Last month RockYou was hit by a breach of user security flowing from a hack which exposed more than 30 million RockYou account user passwords and other information. Now this month a class action lawsuit has been filed by one of RockYou’s subscribers over the security breach. The suit, filed in federal district court, accuses the company of “failing to use hashing, salting or any other common and reasonable method of data protection and therefore drastically exacerbated the consequences of a hacker bypassing its outer layer of web security.”

The Supreme Court of South Korea made a landmark ruling last week to allow the “virtual currency” or “cyber money” used in online games to be exchanged for real world cash. This appears to be the first such ruling in South Korea and will likely open new areas for the booming Korean online game industry.

The two accused individuals had originally been indicted in 2008 and fined by a provincial court citing a law banning the exchange of cyber money for hard currency. The provincial court decision was later overturned by a South Korean appellate court.

In the current Supreme Court decision the court rejected the prosecution’s argument that the appellate court was incorrect in overturning the provincial court decision acquitting two individuals who had been indicted for illegally selling 234 million won worth of cyber money and making nearly 20 million won profit (approximately $18,000 USD). The virtual currency had been earned in the wildly popular online game Lineage.

Justice Min Il-young said that trading game money for cash should be punished only in cases in which it is obtained by online gambling games such as poker or other card games and not games like Lineage.

All in all, it looks like South Korea is attempting to embrace instead of wipe out real world trading in “cyber money”. In fact, a court ruled in September of last year that profits from the trading of “cyber money” should be subject to 10 percent value added tax (VAT).

MindArk, the creators of Entropia Universe, recently announced that the Planet Calypso Crystal Palace virtual space station sold at auction for approximately $330,000. The winning bidder was a player who goes by the name Buzz Eric Lightyear. In the two week auction, Lightyear narrowly outbid other players willing to pay over $300,000 for the Crystal Palace. According to the World Records Academy, the Crystal Palace sale set a new record for the most expensive virtual item.

Since there is the ability for the real-world conversion of Entropia Universe currency into US dollars, Lightyear may likely use the virtual space station as a source of real income. As the space station’s owner, Lightyear will have the right to tax players who use the station. The virtual currency obtained from through taxing of other players can easily be converted into real world profits through Entropia Universe’s official bank.

On April 17, 2009 Taser International Inc. (“Taser”) filed a lawsuit against Linden Research Inc. and others containing various claims including trademark-infringement, trade dress infringement, trademark dilution, design patent infringement, unfair competition and RICO violations involving unauthorized sales of virtual versions of Taser’s electric stun guns in Second Life. The suit is entitled Taser International Inc. v. Linden Research Inc., 2:09-cv-00811, and is venued in the U.S. District Court, District of Arizona (Phoenix).

In the complaint, which is more than 100 pages including exhibits, Taser claims Linden Research Inc. and a host of individuals and entities related to Linden Lab including its founder and Chairman Philip Rosedale, as well as its CEO, Mark Kingdon, and CFO, John Zdanowski, are engaging in conduct which is damaging to Taser’s reputation and hurting its sales.

The complaint alleges that Linden and others such as Virtualtrade LLC, are “selling virtual weaponry in a fully fledged copy of plaintiff’s real ones for use in the Second Life computer simulation,”. Taser says the alleged infringement is especially harmful because the online stores selling the virtual versions also sell pornographic and drug related content.

This is an interesting suit since it is the first time a major company has sued Linden Lab for infringement which occurred in Second Life. I have been expecting a suit if this type to be filed for some time now so it will be worth watching. Moreover, because the claims raised by Taser are not based in copyright law, Linden Lab will most likely not be able to base its defense on compliance with the safe harbor provisions of the Digital Millennium Copyright Act.

Midway Games Inc. announced last week that the company and its U.S. subsidiaries filed voluntary petitions in U.S. Bankruptcy Court for the District of Delaware for reorganization under Chapter 11 of the U.S. Bankruptcy Code.

Only two months ago, Mark Thomas is reported to have spent $100,000 in cash and $70 million in debt to buy Sumner Redstone’s 87% stake in Midway. Of the $70 million in debt that Thomas reportedly took over from Redstone, $30 million is a secured claim that arguably puts him ahead of all unsecured creditors. The company cited to the November 28, 2008, change in ownership, which triggered accelerated repurchase obligations of certain of the company’s debt, as a motivating factor for this filing.

According to Midway’s Chairman, President and CEO Matt Booty “[t]his was a difficult but necessary decision” but the “filing will relieve the immediate pressure from our creditors and provide us time for an orderly exploration of our strategic alternatives. This Chapter 11 filing is the next logical step in an ongoing process to address our capital structure.”

In its filing, Midway listed its liabilities as totaling between $100 million and $500 million, with assets worth at least $10 million but no more than $50 million. Midway has stated that it expects to continue normal operations during the proceedings.

On December 24, 2008, Worlds.com filed a complaint in the Eastern District of Texas, Tyler Division, entitled Worlds.com Inc. v. NCsoft Corp, Civil Action No. 6:08-cv-508. In the four page bare bones complaint filed against NCsoft, Worlds.com alleges that the games City of Heroes, City of Villains, Dungeon Runners, Exteel, Guild Wars, Lineage, Lineage II, and Tablula Rasa infringe on its patent 7,181,690, “System and Method for Enabling Users to Interact in a Virtual Space”. This filing follows quickly from Worlds.com’s earlier statement this month that it had selected an intellectual property firm to defend its virtual world patents. The complaint seeks a permanent injunction against any further acts of infringement by NCsoft and a recovery of damages. While not commenting on the likely outcome of this suit, I doubt it will be the last one filed.

Earlier today General Patent Corporation, a Suffern, New York based Intellectual Property licensing and enforcement firm, announced that it has retained the Westfield, New Jersey law firm of Lerner David Littenberg Krumholz & Mentlik LLP to work on behalf of Worlds.com, Inc. in regards to enforcing Worlds.com’s patent portfolio.

According to statements by Alexander Poltorak, General Patent Corporation’s Chairman and CEO, “[t]he Worlds patents represent exceptionally valuable intellectual property,” and “[w]e welcome licensing inquiries from the on-line game industry. Non-exclusive licenses are available on favorable and non-discriminatory terms.”

Worlds.com holds U.S. Patent Nos. 6,219,045 entitled “Scalable Virtual World Chat Client-Server System” and 7,181,690 titled “System and Method for Enabling Users to Interact in a Virtual Space”. Thom Kidrin, the CEO of Worlds.com, stated that “[w]e are pleased to have the expertise and IP experience of General Patent and Lerner David to enforce Worlds’ patent portfolio,” and that “[a]s the number of virtual worlds and MMORG’s continues to grow, Worlds has seen the space we pioneered in 1995 validated in techniques and methodologies we believe are defined in our patents.”

Therefore, it would seem that General Patent Corporation and Worlds.com are taking the position that the above-referenced patents cover the idea of the computer architecture for a three-dimensional graphical multi-user interactive virtual world systems. If so, this announcement is arguably a very thinly veiled notice to the virtual world industry that infringement suits are forthcoming for those companies who do not enter into a licensing deal with General Patent Corporation and Worlds.com.

Virtual Judgment will not comment on the enforceability of World.com’s patents. That being said, the potential impact of this announcement will definitely be worth watching for.

In a case filed last month in the U.S District Court for the Central District of California, Hottrix LLC, a company that designs entertaining applications for the iPhone, has brought a suit against the Molson Coors Brewing Company. The matter at issue are two iPhone applications, Hottrix’s iBeer, which using a combination of sound and animated images make it appear that the holder is drinking beer out of their iPhone, and Molson’s iPint which does essentially the same thing. In their complaint, Hottrix alleges that by copying the “look and feel” of their iBeer application, Molson has infringed on copyrightable content owned by Hottrix, and furthermore, that Molson has engaged in unfair competition and infringed on Hottrix’s trade dress by releasing an application that is similar in appearance to iBeer.

Since its creation, Hottrix has sold their iBeer Application through their website and through Apple’s Apps Store for $2.99. Molson has likewise made their iBeer application available through the Apps store, albeit as a free application intended to promote Molson’s Carling brand. Both applications have been very popular and have allegedly reached “top 10″ status in several international markets. As is not uncommon with these types of cases, Hottrix also alleges that Molson and Hottrix have some history with respect to the iBeer app. In their complaint, Hottrix states that Molson initially contacted Hottrix and was interested in licensing the iBeer app from Hottrix before negotations broke down, after which Molson apparently went out and created their own pretend-beer-drinking iPhone app.

Based on a quick look at the two apps, it appears unlikely that Molson copied any actual content from Hottrix’s iBeer in making iPint. While the similarity between the apps and the circumstances surrounding the creation of iBeer may point to Molson having stolen Hottrix’s idea, an idea in and of itself is not copyrightable. The non-copyrightability of ideas stems from a concept in intellectual property law called the idea-expression dichotomy, which essentially means that one can copyright their individual expression of an idea, but not the idea itself. To illustrate, you can paint a picture of a dog and I can paint a picture of the same dog. In that situation we can each copyright our particular paintings without either of us gaining a copyright in the idea of painting a picture of that dog. This is the case because while the paintings are each a separate protectable expression, the idea of painting a picture of that dog is unprotectable. As also pointed out by Professor James Grimmelmann of New York Law School the only thing which appears to have been copied by Molson is the idea of an App which allows the user to pretend to drink beer, not any actual content of the iBeer application that is protected by copyright.

The complaint in Hottrix is available courtesy of Hottrixdownload.com.

Following three weeks of trial, the jury in Adderley v. National Football League Players Association before the U.S. District Court for the Northern District of California found for the retired NFL players to the tune of $7 Million in regular damages and an additional $21 Million in punitive damages.

As earlier reported by Virtual Judgment, the retired players’ complaint against the National Football Players Association (NFLPA) in Adderley was comprised of two basic claims: (1) the NFLPA breached its contract with the retired players under which it was obligated to compensate the retirees for the use of their likenesses in third party media like the Madden video games (publicity rights), and (2) the NFLPA breached its duty to the retired players as their agent which required the NFLPA to act in the players’ best interests when contracting with third parties for the inclusion of retired players within the Madden games. While the Jury did not find in the players’ favor with respect to their publicity rights claims, it did find that NFLPA had violated its duty to act in the retirees’ best interests and on this basis awarded the retirees a total of 28 Million in damages.

While an appeal to the 9th Circuit has yet to be filed in this case, such a request would appear inevitable based on statements made by defense attorney Jeffrey Kessler to the Associated Press that “[i]t’s an unjust verdict and we are confident it will be overturned.”

The docket in Parish/Adderley v. NFL Players Inc. is available courtesy of Justia.com.

On Wednesday, November 5th, the U.S. Court of Appeals for the Ninth Circuit affirmed a decision of the U.S. District Court for the Central District of California in favor of Rockstar Games, subsidiary of Take-Two Interactive and creator of the popular Grand Theft Auto franchise, in a suit brought by E.S.S. Entertainment 2000, owner and operator of the Play Pen Gentlemen’s Club located in downtown Los Angeles.

Filed by E.S.S. in April of 2005, the suit alleged that by including a strip club called the “Pig Pen” in Los Santos, a fictionalized version of Los Angeles which appears in Grand Theft Auto: San Andreas, Rockstar had engaged in unfair competition and infringed the trademarks and trade dress of the Play Pen Gentlemen’s Club of downtown Los Angeles. On a motion for summary judgment, Rockstar raised essentially two arguments to defend against the allegations of E.S.S.:

1. that use of “Pig Pen” was a nominative fair use; and
2. that use of the “Pig Pen” was protected by the first amendment.

In analyzing Rockstar’s first defense, the Court of Appeals looked at three prominent cases that dealt with the issue of nominative fair use: Playboy Enterprises, Inc. v. Welles (in which a former playmate used Playboy’s “playmate of the year” mark to refer to the honor she had previously held in that magazine); Mattel Inc. v. Walking Mountain Productions (the “Barbie in a blender case” in which an artist depicted Barbie dolls in a series of risqué photos involving food and cooking implements); and New Kids on the Block v. News America Publishing (in which two newspapers each used the New Kids on the Block mark to refer to the group for contests in which fans could call in to vote for their favorite New Kid). Looking at these cases, the court decided that nominative fair use occurs only when the defendant “deliberately uses the trademark or trade dress of another ‘for the purpose of comparison, criticism[, or] point of reference’” (quoting New Kids by way of Walking Mountain). According to this standard the Court held that Rockstar was not protected by the doctrine of nominative fair use because “Pig Pen” is not identical to the E.S.S. “Play Pen” trademark and Rockstar’s designers admitted that they did not create the Pig Pen strip club within the world of San Andreas to comment on the real world Play Pen Gentleman’s Club.

Moving on, the court felt that the facts in this case more closely resembled circumstances under which the company could receive protection under the First Amendment. In deciding whether Rockstar would or would not be afforded First Amendment protection from claims of trademark infringement and unfair competition, the Court of Appeals looked to another Barbie case, Mattel Inc. v. MCA Records (which arose out of the “Barbie” mark having been used in the lyrics and title of the pop song “Barbie Girl” by Aqua), as well as to Rogers v. Grimaldi (in which Ginger Rogers sought to prevent the release of Franco Fellini’s film Ginger and Fred, the story of two performers who made a living impersonating Ginger Rogers and Fred Astaire). From these cases it was determined that the First Amendment requires courts to construe trademark protections to only prevent the use of other’s marks in artistic works “where the public interest in avoiding consumer confusion outweighs the public interest in free expression” (quoting Grimaldi). More specifically, use of another’s trademark within an artistic work would only open the creator up to liability where the use of the mark “has no artistic relevance to the underlying work whatsoever, or if it has some artistic relevance, if [such use] explicitly misleads as to the source or the content of the work” (quoting Grimaldi by way of MCA Records). Applying this rule, the 9th Circuit Court of Appeals affirmed the Motion for Summary Judgment granted to Rockstar on the grounds that a recreation of a Los Angeles strip club has some artistic relevance to accurately depicting Los Angeles within Grand Theft Auto: San Andreas, and the inclusion of the Pig Pen within the game is incidental in the scope of the entire game and highly unlikely to mislead players into believing that E.S.S. was involved with or endorses Rockstar or Grand Theft Auto: San Andreas.

At the time of this writing counsel for E.S.S. has yet to comment on whether or not they will be seeking to appeal this decision to the U.S. Supreme Court.

The decision in E.S.S. Entertainment 2000, Inc., d/b/a Playpen v. Rock Star Video, Inc., e/s/a Rockstar Games, Inc. is made available courtesy of the U.S. Court of Appeals for the Ninth Circuit.