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As far back as May 2005, Legal Bytes reported that Europe was becoming a major outsourcing hub for a variety of reasons (Outsourcing Statistics). Well just this week, the law started catching up.

In what is certainly a major ruling and quite possibly the beginning of emboldened plaintiff-customers seeking greater accountability from outsourcing providers, Electronic Data Systems (EDS) has lost a case initiated by British Sky Broadcasting Plc (BSkyB) back in 2004, alleging that EDS, one of the leading outsourcing providers in the world, had misled BSkyB about its capabilities and expertise. For those of you who are legal research hounds, the case is cited as HT-06-311, British Sky Broadcasting v. Electronic Data Systems, although I don’t believe it has been fully published yet. The dispute arose over a services contract that was entered into by EDS and BSkyB in 2000, well before EDS was purchased in 2008 by its current owner, Hewlett-Packard (HP), for slightly more than US$13 billion.

To give you the background, BSkyB selected EDS to develop a new customer relationship management (CRM) system for its call centers in Scotland. After almost two years and failure by EDS to deliver, by March 2002, BSkyB ended the contract and took over the project itself – the frustration and events ultimately leading to the legal proceedings filed in 2004 that alleged EDS lied about its ability to undertake and complete the project. On the other side of the case, in its own court documents, EDS alleged that BSkyB simply “did not know what it wanted,” and wanted the lowest cost possible to accomplish “it.” To highlight the disconnect further, the contract with EDS was for £48 million, but according to court documents filed in the case, with all of the delays, budget over-runs, EDS’ failure to deliver, and BSkyB taking over and completing the project itself, costs had mounted to £265 million.

Justice Ramsey, writing for the British High Court, ruled that EDS misled BSkyB in making false and fraudulent misrepresentations in pitching and marketing its capabilities to BSkyB, giving rise to a claim for damages. Further, the court concluded, to the extent these representations were fraudulent, the limitation of liability clause in the contract that would have otherwise limited EDS’ liability for damages should be set aside and does not apply. While damages have not yet been fixed, in theory, if one includes the differential in costs, lost profits and other damages that are now fair game, EDS could be liable to BSkyB for well in excess of £200 million – that’s more than US$315 million at current exchange rates.

This is a major decision not only in the UK, but also for outsourcing deals around the globe, and if the beginning of a precedential trend, it could signal a radical shift in the way outsourcing deals are bid, negotiated and consummated. There is no question that anyone involved in outsourcing knows that the customer does not always have its specifications and detailed requirements buttoned up when discussions begin. Indeed, outsourcing often presents a singularity at which time enhancements, efficiencies and improvements that might have been difficult or impossible internally, can be effected by moving the operations to a third-party provider. The provider, eager to win a lucrative bid, may over-promise or over-represent its experience and capabilities. Smart negotiators know that forcing both sides to diligently and meticulously work through the "devil in the detail," and making sure expectations, resources and capabilities are clearly set out and unambiguous, is the single most important contribution to be made in avoiding disputes, potential litigation and problems as the work and services unfold. Those of you in marketing know all too well that there is often a fine line between an actual claim and puffery. The former represents actionable representations, the latter . . . well, “you’ve tried the rest, now try the best” on every pizza box in the world.

Are you contemplating a major outsourcing initiative? Are you considering any outsourcing project, even a small one, involving critical operations – customer services, supply chain management, operations, transaction processing? Outsourcing is complicated. Need help? We wrote the book. No really, you can see for yourself: Outsourcing Agreements Line by Line: A Detailed Look at Outsourcing Agreements & How to Change Them to Fit Your Needs, written by none other than yours truly, Joseph I. Rosenbaum. Whether you check out the book or not, if you do need help, our Advertising Technology & Media law team here at Reed Smith has the help you need to make sure that, even if you are right, you can avoid the costly consequences and angst inherent in any legal proceedings between customers and providers. How can we help you? Call me, Joe Rosenbaum, or the Reed Smith attorney with whom you regularly work.

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This post was written by Laura Hicks and Joseph I. Rosenbaum.

Last week, Gerry Sutcliffe, Minister for Sport in the United Kingdom, announced proposals to make significant changes to the existing legislative framework under which remote gambling is regulated. Following a review of the system of online gambling regulation in Great Britain by the Department for Culture, Media and Sport, a consultation is being launched with a view to introducing laws requiring all online operators to apply for a license from the Gambling Commission in order to either advertise or provide gambling services to British consumers. According to the Minister for Sport, the proposed changes were "necessary to ensure the protections in the Gambling Act – to keep gambling crime free, to ensure gambling is fair and open, and to ensure that children and vulnerable people are protected from harm – continue to be afforded to British consumers."

Under the proposals, a license will be required even if the gambling services are offered to British consumers using remote gambling equipment from outside Great Britain. Currently, only operators based and licensed in the UK are allowed to advertise in the UK, unless the country in which they are based is either a member state of the EEA or on the government's "whitelist." More information on the "whitelist" is available on the Department for Culture, Media and Sport website, but to give you some insight, territories currently on the list are Antigua and Barbuda, Tasmania, the States of Alderney and the Isle of Man. "Whitelisting" is the process used by the UK Ministry to assess the regulatory framework for gambling in any jurisdictions outside the EEA that apply for permission to advertise their services within the UK. 

As well as being obliged to share information about suspicious betting patterns with the UK's sports governing bodies and the Gambling Commission, foreign operators would also have to comply with British license requirements concerning the protection of children and vulnerable people, and contribute to the research, education and treatment of problem gambling in the UK.

This appears to be a move by the UK government to close a loophole in the laws that protect online gamblers in the UK, and that more closely mirror the more protectionist regime in the United States. If this extension of the licensing regime is introduced into legislation, it will be interesting to see how the regulator intends to enforce the license scheme against gambling companies with no UK presence. In the United States, enforcement has involved a variety of "indirect" mechanisms, from the Department of Justice's use of the Interstate Wire Act of 1951, which applies to sports betting to assert jurisdiction over online gaming – even though the Fifth Circuit ruled in 2002 that the Wire Act only applies to sports betting – to seizing advertising payments made to broadcast networks by advertisers seeking to promote online gambling considered illegal by the United States. Since 2006, with the enactment of the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA), the United States has sought to seize assets in financial institutions tied to online gambling, based on what it considers illegal activity, money laundering and a variety of other offenses (see, for example, a recent Huffington Post article). It is noteworthy that UIGEA does not make online gambling illegal per se, but rather prohibits any transfer of funds from a financial institution (as defined in the legislation) to an illegal Internet gambling site.

Once you read the UK Sports Ministry's announcement, if you need more information, contact Laura Hicks, an associate in the Media and Technology team, in our London office. Of course, you can always contact me, Joseph I. ("Joe") Rosenbaum in New York, or Gregor Pryor in London, or the Reed Smith attorney with whom you regularly work, if you need legal advice, information or support on this subject.

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Wishing you health, happiness, prosperity and peace in 2010

In a tradition that started almost 4,000 years ago by the ancient Babylonians – although they celebrated the new year upon seeing the first new moon after the vernal equinox – please enjoy a very happy, safe and joyous new year celebration.  Those of you who look forward to Useless But Compelling Facts can read more about the history of new year celebrations, or how the new year’s festivities, now televised around the world, began in New York’s Times Square.

 
This is the first year we have published in a blog format, and with your feedback – mostly positive and always constructive – and more than 17,000 visitors in slightly less than 11 months, I am grateful and appreciative for your support.  Thank you for reading Legal Bytes.

-  Joe Rosenbaum

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Each year, at the end of the year, I create a Legal Bytes piece intended to be more thoughtful and philosophical than the articles posted during the year. Thank you, in advance, for reading and allowing me to attempt to provide some insight and thoughtfulness to your day, in what I hope is an enlightening and entertaining manner. While my normal postings are designed to bring you news, updates and thoughts about timely events, this is one is longer – and arguably less exciting – and asks you to indulge me in a bit of philosophy, or what passes for an attempt at philosophy about the year past and the year ahead.

This article will contain no hypertext links to distract you; it will not have citations to offer more information about a snippet; nor will it dazzle you with factoids or intrigue you with today's news. It's just me philosophizing, my one chance during the year to ramble about where we've been and where I think we might be headed – without any credentials, qualifications or expertise to do so. 

So loyal Legal Bytes' readers, you don't have to buckle up or fasten any seat belts. Just pull up an easy chair, open your Blackberry, your Kindle, your Droid, your iPhone, PC, Laptop, Netbook, Web-TV, PDA, or whatever your favorite Legal Bytes' reading device might be; pour a glass of tea (or whatever your liquid of choice might be), sit back and enjoy . . . and again, thank you. So here goes.

*****

I'm a Star Trek fan. I've watched all of the television episodes, starting from the day Captain Pike, bound to a wheelchair resulting from his own heroism, is taken to the very first virtual world I can recall being displayed in mass media. I've watched all of the Star Trek movies. I confess to being a victim of an "even number" preference, culminating so far in this last Star Trek – certainly among, if not the favorite of all of them. 

Computers that can search for anything and everything. Touch screens and voice commands. Warp speed and instant communication across multiple languages and without regard to geography or time zones. All that with a bit of humor, a bit of clever philosophy and a social network (crew) that have hugely diverse (one might say inter-planetary) ethnic, cultural and racial characteristics, and at the same time work seamlessly together as a team. More than science fiction, Star Trek is really science within fiction, and a fiction that might just be reality if we close our eyes long enough and hard enough. Most of all, to boldly go where most of us have never gone before isn't really referring to space as the "final frontier," is it?

Now I know not everyone is a Trekkie, and I confess that while I am a big fan, I'm not really obsessed. I don't go to conventions or wear uniforms, nor do I run around screaming "Beam me up," although I do confess to a feeble attempt at a Scottish accent when I respond "I can't do it, Captain." So what is it that makes me able to watch over and over again and relish each scene and each episode, and look forward to each new motion picture? It's not simply because I like science fiction. Nor is it solely because of an ensemble cast, made up of some extraordinarily fine individual actors who work extraordinarily well with each other and with scripts that combine serious science fiction with some tongue-in-cheek individualism, not always in human form.

Let me digress to a personal, but relevant anecdote. Many years ago I had the pleasure of actually meeting Leonard Nimoy. I won't go into detail, but on behalf of a client, I had contacted Phil Gersh, the gentleman (a true gentleman) who represented Mr. Nimoy at the time, and Mr. Gersh must have relayed our conversation to Mr. Nimoy, resulting in a meeting in New York. It was over lunch, very relaxed and informal, but I admit to feeling an amazing sense of excitement, good fortune and privilege at being able to actually sit down and talk with someone I had long admired as an actor, writer, director and producer.

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In case you weren’t able to attend any of our three seminars on Social Media, we’ll still let you get a glimpse of what you missed. First, you missed Joe Rosenbaum and Anthony Traymore in San Francisco and Palo Alto, and in Century City (L.A.), where we were joined by Kate O’Brien, where we presented: "Social Media: It’s 10:00 p.m. Do You Know Where Your Brand Is?"

If that alone didn’t make you sad, you also missed all the substantive insights and experiences that were shared, the audio-visual effects, the examples and live experience of our presenters and local hosts, as well as the hospitality of three of Reed Smith’s West Coast offices.

What you don’t have to miss is a copy (in PDF form) of the presentations – each of which had slight variations. You can see and download each by selecting the live link on each city below.

While the base presentations were much the same in all three places, in San Francisco we focused a bit more on social media in financial services and corporate securities law. In Silicon Valley (Palo Alto), we did a somewhat deeper dive into the implications of social media in online gaming and entertainment, and in Century City, we focused on user-generated content, open-forum platforms and competitive advertising.

While the results are still being tabulated, we do know that a significant number of our clients and guests received continuing legal education credit (CLE) for attending, in addition to a meal – worth the price of free admission anywhere. We haven’t looked at all the evaluations yet either, but no one fell asleep, everyone stayed through the closing credits and a rousing rendition of the Social Media Blues, and many of our attendees stayed for follow-up questions.

We also received a number of inquiries about the possibility of individual companies or groups hosting a Social Media seminar presented by Reed Smith, and we are happy to do so for yours – we are an accredited CLE provider in most jurisdictions, if that is important to the legal folks – but many have asked about presenting to senior executives, business development, marketing, media and other professionals as well.

Not only can we tailor a seminar to your particular company, your brands and/or your industry, but we have developed, and will continue to develop, modules and focused presentation materials regarding online gaming and virtual worlds; promotions (e.g., sweepstakes, contests, product placements, branded entertainment); advertising and marketing (e.g., testimonials, endorsements, buzz, viral and word-of-mouth); labor and employment; corporate policy, public relations and crisis management; financial services; media and entertainment, including motion pictures and machinima; pharmaceutical, health and life sciences; technology and e-commerce; digital rights management (e.g., user-generated content, hybrid media); privacy, data protection and security; target marketing, location-based and behavioral advertising; regulatory requirements – both government and SRO (e.g., FTC, FCC, CSPC, FDA, PCI compliance, FACTA, GLB, HIPAA); cloud computing, and so much more – and we haven’t even mentioned our international or global experience, expertise or resources in other jurisdictions around the world.

If you are interested, please contact me (Joseph I. Rosenbaum) and we can work with you to help you engage us in your social media conversation with topics that are relevant to you. We will also be updating the research work already released in our Social Media White Paper with some of the materials and further work we continue to do in this area. Stay tuned – social media is not a fad.

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This post was written by Katharina Weimar and Joe Rosenbaum.

In 1904, the already acclaimed American novelist Jack London published The Sea-Wolf, a dramatic and powerful adventure story about a sea captain and the survivors he has rescued after an ocean collision. But then, that’s not news is it? What is news is the fact that two film producers in Germany, almost at the same time, recently produced films based on that novel, AND both used the German translation “Der Seewolf” as the title of their films. Really? Both of them? Yes, really.

Well it turns out that one of these producers had previously created a television production of Der Seewolf back in 1971. So that producer (we’ll call him Number 1) went to court in Munich demanding that the other producer (we’ll call him Number 2) relinquish the title and recognize the priority of the title in Number 1 - based on his earlier work and concerning the use of that name for his new film. But, as they say, the plot thickens. The defendant - producer Number 2 - had also applied for a German trademark registration after announcing his production in the film press in Germany.

Much like the psychological drama unfolding in the Jack London novel, the court decided that Number 2 must withdraw the trademark application and is prohibited from distributing the film using the name “Der Seewolf” or “Seewolf,” because Number 1 already has priority. You see, the 1971 work continues to enjoy re-runs and re-broadcasts so that, according to the court, copyright protection of the title “Der Seewolf” continues to exist for the benefit of Number 1. Not only that, but since the titles were identical and were based on the same novel, the court of course also concluded that there is a direct and clear likelihood of confusion - a key ingredient for a claim of trademark infringement. Following that logic, you might think that the requirements for both a copyright and a trademark infringement claim exist, so Number 2 is prohibited from using the title. However, quite unhappy about this state of affairs, Number 2 decided to appeal the ruling.

Now this is where truth becomes stranger than the underlying fiction, even though justice may well have been served in both the Jack London novel and this tale of two producers. The Higher Regional Court of Munich reversed the decision of the lower court, deciding that Number 2 is absolutely still entitled to publicize and distribute a cinematographic work using the title “Der Seewolf” or “Seewolf.” The court did not dispute that Number 1, as the legitimate user of the title dating back to 1971, had the right to bring an action against Number 2. You see in Germany, any legitimate user of the title of a work has the right to assert a claim to protect that title. Even further, the High Court agreed there indeed was a strong risk of confusion between the works given the 1971 title “Der Seewolf” and the new title “Der Seewolf” or “Seewolf,” since they were identical. So far so good.

BUT, the High Court didn’t stop there. You see, also under § 23, No. 2 of the German Trademark Act, the legitimate owner or user of a business mark (the title of a cinematographic work falls within the definition of business marks) cannot prohibit anyone else from also using an identical mark, as long as is it is used to describe the characteristics or properties of the goods or services (and, of course, unless there is some moral or public policy reason to create a restriction). Well, as you might have guessed, the Higher Court in Munich found no moral or public policy issue, AND it was their opinion that the titles were both descriptive: both films were adaptations of the same Jack London novel, The Sea-Wolf, and both titles were simply descriptive translations derived from that work.

So we end up with the curious situation (and result) in which it is true that Number 1 has the right to claim protection for the title “Der Seewolf” as an adaptation of the original Jack London novel based on the 1971 use of that title, but Number 1 also has to accept the legal conclusion that the exact same title may be used by anyone else producing an adaptation of that same novel!

What can we learn from this? First, intellectual property laws are different around the world, so don’t assume rights or protections without consulting legal experts and advisors who appreciate and understand the differences. Second, always remember that intellectual property, by definition, is a creature of specific laws and statutes. As with patents, rights in trademarks and copyright arise, and are interpreted and enforced under the specific laws of the jurisdiction involved. For example, aspirin is no longer a protected trademark in the United States, the United Kingdom and many other countries – the victim of “genericide.” But “Aspirin” remains a protected trademark in Germany, Canada and a host of other countries. Further, copyright laws protect against copying, not original creation, so two or more individuals, independently creating two identical works (without copying), would each be entitled to copyright protection, with neither able to stop the other – whether for paintings, novels or computer software programs. Besides, copyright protection is not forever. Jack London’s rights in The Sea Wolf copyright expired and his novel is publicly available. By adapting, translating or using a descriptive name to refer to these films, neither of the producers was able to claim exclusive rights to the use of the title, any more than Jack London’s heirs could claim the copyright still existed.

So when it comes to intellectual property rights, don’t assume, and do consult an expert. If you want to know more, just contact Katharina Weimer in Reed Smith’s Munich office or Joseph I. (“Joe”) Rosenbaum in New York, or any of the Reed Smith lawyers you work with. We are happy to help.

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The NFL Players Association was recently ordered to pay $7 million in compensatory damages and $21 million in punitive damages to retired football players who claimed they were excluded from lucrative marketing deals. The class action claimed the “Madden” interactive football games, and deals involving sports card and sponsorships, intentionally scrambled images of retired players to avoid paying royalties. Active players received royalties for their images, but retired players’ images were scrambled. Now normally that might be a key question of fact to be determined by a jury. Unfortunately, there was a smoking gun! Someone at NFLPA wrote to Electronic Arts, publisher of the popular Madden games, explaining that unless they scrambled the retired players’ images, payments would be required. Oops.

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The FCC is looking into regulations regarding disclosures for product placements and has been soliciting comments on its proposed changes. Should feature films produced for theatrical release and then aired on TV, and which have traditionally enjoyed an exemption from the sponsorship identification required of TV programming—have that exemption removed? should product placements be identified when the product is shown on screen? Should embedded advertising be completely prohibited in children’s programming? Increasing product placement and integration into programming has stimulated concern among consumer advocacy groups and Congressional legislators that the rules, many of which are decades old, do not address the new wave of advertising and promotion that has arisen as DVR technology and marketing has migrated away from the traditional “30-second spot.”

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Although the California Appellate Court, Second Appellate District, has designated the actual opinion as NOT FOR PUBLICATION (this means you must consult the rules of the court before you cite this case), this past May, two former members of the famed rock band The Doors were held to have engaged in false advertising under California law by advertising a concert band using that name. Although a jury found the band members not guilty of trademark infringement or unfair competition, the appeals court agreed with the trial court that “false advertising” claims are not the same, and upheld a permanent injunction against the individuals using the name “The Doors,” or any name containing that name. The court’s ruling also precludes the use of the name, voice or likeness of deceased band member Jim Morrison, in promoting concert ticket sales, citing prohibitions under the California statute regarding rights of publicity. Reed Smith knows publicity and privacy, in California—and throughout the United States and the world. Always know before you show. Call us, we can help.

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Last fall, a California court held that CMG, assignee of rights under Marilyn Monroe’s estate to exploit her image and likeness, had no rights because at the time of her death, there were no laws in either California or New York recognizing rights of publicity. Enter California’s legislature—amending its law to retroactively enact rights of publicity (See Legal Bytes, October 2007) to “remedy” this unfortunate state of affairs. Whoops. Not so fast. A judge in the U.S. District Court for the Central District of California has just ruled Marilyn Monroe was a New York resident at the time of her death in 1962, and pulled the plug on the recently amended California Right of Publicity law.

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According to a report in Media Week, advertising spending for advertising in videogames will reach about $1 billion by 2012. Advertising in video games can take a number of forms: in-game advertising, which is preformatted ads that appear within the game itself; advergames, which are games constructed around a particular brand or product in order to highlight and promote that product or brand; context-sensitive or dynamic advertising, which is similar to in-game advertising, but rather than static advertisements, can be contextually modified in a number of ways depending on when, where and how the in-game scene is viewed. Most of that growth is projected in the casual, online, web game world catering to a broader audience than hard core console gamers. The logic is that people are more willing to accept advertising in return for free game playing on the web; and absent a dynamic Internet connection with more user acceptance than is evidenced to date, console gaming provides fewer opportunities for placing context sensitive or behavioral advertising.

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Did you know that Louisiana offers a 20 percent tax credit against expenditures for video game developers and certain other interactive digital media companies that are based there? This digital media tax credit is not unique to Louisiana. In 2005, Atlanta began a program of providing tax incentives to digital media, and a number of other places have begun to attract development using tax incentives as well.

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A California appellate court has held (Kirby v. Sega of America) that makers of video games have a First Amendment right to base game characters on real celebrities, as long as the characters have been transformed. The celebrity in this case, Lady Miss Kier, former lead singer for Deee-Lite, claimed a character (named “Ulala”) in the video game Space Channel 5, infringed her rights. Not so—at least not in this case. So what does “transformed” mean? For that, you have to call us (or read the case for yourself).

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So you think it’s nice to share? A Federal District Court has ruled in favor of Universal and Paramount Studios, holding that willful copyright infringement is committed when digital movies are downloaded from KaZaA, a peer-to-peer file-sharing service, and stored in a directory of shared files capable of being downloaded by other KaZaA users.

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Those name brands appearing in hit shows. Those logos on the motion picture screen. The characters at the breakfast table with a favorite cereal. The star driving around in a particular automobile. The airline shown flying the lead character off to an exotic destination. Reality? Coincidence? Hardly. They are the result of contracts between the entertainment company or producers and the advertisers, and they represent a growing and important trend in marketing to consumers, along with the Internet, as reaching market segments through traditional radio and television advertising becomes increasingly difficult in our on-demand, fast-forward world.

In some cases, such “branded” entertainment is subtle—inserting itself into a scene or a sequence quite seamlessly and, not necessarily inconsistent with, reality. In other cases—“Harold and Khumar Go to White Castle”—yes, this really was the name of a movie, as was “Akeelah and the Bee,” which Starbucks helped finance and promote. In case you didn’t know, the FCC (and the FTC) regulate advertising on television—the FCC’s regulations concerning disclosure arose primarily from the quiz show scandals in the 1950s. When does creative control over programming yield to paid sponsorship and financing dollars or Euros (or British Pound Sterling). At what point does a program or movie become an infomercial or advercast? Are there vulnerable groups (e.g., children) that might not distinguish so readily between advertising and programming and at what point is that deceptive? What does SAG say about their actors being de facto appearing to endorse a product or brand inserted into their scenes and programs? If an actress is under contract with a cosmetic brand exclusively and a movie scene requires her to use a different brand—actionable? When the trailer with that clip airs on broadcast television—problem? Witness the following quote from Jonathan Adelstein, FCC Commissioner: “Now, products have even seeped into plot lines. Soap operas have woven cosmetic lines into their tales of who-did-what-with-who, while “The Apprentice” sounds more and more like an hour-long infomercial for the latest corporate sponsors.”

Trademark issues, endorsement and competitive/ambush marketing issues, free speech, freedom of expression, adequacy of disclosures, misleading or deceptive advertising—the list of potential issues is growing as the balance between creative control and commercial reality infect the entertainment industry. At one extreme is the traditional product placement in which an advertiser pays a fee for the hopes that the scene with its product doesn’t get cut and wind up on the editing room floor. At the other extreme is a placement fee and promotional campaign that is so integrally tied with the plot and the program that the two are indistinguishable—think “The Apprentice” or “Home Makeover.”

The deals are becoming more complex, and more fraught with potential legal and regulatory issues, and the stakes are higher. Need help? Contact Doug Wood or me—we would be happy to help.

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I was having an interesting discussion with a lawyer friend whose views about promotions and marketing I respect greatly. We started out talking about virtual worlds and avatars and the new proliferation of non-reality based entertainment—virtual Laguna Beach, for example. Now, I seem to have enough trouble juggling the demands of life in the real word. I have had my fill of reality shows—which never seem to be quite real—and I was just beginning to get the hang of fantasy sports leagues and interactive game playing. Now along come virtual worlds, where fantasy, role-playing, game-playing and interactive social networking collide. I remember playing Kings Quest and Police Quest and Space Quest and chuckling, with my kids, about the funny lines and the clever clues as we searched kingdoms, busy streets and outer galaxies to solve the puzzle. My daughter just recently reminded me of Ecoquest—a game I can’t find anymore that taught us all a little bit about saving the environment. Then came MMOGs and MMPORGs (that’s “Massively Multiple Player Online Role-Playing Games”—for the uninitiated). In virtual worlds, I get to act out a combination of real and fantasy activities with virtual characters called “avatars” which are created within parameters defined by the computer code, but which are otherwise open to my unique interpretation of the characters and roles I choose to play. I read a report about a man in South Korea who died of heart failure last year. Apparently stopping only for bathroom breaks and short catnaps, he played an online simulated war game for 50 hours and, ostensibly because of exhaustion, his heart gave out. I recently read several reports that made me realize this was no longer just child’s play. The first was about a woman who was able to quit her job because, through buying, selling and creating properties and providing services in a virtual world, she was able to “earn” more than $150,000 per year. Although I don’t know exactly what she did, I know you can convert your digital earnings into real money at websites such as www.gamingopenmarket.com. These sites not only enable you to convert digital-virtual money into U.S. cash at exchange rates that are established much the same way monetary exchanges do around the world, but they also enable folks like you and me to dabble in arbitrage trading in virtual currency. Will I someday be able to take my virtual company public in an IPO or solicit venture capital investments from qualified avatars? Is the SEC far behind?

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A proposed new “Truth in Video Game Rating Act” (H.R. 5912), would require the Federal Trade Commission to promulgate rules prohibiting unfair and deceptive acts or practices by video game marketers, and would require ratings to be based on video or computer game content as a whole. It would also be a violation if any producer or maker of these games hid or grossly mischaracterized the content of the game. Joysticks ready?

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Web-based videos, through links, feeds or user uploads, are generating significant legal and commercial interest these days. Advertisers are also quick to recognize the potential “buzz” marketing opportunities enabled by the use of the Internet and digital audiovisual technology. User-generated content draws consumers to websites, powerful magnets for advertising messages targeted to those consumers. But beware: Simply because a consumer creates the content, doesn’t mean it is immune from standard legal tests for advertising, endorsements, publicity and product liability.

A lawsuit has recently been filed against one online video-sharing network—Veoh—alleging it allowed video works owned by an adult entertainment company to be viewed through Veoh’s website without authorization. The claims of copyright infringement could be an important test of how the courts view sites that enable sharing or feeds of audiovisual works. Although there are a growing number of popular user-generated content sites such as IFILM, YouTube, Guba, Yahoo! and Google, these sites often have very different policies and some, but not all, of them review user-generated content before it is posted—either to ensure it meets guidelines or to confirm that the user’s tags are accurate.

Earlier this month, the New York State Consumer Protection Board published an official warning about content available on Google Video, the new Google site for user-generated content. Because videos are uploaded by users, Google Video relies on tags (labels which describe the content) which are input and generated by the users. Since the content is not indexed or catalogued by Google, a search will turn up whatever the user submits—and that is what has irritated the New York authorities. As with many websites that allow user-generated content to be uploaded for viewing, Google warns users about uploading obscene or illegal material or items protected by copyright, but currently has no mechanism for filtering it out.

In a move widely viewed as adding an air of legitimacy to these sites, Warner Bros. agreed to allow Guba to distribute some of its television shows and motion pictures, online. NBC is allegedly planning to make clips of some of its most popular programs available to YouTube to promote its fall programming lineup. NBC’s decision is reportedly coupled with advertising commitments for both companies in broadcast television medium and the Internet. That should come as no surprise since advertising is what is usually at the root of all of these revenue models—a fact that has not escaped broadcast network executives.

Also this month, a number of leading television production and motion picture companies joined forces in filing suit against Cablevision, one of the largest cable television companies in the United States. The action asks the U.S. District Court in New York to declare the time-shifting service Cablevision has announced, but not yet offered, in violation of U.S. copyright law. Cablevision has countered that time-shifting of programming by consumers is legal. Unlike an “on-demand” service which would record everything and replay programs when selected by the consumer, Cablevision intends to offer subscribers a specific amount of allocated storage space on the network. Analogous to an outsourced set-top box or digital video recording device that a consumer might purchase, Cablevision will offer consumers an opportunity to buy storage space and use it to record and play back programs and then erase them to free space for new programs—no different than if the storage medium was sitting in their living rooms. Stay tuned.

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Last month we teased you about legal issues that apply to interactive, web-based digital video games. How could we have known those sexually explicit scenes hidden in the game Grand Theft Auto: San Andreas would have been exposed just in time for our July Legal Bytes issue. Wow. Although the Advertising Review Council has an Entertainment Software Rating Board (“ESRB”)—a self-regulatory group that in May 2001 promulgated widely followed and accepted Principles and Guidelines for Responsible Advertising—the inability of the industry to effectively police itself, whether in connection with sexually explicit images, profanity, violence or otherwise, is coming under increasing fire as these incidents are uncovered. You all know what that means, right? Legislation, regulation and full employment for advertising attorneys who know their way around interactive, web-based digital gaming…and we have lots of those folks. You thought we were only concerned with product placement. Questions?

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The U.S. Supreme Court will help decide how content providers will operate on the Internet. The first case, involving more than 20 entertainment companies with names like Viacom, Disney and Time Warner, involves the sharing of content such as movies, videos and music by computer users who download the content from the Internet. This case involves the issue of whether copyrighted material can be shared by users on peer-to-peer networks and, if the court follows the reasoning in the Betamax case which was decided back in 1984, there is a chance the court will decide that because these networks have substantial non-infringing uses, the network operators cannot be held liable for contributory infringement based on the conduct of individuals who use the network. Stay tuned—film at 11:00!!

The Supreme Court is also deciding a ‘gatekeeper’ case related to broadband service delivery by cable operators. Today, cable operators control the broadband portal or gateway that customers can use, and while a user can go through the portal and log on to another website (say Yahoo! or AOL), they still must first go through the cable provider’s designated broadband operator. The case coming up challenges that gatekeeping role and seeks to require cable operators to give consumers the right to pick the broadband connection they wish to have through the cable. We will keep you posted as developments unfold.

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In a decision sure to be appealed but hailed as groundbreaking, the New York Court of Appeals, on April 5, 2005, held that rights to performances recorded before 1972 are protected under state common law, even after they have been put on the market. The ruling extends, until 2067, common law copyright protection for recorded music to companies that own rights to pre-1972 recorded performances. They can now prevent others from releasing their own versions. Since Congress did not extend statutory protection to recordings created before February 15, 1972, the court held there is common-law copyright protection in New York for sound recordings made prior to that date (i.e., since sound recordings made before 1972 are not covered by the federal copyright act, common law protection remains in place). In this case, Capitol’s claim against Naxos (who had remastered the recordings and began selling CDs) for infringement of common-law copyright in the original recordings was upheld. Common-law copyright traditionally has protected only unpublished works, but the New York holding concludes that the musical performances were unpublished, even though commercially sold to the public for decades. Go figure.

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In an attempt to lure film and television production back to New York from cheaper or more tax-advantaged locations such as Canada and Europe where they have been headed in recent years, New York has passed a bill offering tax cuts to benefit films and television shows produced in New York, although the bill does not extend to commercial productions. The Empire State Film Production Credit Program, signed into law on September 28, provides a tax credit for 10 percent of the production costs of feature films and episodic television programs produced by companies that spend 75 percent or more of their facility-related production costs at a qualifying production facility within New York. The law also allows New York City to offer additional incentives, including a 5 percent tax credit on projects, credits for outdoor media marketing, and assistance with story development, scouting, vendor discounts and consulting.

In a related development, the UK has enacted new permanent and more generous tax relief for small British films to replace the old Section 48 relief, which is scheduled to expire in July 2005. The new tax relief applies to 100 percent of a film’s UK production and raises the “small” film budget for qualifying purposes from £15m to £20m. Qualifying films will be entitled to government subsidies worth up to £4m per film under the new law, and film productions with budgets of up to £20m will receive a tax waiver on their production costs, including overseas costs—subject to the condition that the film actually makes a profit. The government subsidies, worth up to 20 percent of the film’s budget, will be paid directly to the producers on completion of the film. Under current Section 48 regulations, subsidies went to third parties who funded the films. Now they will be paid directly to the film makers.

The British tax relief announcement comes on the heels of a recent (February 10, 2004) clamp-down on some of the UK’s largest tax equity film funds. Set up as sale-and-leaseback deals, these funds allowed British investors to acquire marketing rights to studio films in Britain, the United States and Canada, and enabled investors to write off the cost as an upfront tax loss and lease the films back to the studios for periodic payments over 15 or 20 years. The deals often provided an option for a studio buy-out after a shorter period of time, but those exit strategies were banned by the UK’s Inland Revenue in what has come to be referred to in the film industry as “Black Tuesday.” On that day, the Inland Revenue issued a tax rule change closing a loophole that allowed these funds to operate outside the existing Section 48 film tax break and permitted claiming production costs as tax losses. As if intent on delivering a one-two punch, in March the UK followed this with a prohibition against print and advertising funds that were bankrolling distribution of features from some of the major motion picture studios.

Critics point out that the consequences of these bans could be a dramatic decrease in films produced and shot in the UK, already reeling from a strong pound sterling and increased competition for film financing. We can only assume the newly announced Section 48 incentives, with its direct production credits and other attributes, scheduled to take effect in July 2005 when the current scheme expires, are intended to attempt to repair some of the tax damage done. Combining our poor sense of humor, film and legal expertise, we can only say, “The jury is still out; stay tuned: film at 11:00”!

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Last month we reported the Ninth Circuit Court of Appeals found that Grokster and Streamcast Networks were not violating copyright laws by making software that allows people to swap digital content. Just a few days ago, over the objections from the motion picture, broadcast and professional sports industries, the FCC approved technology allowing digital recording services like TiVo to transmit television programming to subscribers over the Internet, allowing programming, for example, to be viewed anywhere an Internet connection was available. Digital recording services and streaming programs remotely threatens local advertising relevance and revenue, while still allowing viewers to edit out commercials. Advertisers are you paying attention??

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In what may be a momentous ruling and certainly a setback to the music, film and entertainment industry’s effort to fight illegal on-line downloading and file swapping, on August 19, the three judges of the Ninth Circuit Court of Appeals upheld a lower court ruling that found that Grokster and Streamcast Networks were not violating the copyright laws merely because they made software available that allows people to trade digital content (e.g., movies, music). To be clear, the decision in no way condones copyright infringement, nor changes the law relating to the illegal use or theft of copyrighted materials, nor authorizes anyone to ignore the intellectual property rights of others. But harkening back to cases which look and feel (pun intended) much like the Sony Betamax cases years ago, the court ruled that this particular type of software—referred to as “file sharing” software—was designed in such a way that it could not be held illegal.

It is noteworthy that this is the same court that essentially brought Napster to its knees a few years ago with an exactly opposite conclusion. While critics will argue that the ruling is a descriptive guide to designing software that can avoid being caught in the web (another pun) of the Copyright Act, many others welcomed the ruling for bringing clarity to a murky area of the law and focusing on the distinctions which make some software and systems infringing, while others are not. For you technical gurus in the audience, the court found it significant that neither Grokster nor Streamcast used centralized databases or computer systems with programming file directories pointing to files on individual users’ computers—in other words, these systems didn’t direct other people (and couldn’t even intercept or prevent people) to actual or potentially pirated music, film or any other content. As with the Betamax cases, the court also found that although there were plenty of arguments (and evidence) provided in entertainment industry briefs noting that the vast majority of content exchanged by these programs was illicitly copied, the software Grokster and Morpheus (the software licensed by Streamcast), had other substantial non-infringing uses and thus could not be held illegal as a matter of law.

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