Why Abuse of IP Rights is Killing the Industry

An examination of the chilling effect IP is having on the video game industry.

With industry giants such as Atari and THQ recently filing for bankruptcy and many others not far behind, the video game industry in its current incarnation may very soon be at an end. Many publishers in the industry are pointing to software piracy as the cause of the problem. Yet, Intellectual Property (IP) protection is stronger than ever before and despite that video games are higher quality and more popular than ever, the industry is financially spiraling out of control. It may be that solution to protecting IP is actually the cause of the industry’s financial turmoil.         

The first official occurrence of legally protecting IP was in the 1710 British law known as the Statute of Anne, named after Queen Anne. The Statute of Anne established a copyright of author’s works for publication lasting a duration of 14 years and a choice to renew the copyright for a single duration of another 14 years. (Cohen and Rosenweig) A far cry from Disney’s Mickey Mouse whose copyright turned 85 last year.

Copyright came to the New World in 1783 with a similar 14 year term with a 14 year renewal. These precedents no doubt were influential in the idea of IP being part of the founding of The United States of America in section 8 of article 1 of the constitution granting congress the power “To promote the progress of Science and useful Arts, by securing for limited Times to authors and inventors the exclusive right to their respective Writings and Discoveries.” (US Const. Art. 1, sec. 8.) Indeed, the concept of IP took precedence even over the Bill of Rights in the minds of the founding fathers.

Today though, IP is protected far beyond what any of the founding fathers have ever intended. Over the last two hundred plus years since the writing of the constitution, IP laws have been rewritten over and over again, including many more forms of media, extensive renewals, and legal means of protecting IP, including criminal prosecutions. Anyone who has ever watched a DVD or VHS tape know that simply an unauthorized viewing can land you a five year prison sentence and millions of dollars in fines.

Although recently there has been attempts at ulta-extreme legislation such as the Stop Online Piracy Act and PROTECT IP Act, whose very entrainment by congress caused a nearly unanimous strike by the internet publishers and community alike (CBS News Staff); the last IP law passed by congress, known as the Digital Millennium Copyright Act (DMCA) of 1998, is nothing to shirk at either.

The DMCA was an act the congress was required to pass in compliance under a 1996 treaty the US entered into under the World Intellectual Property Organization, a specializing agency of the United Nations. This is important to note that these IP laws were not created as a decision of a sovereign nation of duly elected representatives, but rather as an order by an external governing body. ( Ignoring those orders would mean disruption in the US ability to engage in international trade and even harm relationships in our national defense alliances. Very few good laws have been created under duress.

Amongst the many things that were included in the DMCA was the implementation of both voluntary and involuntary access control technology. It is the reason why your American DVD player doesn’t play DVDs from Japan or China. It also established the use of Digital Rights Management (DRM). DRM is a digital lock that prevents the use of software, music, video, text, or other media without a conformation from the publisher. (    

DMR has become a topic that makes gamers cringe at the very sound of those three little letters. It means hassle, aggravation, invasion of privacy, and annoyance to the consumers of video games. Worse than that, it means a lack of ownership over the product that they have just shelled out maybe hundreds of dollars for. Instead, they become simply stewards of the product, or in simpler terms, a renter.

The problem with DRM is that it puts the publisher in complete control of the product. There is no limitations on what the publisher can do as a matter of terms of the DMR. The consumer thinking that they have purchased a product can come to discover that, after the fact, they may have no access to the product what so ever for any number of reasons. The publisher can choose to discontinue the DRM service on a whim and the costumer must simply accept it. The DMR might require an internet connection while using the product even though, other than the DMR, the product has no networking functionality. An upgrade to the system or even an update to the bios of the computer may possibly render DRM void.

In a worst case scenario, the DRM could be tied to an information phishing system and the publisher could void the DRM based on this phished information, such as use of another companies product, a political affiliation, or even if there are children using the same system. The terms of the DRM can change midstream and at random. Regardless of the reason, the DMR can be terminated and the customer has no recourse, as they never actually owned the product.

There are other concerns over IP besides DMR. Because the laws regarding IP have swung so far in favor of the publisher, this has led many publishers to exploit bait and switch tactics on the consumer. A prime example of this is the HALO series, published by Microsoft Game Studios.

HALO is a wonderful game. It has been a staple of Major League Gaming (MLG), the world’s largest eSports organization, since its inception. This is not simply because Microsoft has been a contributor to MLG in the past, but because it is considered to be the most accurate multiplayer First Person Shooter (FPS) on the market. There are no glitches, no exploits, and the servers are well monitored by administrators. A player’s multiplayer score on HALO is, for all intents and purposes, a true measure of the player’s ability. (MLG Staff)

But HALO also set another standard in the game industry. That is the standard of using downloadable content (DLC) to employ bait and switch tactics on the consumer. The sticker price of HALO is $50 and at first this is the only cost, but as time goes on, Microsoft will release mandatory DLC content required to participate in online play every few months. Sure the consumer can still play the single player game modes, but it is the multiplayer modes that HALO is famous for and most often the reason for the initial purchase. The consumer must buy the DLC or they essentially have a $50 drink coaster.

Although the initial price is only $50, with the combination of DLC and online services that $50 game ends up being closer to $200, none of which is presented to the consumer before the initial purchase is made. If this had been a non-IP related product, Microsoft would be facing a class action suit for their bait and switch business model. Under the law as it exist today, Microsoft has every right to do so. The consumer has two choices: Pay or quit. The sales figures of subsequent HALO games seems to suggest that many are choosing the latter.

Perhaps the most unscrupulous abuse of IP are the companies that produce nothing what so ever, and who’s only intent is to bring lawsuits against others who actually are trying to produce. The most egregious of these companies may be Zorro Productions Incorporated (ZPI).

The character and the story of Zorro was created in 1919 by Johnston McCulley. Zorro, the Spanish word for fox, is in himself a recreation of the fictional character of Robin Hood and the real life person Joaquin Carrillo Murrieta. McCulley assigned the rights of Zorro in 1949 to Mitchell Gertz. After Gertz’s death, his children formed ZPI. ZPI does not produce nor publish anything at all. It simply employs a law firm that handles the licensing rights to Zorro. One might assume this is reasonable, except for that fact that ZPI does not actually own the rights to Zorro.

It states on the ZPI website that ZPI “Controls the worldwide trademark and copyrights in name visual likeness and the character Zorro.” (Zorro Productions, Inc.) Yet, it was determined in Sony Pictures v. Firework Entertainment Group in 2001 by Judge Collins that ZPI does never owned the copyright to Zorro, but that it was, in fact, owned by Douglas Fairbanks prior to McCulley’s agreement with Gertz. Collins also determined that regardless of who the actual owner was, the copyright of the character and story of Zorro lapsed in 1995 and is part of the public domain. (Sony v. Firework Ent.)

Despite this, ZPI continues to claim the copyright to this day. Anyone who dares to make a videogame, film, or book containing the character of Zorro without purchasing a licensing agree from ZPI will find themselves entrenched in a legal battle that will cost more than the actual license. Because of the way the IP laws are set up in this country, there is no recourse to this extortion.

These IP laws have created a barriers to entry environment that effects the videogame industry worst of all. Not a day goes by when you don’t see a court case between one of the major gaming publishers and an upstart company over some aspect of design. Whether it be Atari suing over the use of squares in a homemade paddle ball game, EA suing over a 2D building management game, or some other similar mechanic; Companies are spend more of their time and money in courtrooms and less time in production. It is hurting the bottom line of both the industry and the consumer.

Now this isn’t to say that IP laws are not without merit. Certainly people should be able to protect their time, work, and investment into products. But as an industry and a society we need to take a step back and take a look at the effect of our approach to these issues.

In an Article titled “Piracy and the Four Currencies” by Lars Doucet, an independent game developer, he states that consumers are not just looking at the cost of a game being simply the sticker price but as a range of cost. These being: Money-dollars, the monetary cost of the product; Time-dollars, how long it takes from wanting the purchase to enjoying the purchase; Pain-in-the-butt dollars, based on the invasiveness of the DMR; and Integrity Dollars, how the consumer feel about the publisher. (Lars Doucet)

Since any game published with DRM has a DRM-FREE pirated copy available on the net within a week of its release, DRM does absolutely nothing to curb piracy. At best, it can only punish the legitimate consumer and, at worse, it encourages people who would have been happy to purchase the product from the company to seek out the alternative DRM-FREE pirated versions of the software. The laws of economics dictate that these underground markets only exist because there is a need for them. They exist not because of a lack of regulation or enforcement, but instead, because of a failure of the industry to deliver the needs that these markets supply.

More consumers, as well as developers, are moving away from the bigger brassy publishers and towards smaller independent publishers because of this spectrum of costs, mainly integrity-dollars and pain-in-the-butt-dollars. Consumers and developers alike are willing to sacrifice the million dollar development budget in exchange for freedom.

2013 marks a banner year as we are seeing the release of several independent open source based consoles and hand-held gaming systems because of the response to these market needs. Independent developers are grabbing a bigger share of the market as the larger publishing firms recede. In the age of high speed data transmission, convenience and integrity will be king. This is one of the first rules of e-commerce. Companies who fail to learn this lesson or learn it too late, will soon find themselves out of the game.


Why Abuse of IP Rights is Killing the Industry – Bibliography

Daniel J Cohen and Roy Rosenzeweig. "Digital History - Owning the Past." Center for History and New Media. publish date unknown.  George Mason University. 2 March 2013. 

US Const. Art. 1, sec. 8.

CBS News Staff. "SOPA, PIPA today: Internet on strike!." CBS News. 18 January 2012.  CBS. 2 March 2013.

“H.R. 2281--105th Congress: Digital Millennium Copyright Act.” 1997. March 2, 2013 

MLG Staff. "What is MLG?." Major League Gaming. 1 January 2013.  Major League Gaming. 3 March 2013. 

Zorro Productions, Inc.. "Zorro Productions, Inc. : Welcome to the official website ofZorro, the legendary masked hero of Spanish California." Zorro Production, Inc.. January 2012.  Zorro Productions, Inc.. 3 March 2013. 

Sony Pictures Entertainment, Inc., et al. v. Fireworks Entertainment Group, Inc., et al, 137 F.Supp.2nd 1177. United States District Court, S.D. California, Western Division. 2001 Google Scholar. Web. 3 March 2013

Lars Doucet. "Piracy and the four currencies." Gamasutra. 22 Febuary 2012.  Gamasutra. 3 March 2013. .

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