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.

Worlds.com CEO Thom Kidrin has recently made it know that, depending on the success of his current suit against NCsoft, his company intends to sue other companies who refuse to enter into licensing negotiations. The current NCsoft suit is venued in East Texas which is notorious for plaintiff-friendly rulings in patent cases.

Moreover, Mr. Kidrin is looking to strengthen his position with the recent grant of U.S. Patent No. 7,493,558, an extension and continuation of Patent No. 7,181,690. Both patents are titled “System and Method for Enabling Users to Interact in a Virtual Space” and arguably covers architectures for virtual worlds and MMOGs.

According to Paul Lerner, General Patent Corporation’s Sr. Vice President and General Counsel, “This Patent is a continuation of U.S. Patent No. 7,181,690 issued to Worlds.com in 2007 and bearing the same title.” Moreover, he stated that “This new patent significantly strengthens patent protection for the technology developed by Worlds.com.”

Worlds.com also has a third Patent No 6,219,045 titled “Scalable Virtual World Chat Client-Server System.” According to General Patent Corporation, Worlds.com has another patent continuation in process for the ‘690 Patent and plans to prosecute two more continuations of the patent as well.

Mr. Kidrin has made it known that he is not looking to knock off his competition; he is merely looking to be paid licensing fees for his patent rights. Regardless of what any legal scholar may think about the merit of Worlds.com’s case, as an attorney that has litigated numerous cases around the country, I can tell you that whenever judges and juries are involved the outcome is always unpredictable. That being said, Worlds.com may have a tough time in court based on a wealth of “prior art” available to any patent defense. NCsoft seems to be taking the threat seriously and has retained the well-known law firm, Ropes and Gray to defend it in the action.

Mr. Kidrin has not denied notion that he may seek to update the Worlds.com patents with further continuations as virtual world and MMO technology evolves. In fact, it has been reported that he stated that “The issue really is that the more layers we can create through additional patents the better off we are,” and “If you don’t want to lose the patents you have to file more. It protects us from someone saying, ‘We don’t do it that way. We do it this way.’”

Virtual Judgment will be keeping an eye on this matter as it progresses.

In response to the recent announcement by Worlds.com of their intention to enforce their patent for a “system and method for enabling users to interact in a virtual space” and the subsequent suit brought by Worlds.com alleging that games published by NCsoft infringe on that patent, Article One Partners has called upon their entire worldwide community of researchers (dubbed “advisors”) to review the Worlds.com patent in order to find prior art evidence to invalidate it.

To ensure that researcher compensation is proportional to its contribution to Article One’s mission of invalidating bad patents, successful researchers will be awarded up to $50,000 for submitting prior art which will invalidate the Worlds.com patent. In a discussion with PR Newswire over the new study focusing on the Worlds.com patent, Article One Partners elaborated on their goals with regard to crowd-sourcing prior art discovery:

“Patent disputes are moving to the courtroom in record numbers, with the cost of litigation typically passed along to the public - in this case impacting those who participate in virtual worlds and online gaming…By presenting the patented information to our community for peer review, we focus a global effort upon the core issue of validity for the patents at issue. If a comprehensive search does not uncover prior art evidence, the patent is intrinsically strengthened. If evidence is discovered and presented, the market can take action to reduce unfair monopolies and overly broad patents. In both cases, resolution can be expedited.”

To learn more about Article One Partners or register to become an Advisor eligible to participate in the new study focusing on the Worlds.com patent, go to articleonepartners.com.

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.

Much has taken place in the nearly three months since Richard Minsky (SL avatar: ArtWorld Market) commenced a suit against Second Life creators Linden Research for the alleged purpose of protecting his rights in the “SLART” trademark (Registration No. 3,399,258). For those who may not have been following the cases at the heart of this dispute, what follows is a timeline of what has transpired.

• July, 29, 2008: Minsky, representing himself, files an initial complaint against Linden Research, its officers, and other Second Life users in the U.S. District Court for the Northern District of New York.
• August 14, 2008: Minsky files an amended complaint in the U.S. District Court which includes claims that:
  1. Linden has directly and contributorily infringed, as well as diluted, Minsky’s trademark in SLART by refusing to prevent other Second Life users from using the SLART mark;
  2. John Doe (SL user “Victor Vezina”) has directly infringed on Minsky’s SLART mark by using it within Second Life in connection with Vezina’s Second Life art gallery and artist group;
  3. Linden has tortiously interfered with Minsky’s development of SLART Enterprises and publishing of SLART magazine by refusing to acknowledge Minsky’s rights in “SLART,” refusing to remove uses of the SLART mark by other users, and generally trying to “coerce” Minsky into not protecting his rights in the SLART mark; and
  4. Phillip Rosedale, Chairman of Linden, Mitchell Kapor, Member of Linden’s Board of Directors, and Linden itself have engaged in fraud by representing in marketing materials and elsewhere that Second Life would protect users intellectual property rights while declining to do so in the case of Minsky’s SLART mark.
• August 21, 2008: Before responding directly to Minsky’s complaint, Linden files a petition with the Trademark Trial and Appeal Board (TTAB) of the Unites State Patent and Trademark Office (USPTO) requesting the cancellation of Minsky’s SLART registration for fraud, alleging that:
  1. Minsky’s SLART mark is a combination of “SL”, an abbreviation for Second Life used by Linden and other Second Life users, and “art,” a generic and descriptive term;
  2. Minsky misrepresented to the USPTO that SLART is a slang term that does not refer to art within Second Life and that he was unaware of any use of SLART to refer to Second Life art; and
  3. Minsky misrepresented in his application to the USPTO those services which he was using the SLART mark in connection with.
• September 4, 2008: The U.S. District Court awards Minsky a Temporary Restraining Order for ten days prohibiting Defendants Linden et al. from:
  1. making unauthorized use of the SLART mark or encouraging, enabling or condoning infringing use of the mark by others;
  2. hiding the identities of SL users who infringe on the SLART mark;
  3. “harassing” Minsky regarding his contacting of other users Minsky believes are infringing upon his SLART trademark registration; or
  4. claiming ownership, control, affiliation with, endorsement by or relationship to the SLART mark or SLART Enterprises.
• September 10, 2008: Minsky files an Answer to Linden’s petition to the Trademark Trial and Appeal Board which denies those claims alleged by Linden and proffers that the Minsky’s SLART trademark should not be cancelled on the grounds that:
  1. the “SL” mark has become generic and descriptive among the Second Life population;
  2. Linden had not claimed any right in the “SL” mark prior to Minsky’s application to the USPTO to register SLART;
  3. There were more members of the general public that would not have known art was bring created within the virtual world of Second Life then those who would, so the general public would not associate SLART with Second Life;
  4. Linden’s accusations that Minsky committed fraud in his application to register SLART are unfounded;
  5. Linden has and will not be damaged by registration of the SLART trademark; and
  6. Linden has failed to notify the TTAB of the ongoing proceeding in the U.S. District Court initiated by Minsky on July 29th;
• September 12, 2008: In the U.S. District Court case, the parties mutually consent to a more lenient order requiring only that when Minsky brings another user’s alleged infringement of the SLART mark to Linden’s attention, Linden must notify the user of the alleged infringement and direct them to remove it. If the user does not remove their use of SLART from Second Life within three days, Linden must then remove the use itself. In this order it is also important to note that Linden is only required to notify users and remove the user’s content where their use of SLART is in the form of “one word with all letters depicted in a uniform size, font and color.”
• September 19-October 6, 2008: Minsky sends a cease-and-desist letter to Linden to be forwarded to SL user “Tate Wannabe” over use of SLART in the “SLart Show Viewer” which Wannabe is selling. Linden declines to forward the letter or remove the content on the grounds that the object could no longer be found within Second Life and that the letters of SLART are not “in a uniform size” within “SLart Show Viewer,” the “SL” having been in upper-case and the “art” in lower-case.
• October 2, 2008: In response to a motion by Minsky the Trademark Trial and Appeal Board suspends the cancellation proceedings for the SLART trademark initiated by Linden on August 21st pending a final determination in the U.S. District Court case.
• October 10, 2008: Linden files its Answer to Minsky’s August 14th Complaint, denying those claims set forth by Minsky and making a number of counterclaims stemming from Minsky’s registration and use of the SLART mark. Linden’s Answer includes counterclaims against Minsky that:
  1. Minsky’s use of SLART infringes on Linden’s “SECOND LIFE” and “SL” trademark in marks;
  2. Minsky’s use of SLART dilutes the SECOND LIFE trademarks through blurring and tarnishment;
  3. Minsky’s unauthorized use of SLART in commerce constitutes unfair competition and false designation of origin under federal law;
  4. Minsky’s unauthorized use of SLART in commerce constitutes unfair competition and false designation of origin at common law;
  5. Minsky’s trademark registration for SLART was granted improperly and is subject to cancellation as the mark is but a combination of “SL” and “art” which is both generic and infringes on the SECOND LIFE trademark;
  6. Minsky’s SLART registration was granted improperly based on Minsky’s misrepresentations to the USPTO that SLART was a slang term and not in fact used to refer to art in Second Life;
  7. Minsky’s SLART registration was granted improperly and is subject to cancelation based on Minsky’s false statements of his use of SLART in connection with certain services in his trademark application;
  8. Minsky breached the Second Life Terms of Service provisions regarding use of “SL” and other Second Life marks entitling Linden to certain relief it requests; and
  9. As a result of Minsky’s breach of the Second Life Terms of Service Linden is entitled to terminate Minsky’s Second Life account and requests a declaratory judgment from the court that Linden may terminate Minsky’s account.

Looking at this dispute as a whole, what some are finding to be the most interesting part of this controversy is the last counterclaim made by Linden in its October 10th Answer to Minsky’s amended complaint. In its ninth counterclaim, Linden has essentially asked the court to declare that Linden may exercise a power already secured by Linden through its contract with Second Life users, “the right at any time for any reason or no reason to suspend or terminate [a user’s] Account” (Second Life Terms of Service section 2.6). While it would be improper to question Linden’s motives in requesting such an order from the court, it is difficult to see this move as anything other than a post-Bragg effort by Linden to avoid a possibly disastrous misstep. Had Linden wielded the terminating sword against Minsky without the court’s specific approval, the court could order that the user removal be undone. Such action by the court could set a dangerous precedent, one which would call into question the entire ability of publishers to summarily terminate users, an event which most publishers would very much like to avoid. While it is unclear what the future holds for this litigation it is important to keep in mind that conflicts between users and publishers of online games which find their way into the courts have the potential to set precedents which drastically change the fundamental relationship between the two groups for the entire industry.

The dockets and documents in Minsky v. Linden Research before the U.S. District Court for the Northern District of New York and Linden Research v. Minsky before the USPTO Trademark Trial and Appeal Board are available courtesy of Stephen Wu of 3D Internet Law.