Virtual World Law Blog

A weekly wrap up of interesting news about virtual worlds, virtual goods and other social media.

Could Social Media Flub Cost You $4.3 Million?

What can a social media mistake cost your company in fines, litigation, or loss of customer trust? A new survey reveals some interesting data points.

Gamification: How Competition Is Reinventing Business, Marketing & Everyday Life

The word "gamification," much like the phrase "social media" a few years back, is being lobbed around in technology circles as the next frontier in web and mobile. Just as nearly every application, website, brand and marketer now employs social media in some capacity, so too will these entities gravitate toward game mechanics in the years ahead.

Avoid Social Media Meltdown: Create a Strategy Take Back Control

Everyone said that you and your business needed to be on Facebook, Linked-In, Twitter, and every other new social media site or service that has made its debut since then. You linked your webpage and your blog and made sure you had the right apps on your mobile devices to post on the go. You have profiles and pages on multiple services and.... now what?

Nixon bans Teacher-Student Friendships on Social Networking Sites

A new Missouri law is forbidding friendship between teachers and students, at least on Facebook. It's part of a bill Governor Jay Nixon just signed designed to more clearly define teacher-student boundaries.

Qualcomm Releases Augmented Reality Game SDK

According to TechCrunch, Qualcomm has released its ARG SDK, which was originally intended for Android devices with Snapdragon chips, for iOS-compatible devices. This initial release has support for, specifically, the iPhone 4, iPad 2, and even the fourth-generation iPod Touch.

Virtual World Usage Accelerates

Virtual worlds gained 214 million new users in the second quarter of 2011, according to virtual worlds research firm KZero Worldwide. It was the largest quarterly increase since the company began tracking these numbers in 2008.

Lawsuits Against Grooveshark Continue; Music Publishers Seek To Redefine The DMCA

Grooveshark has been involved in a series of lawsuits from the recording industry and, as with the Limewire lawsuits, it looks like the music publishers are piggybacking on the labels by suing later. We've already explained why Grooveshark appears to follow the rules set out by the DMCA, but I would imagine that Grooveshark is the sort of site where judges simply won't like the idea of it, and will thus figure out a way to rule against it. That could be very problematic.

The Digital Millennium Copyright Act, 17 U.S.C. § 512 provides many benefits to copyright holders. Add one more to the list. In Xcentric Ventures LLC v. Karsen Limited et al (2011), the court refused the let the Russian Defendant play hide-and-seek to avoid service of process and authorized the Plaintiff to effect service by email due to a provision in the DMCA.

Plaintiff XCENTRIC VENTURES is the operator of a consumer complaint website. It discovered that a website owned and operated by defendant allegedly contains certain copyrighted material. Pursuant to the DMCA, it sent a series of DMCA take-down notices to non-party Google, Inc. to remove the infringing content from its search index and inform defendant that it is infringing on plaintiff's copyrights. Google complied. Pursuant to the DMCA, defendant responded by serving a counter-notice on Google to contest the accuracy of the initial notice. To be effective, the counter-notice must contain certain things including: "the subscriber's name, address, and telephone number, and a statement that the subscriber consents to the jurisdiction of the Federal District Court . . . and that the subscriber will accept service of process from the person who provided notification under subsection (c)(1)(C) or an agent of such person." § 512(g)(3)(D).

Plaintiff filed a suit alleging copyright and trademark infringement. See § 512(g)(2)(C) (stating that unless a party files an action seeking a court order to prohibit the infringing activity, the service provider can restore the removed material). Plaintiff attempted to serve defendant a copy of the summons and complaint via Federal Express delivery to the address provided in St. Petersburg, Russia and via email. Delivery at the Russian address was unsuccessful because the address was "incorrect" according to FedEx. On June 13, 2011, defendant emailed plaintiff in response to plaintiff's emailed service of process. Defendant generally objected to the lawsuit and included a response, which it asked plaintiff to file with the court. In a later email correspondence, defendant argued that it never waived service of process and any service must be in compliance with the Hague Service Convention.

Plaintiff moved for an order determining whether it has effectively accomplished service of process on defendant Karsen or for leave to perform alternative service. Defendants did not respond or otherwise appear in the case.

The court found:

It is clear to the court that defendant has notice of the lawsuit and is evading service of process. By filing the counter-notice, defendant expressly agreed to accept service of process at its Russian address. Plaintiff attempted to perform service there but was unsuccessful. Defendant also purports not to understand the English language or the American court system, yet it corresponds sufficiently in English and appears capable of drafting a responsive pleading, as evidenced by the response it emailed plaintiff. Plaintiff has made other diligent, but unsuccessful, efforts to locate an alternative mailing address. In the absence of a correct address, plaintiff cannot personally serve defendant in Russia. It seems the only medium effective at reaching defendant is email.

We cannot, however, find that plaintiff has already accomplished service of process. While defendant did agree to accept service of process when it filed the counter-notice, plaintiff was unsuccessful in serving defendant by conventional means at its Russian address. [*3] Service by alternative methods, such as email, is only effective after court approval. See Rio Props., Inc. v. Rio Int'l. Interlink, 284 F.3d 1007, 1018 (9th Cir. 2002) (stating that email service is not available absent a Fed R. Civ. P. 4(f)(3) court decree); see also Fed.R.Civ.P. 4(h)(2) (authorizing service of process on a foreign business in the manner prescribed by Rule 4(f)).

The court granted plaintiffs leave to serve defendant via email, stating "Service by email in circumstances where the defendant is evading service of process and it is the only method reasonably calculated to appraise defendant of the pendency of the action is permissible. See Rio Props., 284 F.3d at 1017 (approving an order granting leave to serve by email under similar circumstances); see also Liberty Media Holdings, LLC v. Vingay.com, No. CV-11-0280-PHX-LOA, 2011 WL 810250 (D. Ariz. March 3, 2011) (permitting service by email). Moreover, alternative methods of service in Russia, even those not required under the Hague Service Convention, are permissible, since Russia unilaterally suspended all judicial cooperation with the United States in 2003. See Nuance Commc'ns., Inc. v. Abby Software, 626 F.3d 1222, 1237-38 (9th Cir. 2010) (holding that a district court erred in requiring service upon a Russian corporation to be in compliance with the Hague Service Convention). As the Ninth Circuit stated, "when faced with an international e-business scofflaw, playing hide-and-seek with the federal court, email may be the only means of effecting service of process." Rio Props., 284 F.3d at 1018.

Socialnomics on where social media is and where its going.

A weekly wrap up of interesting news about virtual worlds, virtual goods and other social media.

EBay Rings Up Mobile Payment Outfit For $240M

EBay Inc. unit PayPal will beef up its position in the online payment market with the $240 million purchase of mobile phone payment specialist Zong, as big online merchants continue to snap up upstarts in the world of virtual commerce.

The Metrics Are the Message: How Analytics is Shaping Social Games

The freemium gaming business is expanding rapidly. We all know about the Facebook behemoth Zynga, which now claims over 250 million monthly players, and is valued at anywhere between $5-10bn. But online, there are dozens of global companies hawking a range of in-depth gaming experiences.

Online Consumers Willing to Pay Premium for Net Privacy

Online consumers thought to be motivated primarily by savings are, in fact, often willing to pay a premium for purchases from online vendors with clear, protective privacy policies, according to a new study in the current issue of a journal of the Institute for Operations Research and the Management Sciences.

Could Google+ Be the Best Social Network for Your Career?

Barely two weeks old, Google's new social network, Google+, is already scrambling the social media hierarchy. One of its key features -- that your professional and personal lives can go their separate ways -- helps solve a key Facebook drawback.

BizRocket.com, Inc., projects $50 Million Revenue

According to eMarketer worldwide social network spending is expected to reach $6 billion this year. The social networking market for kids age 13 and under is estimated at over one billion ($1,000,000,000) dollars per year and rapidly growing. BizRocket.com, Inc., is committed to earn a significant share of that revenue stream for shareholders and provide a safe Internet experience for pre-teens. BizRocket.com, Inc., projects annual revenues to exceed $50 million by third year of full operations.

Electronic Arts To Pay $750M for PopCap Games

Electronic Arts Inc. said Tuesday that it will buy PopCap Games for at least $750 million in a bid to snag a larger piece of the rapidly growing market for games on cell phones and social networks.

Badgeville Raises $12M to Lead the Way in Gamification

Gamification startup Badgeville has raised $12 million in a second round of funding to add game-like features to non-game applications.

Many people invest significant time, effort and in some cases real money to acquire virtual goods. There is great perceived value in these virtual goods. But there are a growing number of cases, where users have been the subject of hacking and other situations where they have had their virtual property stolen. See for example our prior blog entry on a massive theft of 400 billion poker chips from Zynga users.

Most game and virtual world operators try to shield themselves from claims of loss by their users through effective legal strategies embodied in their terms of service. In most cases, users are only granted a license to use the virtual goods, but they do not own them and the terms often make clear that there is no independent value to goods. Additional disclaimers and liability avoidance language may also be included. Yet, this has not stopped some users from suing for the loss of the perceived value of their virtual goods.

Given these potential claims, what else can companies do to protect themselves from such risks? Apparently, this risk may now be insurable - at least in China - thanks to a collaboration between Sunshine Insurance Group and Gamebar.  According to a report, by China Daily a Sunshine Insurance spokesperson said "The insurance will help to reduce operating risks for online games companies as the companies which purchase the insurance will be covered to compensate customers in the event of lost or stolen property."

It will be interesting to see if that catches on in the US and elsewhere, and if so, what will be covered and what will not. Check back for updates.

The Supreme Court of the United States issued a long-awaited decision in Brown v. EMA. The decision authored by Justice Scalia (in which Justices Kennedy, Ginsburg, Sotomayor and Kagen joined and Alito and Roberts concurred) opined on the validity of California Assembly Bill 1179 (2005), Cal. Civ. Code Ann. §§1746-1746.5 ("Act"). The Act prohibited the sale or rental of violent video games to minors and required packaging to be labeled '"18" if the game included options for "killing, maiming, dismembering, or sexually assaulting an image of a human being" in ways that reasonably could be considered as appealing to "a deviant or morbid interest of minors" or is "patently offensive to prevailing standards in the community".

The Supreme Court strongly held that video games qualify for First Amendment protection and that the "basic principals of freedom of speech . . . do not vary" with the creation of a new and different communication medium.  Specifically, the Court stated that "[l]ike the protected books, plays, and movies that preceded them, video games communicate ideas -- and even social messages -- through many familiar literary devices (such as characters, dialogue, plot and music) and through features distinctive to the medium (such as the player's interaction with the virtual world).  That suffices to confer First Amendment Protection."  The decision stated that the First Amendment protection is subject to only a few limited exceptions for historically unprotected speech, such as obscenity, incitement and fighting words and a legislature may not create new categories simply by deciding that such categories of speech do not have sufficient societal value.  Moreover, the Court's decision stuck down the proffered argument that violence is a form of obscenity by holding that "[v]iolence is not part of obscenity that the Constitution permits to be regulated".

The court did not remove the possibility of any sort of video game regulation and clearly understood California's desire to protect its minor citizens.  "No doubt a State possesses legitimate power to protect children from harm . . . but that does not include a free-floating power to restrict the ideas to which children may be exposed."  The Court found that if California could actually demonstrate that its Act passes the strict scrutiny test (i.e. justified by a compelling governmental interest and is narrowly tailored to serve said interest) it may be able to restrict the protected speech inherent in video games.  However, the Court opined that California could not meet this standard as its evidential psychological studies were flawed and its Act is "widely underinclusive" raising concerns that it is merely disfavoring a certain viewpoint rather than protecting a valid state interest.

"Here, California has singled out the purveyors of video games for disfavored treatment -- at least when compared to booksellers, cartoonists, and movie producers -- and has given no persuasive reason why."  Therefore, the Court felt that by limiting its purported regulation to the video game industry while ignoring other industries that make violent content available to minors, California demonstrated a unconstitutional bias.  Moreover, the court stated that the video game industry's ESRB voluntary rating system already accomplishes one of the Act's goals, that of assisting parents in restricting their children's access to violent video games eliminating the compelling need for California's Act.

While the Court's decision did not put a final nail in the coffin of any future laws seeking to regulate video game content, it did make it significantly more difficult to do so without meeting the strict scrutiny standard.