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This time, the law of unintended consequences is bringing scientists and online gamers together in a crowd sourcing manner hitherto unimaginable.

An article in this month’s edition of the journal Nature Structural & Molecular Biology has announced (citing both research scientists and online gamers as co-authors of the article) that through a 2008 purpose-oriented video game developed at the University of Washington in 2008 – Foldit – the structure of an enzyme, one used in complicated customizing of retroviruses, was accurately modeled. 

Who cares and how does this affect us? Well, as a former biochemist wannabe, if you can model the structure of these proteins, you can better understand how diseases are caused and correspondingly develop drugs to block or stymie the progress of those diseases.

Amazingly, gamers were able to produce an accurate model of an enzyme whose structure had eluded scientists for a very long time in only three weeks and the report notes, referring specifically to medication against the human immunodeficiency virus (HIV) for which an understanding and design of antiretroviral drugs is absolutely critical. Seth Cooper, one of the creators of Foldit noted that "Games provide a framework for bringing together the strengths of computers and humans. The results in this week's paper show that gaming, science and computation can be combined to make advances that were not possible before."

If you thought the intellectual property, licensing, user generated content, crowd sourcing, cloud sourcing, social media legal issues were already enough arising from scientific research, online gaming and crowd sourcing alone were enough to make your head spin, conjure up the implications when the term ‘convergence’ is applied to any two or three of these disciplines. Isn’t it time you had legal counsel and representation who can seamlessly help navigate them while your teams are busy solving the health care and medical problems of the world?

If you want to know more about how lawyers who understand can help your business, feel free to contact me, Joe Rosenbaum, or any of the Reed Smith attorneys with whom you regularly work.

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In 2005, California enacted a ban on the sale or rental of violent video games (defined as a game that depicts killing, maiming, dismembering or sexually assaulting an image of a human being) to minors. The stimulus for the law was the stated belief that violent videogames are likely to make minors become more aggressive and violent. The penalty for retailers who violate the ban? As much as $1,000 per violation.

As you might imagine, the legal challenge started almost immediately – from publishers, distributors and sellers; and today, in a 7–2 vote, the U.S. Supreme Court upheld a ruling by an appeals court that held the California law unconstitutional. I believe (although I didn’t go back and check yet) that California now becomes the seventh state to have such a law struck down. Justice Scalia, in summarizing the decision, is reported to have said, “Our cases hold that minors are entitled to a significant degree of First Amendment protection. Government has no free-floating power to restrict the ideas to which they may be exposed"; and in his written opinion for the majority noted, "Even where the protection of children is the object, the constitutional limits on governmental action apply."

We will try to bring you more details once we analyze the 18-page opinion handed down today, but if you have questions, feel free to call me, Joseph I. ("Joe") Rosenbaum, or any of the Reed Smith attorneys with whom you regularly work.

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Interactive digital media developers that are currently located in North Carolina—as well as those contemplating doing business in North Carolina—should evaluate their business activities to take full advantage of the tax benefits of a new North Carolina tax credit for companies developing interactive digital media, including video game companies and developers of online virtual worlds and interactive websites that allow consumers to create and manipulate certain digital goods (i.e., avatars in role-playing scenarios). In particular, digital media developers should consider joint ventures with educational institutions that will allow them to maximize the benefits provided by the North Carolina credit. For more information on North Carolina's new tax credit for digital media developers, please read our full client alert, "North Carolina Creates New Tax Incentive Opportunity for Digital Media Companies," written by Reed Smith attorneys Donald M. Griswold, Michael A. Jacobs, John P. Feldman and Kelley C. Miller.

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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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Legal Bytes has previously reported to you concerning Title VIII of the Security and Accountability For Every Port Act of 2006 (or SAFE Port Act), which is the part of the SAFE Port Act endearingly known as UIGEA (the Unlawful Internet Gambling Enforcement Act of 2006). On Tuesday, the U.S. Court of Appeals for the Third Circuit rejected a claim by the Interactive Media Entertainment & Gaming Association that UIGEA is too vague or unconstitutional or infringes on the individual's right to privacy. The unanimous ruling was issued amid a tug-of-war between the Justice Department that is anxious to crack down on the gambling industry, and the actions of Rep. Barney Frank (D-Mass.) and other members of Congress who are advocating legislation to legalize the gaming industry. 

The decision to uphold UIGEA, which banned payment processing by U.S. financial institutions for online betting, might appear to be a blow to the gaming industry, but there is a potential ray of hope. On page 8 of the Court’s Opinion, the Third Circuit concluded UIGEA was not constitutionally vague, nor had the law made any gambling activity illegal. Rather, the vagueness problem cited by the Court arose from the underlying state law. To wit, the Court explicitly notes what many in the industry have known for a long time: "[T]he Act itself does not make any gambling activity illegal [under the UIGEA]. Whether the transaction in Interactive’s hypothetical constitutes unlawful Internet gambling turns on how the law of the state from which the bettor initiates the bet[.]"

One can thus read this decision as an opportunity for state gambling clarity. Currently, only six states in the United States have an outright prohibition against Internet gambling; the other 44 states (and U.S. territories) have an opportunity, if they wish to seize it, to legalize, authorize, license, regulate and potentially tax online gambling. 

For the record, the Frank Internet gambling legislation that proposes to delay enforcement of UIGEA pending the enactment of a federal online gambling licensing and regulatory framework, has been pending in committee since May, and there are many pressing items on Congress's plate. Thus, it is unlikely that Congress is poised for quick action on this legislation. That said, the court’s decision appears to leave the door to online gambling enabled by state legislation open. Stay tuned.

If you need to know more, contact Amy S. Mushahwar directly, or you can always contact me, or the Reed Smith attorney with whom you regularly work. We are happy to help.

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Gaming is a fast-growing segment of the online community—remarkable since people have actually been saying that since 1994! Well online gaming and gambling may become more difficult (and more expensive) in places like Italy, if the Italian Chamber of Deputies has its way. New legislation ratifying and amending existing Italian law authorizes the State Monopolies Authority (Amministrazione Autonoma Monopoli di Stato (AAMS)) to promulgate implementing regulations—which are likely to be issued in early 2010 (although late 2009 is a possibility). Currently, Italy licenses online poker tournament games and fixed-odds sports betting, but online gambling in Italy is limited to Italian gamblers on internal, not international networks.

So what does the new law provide? Although absent the actual regulations it is impossible to predict with certainty, there does appear to be both good news and bad news.

First the good news. The law authorizes the introduction of online cash games—both fixed draws and card games—and permits the implementation of new online lotteries of various types and modes of play. Consequently, online games involving cash are likely to become legal and be introduced in Italy. 

Now the bad news. The tax that will be imposed on these new games is 20 percent of the total (essentially a gross profits tax). This represents an increase above the current 4.5 percent tax on “gross gaming revenues” that applies to sports betting in Italy. In cash online games, unlike tournament poker (in which a tax is imposed as a percentage of gross gaming revenue), the network operator generally takes a “rake” from each game. Thus, using a gross profits tax will allow the operator to set the rake more rationally in the marketplace, but will also result in more tax revenue.

So bottom line, while these new provisions are likely to stimulate new online gaming, the AAMS retains very broad authority to define the basis upon which operators can customize the wagering products and services being offered. Because the AAMS still retains the right to approve each betting product, one wonders if that will not limit both innovation and competition in the online gaming marketplace. That said, gaming and gaming revenues continue to increase and tax revenue will likely follow. We’ll see if the new regulations provide additional opportunities, but as they said in ancient Rome: Cum catapultae proscriptae erunt tum soli proscript catapultas habebunt.

Need to understand more about online gaming, or online gambling, or both? Need help? In Italy? In the United States? Anywhere? Need references? In Italy? In the United States? Anywhere? Contact me at jrosenbaum@reedsmith.com, check out my bio at Joseph I. Rosenbaum, or contact the Reed Smith lawyer you normally work with. We are happy to help.

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With the help of one of our trusty Summer Associates, and stimulated in part by our desire to update and consolidate research we have done over the years in a variety of different contexts, we have prepared a Survey of U.S. Federal and State Gaming Laws & Regulations that apply or may apply to "Online Gaming." We defined "gaming" relatively loosely, and tried to cover promotions and contests involving money or consideration of any kind, the potential implications of related gambling statutes, "amusement gaming," and anything related that popped onto our radar screen. With the proliferation of Internet-web-based online advertising, promotions, games and interactive entertainment, these gaming laws will increasingly be implicated and potentially used by state and federal authorities to regulate how these activities are conducted. 

Now you may ask, "Why would a law firm be giving away such valuable research for free online, on the web, for everyone to see?" Well you may ask – but first read on:

This is an area in which Reed Smith has both U.S. and international experience, and as complex gaming, promotional activities and in-game advertising—involving proprietary and user-generated content—proliferate, the convergence and intersection of these laws and regulations with advertising, promotional and marketing regulation will surely increase over time. Contact Joseph I. Rosenbaum if you would like to know more about our experience, our resources, or our ability to help you.

We also maintain a similar chart and database relating to Gift Cards and Gift Certificates, covering both traditional and online payment instruments that are increasingly blurred with prepaid debit cards, stored value cards, smart or chip-cards, reward cards, discount certificates, and traditional credit, charge and debit cards. In the online world, often a simple code or account number, rather than a physical piece of plastic, is the only evidence that a "gift card" exists. Not only are there advertising disclosure regulations and restrictions on expiration dates or the imposition of dormancy or inactivity fees, but escheat and abandoned property laws are implicated as well. It's a complex area of marketing and the law. In addition, in collaboration with our Security & Data Protection Group, we maintain a database of data breach, information security and identity theft statutes, which is an increasingly handy tool related to prevention and compliance and, of course, knowing what to do when you suffer a breach.

The Survey of U.S. Federal and State Gaming Laws & Regulations chart, which you can refer to at any time, lists each state (including the District of Columbia) in the United States, and a citation to the relevant statutes and regulations (organized so that amendments are cross-referenced by date and relevant citation), followed by a brief summary of the salient provisions of the law or regulation itself. We have also noted, where there was current activity, any pending legislation that may apply. For example, the relevance of federal gambling legislation appears in the notes at the introduction of the chart, referencing the recent introduction of bills that would potentially defer enforcement of the UIEGA and seek to establish a federal licensing scheme for online gambling. We will continue to update our research regularly for our clients, and if you want to know more about any of the databases, reference tools, or our teams of professionals who can help you—well you know what to do next. Oh, and if you want to know why we are giving this research to you at no charge—well I did say "you may ask." So go ahead and ask.

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Earlier today, the FTC staff issued a report concerning consumer protection issues arising in the mobile commerce marketplace. A copy of the full report, Beyond Voice, Mapping the Mobile Marketplace is available by clicking the link. The key findings in the report:

• Cost disclosures about mobile services continue to generate consumer complaints. The FTC staff intends to monitor cost disclosures, bring law enforcement actions, and work with industry to improve self-regulatory enforcement
• The FTC and its law enforcement partners should continue to monitor the impact on consumers of unwanted mobile text messages, malware and spyware, and take law enforcement action if and as needed
• Although spyware and malware are not yet significant problems on mobile devices, the FTC is encouraging development of strategies to prevent or minimize their spread, since the issue is likely to magnify as consumers increasingly use mobile devices for a wider range of applications, including Internet access
• Increasing use of smart phones to access the mobile Web presents unique privacy challenges, especially regarding children. The FTC will expedite regulatory review of the Children’s Online Privacy Protection Rule to determine whether the rule should be modified to address changes in the mobile marketplace. This review was originally set for 2015, and will now begin in 2010 instead.

Given the numbers of wireless and mobile devices in the hands of individuals under the age of 18 (and 13), and the increasing proliferation of mobile devices, this will become a hotter topic in the months and years ahead. As if this point needed to be emphasized, it has been reported that as of January 2007—two years ago—there were approximately 800 million cars, 850 million personal computers, 1.5 billion television sets, but already 2.7 billion (yes, billion) wireless and mobile devices in use around the globe, with more than 800 million e-mail and 1.8 billion SMS text-messaging users.

The sheer numbers are staggering, and we are on top of this issue big time. Contact Joe Rosenbaum, John Feldman or Douglas Wood if you need more information or assistance.

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For 2009, here are my predictions:

The economy and strife, regulation and surveillance will dominate the agenda, with the burden of paying for everything from wars to bailouts right in the crosshairs: watch those advertising budgets boys and girls, the taxman cometh.

Privacy and advertising, long separated by passive print, television and radio, will continue to collide—Congress will either pass ineffective and inappropriate legislation because it’s too busy to pay attention, or will defer legislation another year because it’s too busy to pay attention.

Wireless and mobile technology will continue to make us say “wow” and will continue to miniaturize our lives, putting not just communication, but also our wallets, calendars, purchasing, entertainment and working tool kits in our hands, not our laps.

The use of wireless and additional licenses, spectrum and bandwidth will bring the FCC and the FTC colliding in their zeal to regulate, and they will either cooperate because they are too busy to fight or fight because they are too busy to cooperate. In either case, regulation, re-regulation and self-regulation will continue to increase, unregulated.

Marketing, promotions, new media, digital content and distribution platforms will transform gaming and interactive play into entertainment, education and information—giving us more choices, but continuing to blur the lines between advertising, entertainment and information.

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Last week, Japanese authorities arrested a woman for killing the digital avatar of her online husband—no, we didn’t make this up. Arrested in her home in southern Miyazaki, she was taken to Sapporo in Northern Japan. The woman became angry on learning her online husband divorced her. She used his ID and password to log onto the “Maple Story” interactive game to execute the virtual murder. Although not yet formally charged, she was arrested for suspicion of illegally accessing a computer and manipulating electronic data. Although the police thus far have no reason to believe she was contemplating any real world criminal act, she still could face five years in prison or a fine of as much as $5,000 if she is ultimately charged and convicted of the computer access and manipulation charges. Maple Story, like many interactive, online virtual world games, allow real world participants to create digital characters called “avatars.” While many virtual experiences are essentially sophisticated online interactive games themselves, even non-game based virtual worlds enable avatars to engage in social networking, relationships with other avatars, transactions involving the exchange of value, and the creation or deployment of intellectual property—content ranging from video programs to musical concerts to creating wardrobes for their avatars. Because avatars exist in a virtual, digitally created world, their owners often engage in activities they would never consider in the real world.

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Is a cyber attack an act of war? Analysts reported that while the Russian military was acting against the Georgian republic, Georgian websites were also under attack. Cyber warfare can exploit security gaps to take control of civilian infrastructure, such as power grids, as well as government websites and military command and control operations. It has long been known that cyber-weaponry could supplement (and sometimes replace) traditional military activities. But when does a cyber-attack itself constitute an act of war? (We all appreciate the notion of “war” as a historical concept is and continues to change.) Tactics such as urban warfare, bioterrorism and suicide bombers have caused grave concern, not only over government’s ability to deter violent and damaging non-traditional acts of war, but also how to respond when they occur. A big challenge in the cyber warfare world is identifying who did it. In 2007, Estonia asked NATO to come to its defense when a cyber attack disabled government and bank websites. Apparently in 2008 we didn’t need a cyber attack to bring down some of our financial institutions (sorry, couldn’t resist). Question—how does one respond to a cyber attack—with bullets or chips?

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In the 1960s, Stanley Milgrim, then a psychologist at Yale University, conducted a controversial experiment. In an obviously controlled setting for the study, Milgrim and his associates directed their subjects to give ever-increasing electrical shocks to strangers whenever they gave the wrong answer to questions in a test of memory. The strangers were really actors pretending to experience pain and did not actually receive any jolts of electricity. The study, intended to measure how compliant people would be to obey authority figures, even to the point of inflicting pain on otherwise innocent individuals, was disturbing, to say the least. The subjects, despite some discomfort at first, continued to “shock” the test-taking actors. The experiment raised ethical concerns about subject study methodologies, among other things.

However, recently, Mel Slater, a computer scientist at University College London in England (with a joint appointment to the Universitat Politecnica de Catalunya in Barcelona), reproduced this experiment without running afoul of the ethical concerns that the original study raised. Mr. Slater conducted his experiment in a virtual world where test-taking “victims” were avatars whose expressions changed from happy to pained in response to the actions of participants in the study—much the same way the real-life actors did more than 40 years ago. Not only were the results astonishingly similar, but to the surprise of many, the real-life participants experienced increased heart rates and described feelings of regret or feeling badly about delivering electrical shocks—even though they knew the strangers on the other side of the screens were avatars and not real people!

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Webkinz? Barbie Girls? Be-Bratz? Club Penguin? Never heard of these? Your 6-year old has. At a time when advertising and marketing to children is in the cross-hairs of regulatory agencies, virtual worlds are discovering that imagination can run wild in an environment where children—some as young as 5 or 6 years old—can shop, adopt pets, and play dress-up.

Remember virtual pets? You could purchase a small, self-contained computer (of course it wasn’t marketed as a computer, but as a digital companion) with names like Tamagotchi or Giga Pets—often with a tiny display that had the “pet’s” image.

Small buttons on the outside of the casing allowed you to feed your pet or wash it, and there were even pets that could interact with other pets (e.g., Digimon). If you didn’t treat your pet right it might even die!

Now toys purchased at retail stores—toys for young children—are showing up with flash drives which, when plugged into a computer USB port, unlock features and hold the keys to virtual worlds where children can play—in dollhouses, shopping malls, with pets and characters. Building brand awareness is critical for marketing-driven companies, and building brand awareness in young children who may carry the imprints into their teenage and adult lives…well, you know…. Next up, potty-training your virtual baby. Stay tuned.

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Recently lawyers have begun to debate the question of just how much control advertisers can exert when paying for product placements or branded entertainment before the line between First Amendment expression by the creative staff putting together the program and the financial subsidies from advertisers is crossed. Now, the Ninth Circuit has dealt with a similar question relating to the immunity that interactive computer service providers have typically enjoyed under the Communications Decency Act (the “CDA”). The CDA insulates service providers from liability so long as the service provider remains a publisher of information and content of others (there are exceptions, so the immunity is not blanket and you should always consult legal advice for specifics that apply to your situation). That said, a company that operates an online web service that specializes in matching roommates based on their preferences has been held in violation of the Fair Housing Act because a questionnaire put together by the company asks for certain demographic information that, when posted on the website, could be used by users and site visitors to discriminate against others. The company, Roommates.com, asked users to disclose information, among other things, about roommate preferences such as age, sex, children, etc. The Ninth Circuit held that although Roommates.com was immune as long as it was simply enabling the distribution or display of information provided by its members, when it became an information content provider, it lost immunity with respect to that activity and information. And by putting together the questionnaires and soliciting their preferences in response, Roommates.com was not simply posting content authored by users, but rather was eliciting specfic information that could be abused and that might or might not have been voluntarily posted or disclosed absent the questionnaires.

Hmmmm…user profiles, play lists, segmented marketing, asking consumers to participate in promotions…this is an interesting test of the limitations of the CDA to protect and insulate interactive online service providers from liability. As social networks, virtual worlds and other digital arenas that don’t simply enable but also solicit or encourage certain information to be provided, and as web services become more targeted, focused and segmented to match consumer preferences, the immunity is likely to be tested further. Stay tuned.

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China: A 30-year-old man in the southern Chinese city of Guangzhou appears to have died of Internet gaming exhaustion. He had been playing online for three days and was declared dead at the Internet café where he had been playing. Clinics have sprung up to treat “Internet addiction,” noting that children and teenagers often play online games or surf the Web for days at a time. China has more than 140 million Internet users, and a huge market for online games.

Poland: A bus driver in Slupsk, a city in northwestern Poland, was fired for sending 38,000 text messages on his employer’s cell phone. The driver, Leszek Wojcik, told reporters he wanted to buy a car if he won the 100,000 zloty prize ($36,000) in an SMS (text messaging) contest. According to the Slupsk city transport service, Mr. Wojcik ran up a bill of about 94,000 zloty ($34,000) in his losing bid to win, sending an average of 1,200 text messages per day at a cost of 2.40 zlotys per message. Among the lessons learned: promotions and advertising using SMS, streaming and mobile technology are extremely powerful.

USA: A U.S. federal judge didn’t recall how he spent $3,000 at a strip club. He apparently also forgot a few other things, such as using a credit card for either an Internet dating service or to pay for pornography—all reportedly while married; the marriage has since ended. At the trial, when the Judge was asked about the $150 credit card charges, he reportedly replied, “I’m embarrassed to be even talking about this. I think you pay extra to get certain features, such as if you upload a picture or—I don’t even recall.” Under the Constitution, federal judges are appointed for life, and while they are supposed to follow an official code of conduct, they can be removed from the bench for high crimes, misdemeanors, treason or bribery.

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You knew it had to happen, but are still surprised when it does. In what may be a first-ever, a lawsuit has been filed against a defendant that doesn’t really exist, over a non-existent furniture line. Yes, you guessed it, a bed with special embedded animations that allow participants in Second Life, the virtual reality world established by Linden Labs, to essentially recreate an adult film with their virtual persona—avatars.

For the past few years, Second Life’s approach to IP protection has been to allow players to keep rights to programs, animations and objects they create—although many of the tools (programming scripts, etc.) are Linden’s and are provided to enable players to build things in this virtual world. Much like user-generated content in the world of multimedia audio-visual works, creativity and innovation is creating virtual content by the boatload and creating virtual objects and businesses is not simply a recreational pastime, but also a source of entrepreneurial glee and money for many. Clothing, real estate, automobiles, virtually (pardon the pun) anything, becomes the object of virtual purchases, sales and licensing.

Well, the law has caught up with reality. One player, whose avatar is selling virtual items under the brand “SexGen” bed, is suing another avatar for selling fakes for less—undermining the business. Since you have no obligation to disclose your true identity in Second Life, who do you sue? Well, first you try to get information from Linden, presumably because their computers house the underlying registration and information that would disclose who is behind the knock-offs. But, if the alleged infringer has not registered a real name, credit card or other “real world” items to enable identification, you might only get an IP address.

So we’ll keep you posted on developments, but who knows where this will go. Will a court entertain the case? Will they discover the identity of the alleged infringer? Will copyright infringement principles apply in a virtual world? Perhaps the plaintiff will try to enjoin Linden from allowing or enabling the fake products, or send them a virtual Digital Millennium Copyright Act (“DMCA”) “take-down” notice.

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In a recent article in the Los Angeles Times, Michael Bay, renowned film director with cinematic blockbusters such as “The Rock,” “Armageddon” and “Pearl Harbor” to his credit, is quoted as saying, “I make world-class images. Why not put those images into a game?” Indeed! The new investor and co-chairman of Digital Domain, the effects studio evolving into a production studio, is making a bet on convergence—the application of digital technology to reduce costs and expand the horizons of entertainment and new media.

Remember watching those old cowboy movies and pretending you were the new sheriff in town? Did you secretly imagine you wielded an elegant light saber and might save the Galaxy with Luke Skywalker? How many times did you imagine yourself as Legolas, drawing an imaginary bow in the air to shoot an arrow and save Middle Earth?

But even in Middle Earth—where presumably there were no computers—there are digital effects. You trivia buffs will enjoy knowing that Orlando Bloom’s eyes are really brown. But as Legolas in Lord of the Rings, his eyes are blue, thanks to CGI technology. For example, watch Lord of the Rings: The Return of the King, and right outside the Black Gates, in a close-up, you can see his eyes are CGI blue. However, in a scene right after that, Gandalf is in the foreground and Legolas is in the near background—and Legolas’ eyes are clearly brown.

We love to be entertained, but we also love to play—play is the basis of leisure time, enjoyment, learning, and game and number theory. Play makes us active participants with interactive relationships and activities that are make-believe—in much the same way that motion pictures can move us with stunning visual sequences and transport us to places we might never see or even imagine in real life.

The computer game market represents a new—or rather a different—frontier. New motion pictures have spawned merchandising for decades—dolls, action figures, and stuffed animals, from Tarzan and Mickey Mouse to Spider-Man and G.I. Joe. In fact, product placements in motion pictures, which have gone mostly unregulated in the United States, have been used for years by advertisers to promote both reality in the movies and brand awareness to consumers. See the logo on an airplane taking off—someone paid for that. Picking up a soft drink can at the stadium with a familiar brand—someone paid for that. Watch Jack Bauer drive away or make a phone call—recognize that car or that mobile phone—someone paid for that. Do you really think Microsoft paid an estimated $6 billion for Internet advertising company aQuantive, because it does not understand the importance of convergence? Wonder why Apple Computer changed its name to “Apple”? Go to China or India or Brazil—which has more brand and name recognition, a MAC or the iPod? Which creates more buzz, the iPhone or a new operating system code named “Leopard”?

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On Oct. 13, 2006, President Bush signed The Internet Gambling Prohibition and Enforcement Act into law. The Act was actually tacked onto a piece of legislation intended to tighten security for the United States’ sea ports. The Internet Gambling legislation, originally a standalone bill, was attached as an amendment to the security legislation at the last minute. Although titled “The Internet Gambling Prohibition and Enforcement Act,” it is actually not an outright ban on online gambling. It is, however, a federal ban on banking institutions knowingly transferring funds to businesses or individuals that operate, conduct or are engaged in activities that are considered illegal under U.S. law. Thus, transactions involving the movement or transference of funds to businesses that are conducting gambling operations in states and areas where gambling is prohibited is now illegal.

The law requires financial institutions to develop and implement some type of transaction security system within the next nine months, so that fund transfers to institutions on a blacklist will automatically and electronically be blocked; presumably on the list will be those online gambling operators identified by the Department of Justice. That said, the Act is not specifically limited to gaming companies—although it appears that those are its initial focus and intended target. In the wake of passage of the Act, online gambling operators—many from the U.K., Malta and jurisdictions outside the United States—have already announced their withdrawal from the U.S. marketplace. Stay tuned as enforcement efforts start to make news.

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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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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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Whatzup with interactive, web-based digital video games? Plenty, if you believe what we read…coming up in the next issue, with struggling advertising revenues on TV and moviegoers’ increasing annoyance with the resurgence of advertising (which now seems to be replacing the 20 minutes of “coming attraction” trailers), advertisers are looking beyond product placement in reality TV shows and wondering if those captive eyeballs and fanatic game players can turn an interactive gaming industry into the next frontier of advertising. Not to mention those new chipsets and handhelds that are making video game graphics look almost like the real thing. Will virtual reality supplant reality and will promotional and advertising take us there? Stay tuned. [P.S.: This is called a “teaser.”]

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