment, or the provision of
free products from the endorser.”

53. FTC Endorsement Guides
 The FTC letter made clear that when disclosures are made they need
to be made so that consumers can see them readily at the top of a
post so that consumers will not skip over or miss them, meaning that
a disclosure placed at the end of a string or below a “more” button is
not likely to be conspicuous.
 The FTC noted in its press release that “particular disclosures that
are not sufficiently clear, pointing out that “many consumers will not
understand a disclosure like ‘#sp,’ ‘Thanks [brand],’ or ‘#partner’” to
mean that a post is sponsored.

54. Other Issues With Points/Virtual Currency
 Rights in points/virtual currency - Ownership v. licensing
- Impact on account termination (Bragg v. Linden)
- Need to address in terms of service
 Secondary markets
 Sweepstakes/contests/gambling

55. Cash Dazzle
 Engage in actions
 Earn spins
 Win Real Money
 Leaderboards
7

56. Gambling
High-level, overly simplified (imprecise) definition of gambling:
 give something of value (consideration)
 For a chance
 To win something of value (prize)
If all 3 elements present, it may be gambling
If you remove one of the 3 elements, may not be gambling
The analysis is fact specific – circumstances and state
2

57. Most states define lotteries as having
three general elements:
1) give some form of
consideration;
2) a result determined by
chance rather than
skill; and
3) the award of a prize.
Gambling/Lotteries/Contests/Sweepstakes
Consid. Chance Prize
Gambling/
Lottery
X X X
Sweepstakes X X
Contest X X
Other X X
To avoid illegal lottery/gambling, need to carefully
craft any sweepstakes, promotions or contests to not
have all three of the above elements

58. Zynga Poker
 Buy Virtual
Poker Chips
 Play poker, win
chips
 ….but can not
redeem them!
6

59. Impact of Virtual Goods/Currency
 When virtual goods or currencies are used,
determining if there is a consideration or prize can be
more complicated
 Does virtual good/ currency have value?
 Some things to consider:
- 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

60. Impact of Virtual Goods/Currency
 Secondary Markets – 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
 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?
 Several class action lawsuits recently brought against
game companies

61. User Generated Content
Leverage Users
to Create
Content/Value
Brand Risk
IP Liability

62. UGC IP Ownership Issues
Ownership vs. Right to Use
Terms of Service

63. UGC – Infringement Liability Avoidance
 Liability for users posting infringing content to your site
 DMCA – powerful tool
- to avoid infringement liability for hosting UGC
- for content owners (brands/media) to facilitate take down of infringing content

64. UGC – Infringement Liability Avoidance
 does not apply automatically
- must take steps to qualify
- need to strictly comply to get the benefit
- misuse creates liability

65. DMCA
Burden on copyright owner to police infringement and send proper
notice
Burden on service provider to establish entitlement to DMCA liability
protection

66. Misuse Can Cost You
WordPress was awarded $25,000 in damages and attorneys fees in
case against a man who abused the DMCA to censor an article of a
critical journalist.

67. Key Takeaways
 There are many legal issues that can impact game developers
 It is highly advisable to do a quick review very early on in the
development process to identify potential legal issues and again
before launch
 Critical to both protect your creative work and ensure you take steps
to avoid liability

68. Follow our Blog
http://www.lawofthelevel.com/

69. Thank you!
James Gatto
Co-Leader of Games and Digital Media Team
Sheppard Mullin
jgatto@sheppardmullin.com
202-747-1945
Bio: https://www.sheppardmullin.com/jgatto
Blog: http://www.lawofthelevel.com/