On Thursday, December 11, as part of the IP Osgoode Speaks series, Jason J. Kee, the Director of Policy & Legal Affairs for the Entertainment Software Association of Canada (ESAC) gave a talk on intellectual property issues in the computer and video gaming industry. The event, held downtown Toronto at Ogilvy Renault’s office, provided lawyers and students a forum to learn about and discuss legal developments in this growing industry.

Once considered the new kid on the block, video game revenues were US$41.1 billion in 2007, and are projected to grow at a compound annual growth rate of 10.3% over the next few years to reach US$68.3 billion by 2012. Some experts have gone so far as to argue that the video game industry has surpassed the music and movie industries in revenue. While others have refuted this claim, the evidence still stands that video games are a major competitor for consumers’ disposable income, and are here to stay.

This is good news for Canada. In his presentation, Mr. Kee noted that Canadian game studios produced 21 of the top 100 selling games in North America and Europe in 2007, and that Canada had recently surpassed the United Kingdom to become the 3^rd largest producer of video games in the world (second only to the United States and Japan). The industry directly employs over 14,000 Canadians across the country (primarily in Vancouver, Toronto, and Montreal) in a wide variety of roles (including programming, art, animation, game design, business and marketing), and is indirectly responsible for thousands more jobs in related fields (such as computer graphics and artificial intelligence).

Mr. Kee also cautioned however, that the industry faces numerous intellectual property challenges within Canada and abroad.

The first challenge comes as a direct result from the type of product sold.  The video game industry’s main product is entertainment software, and, as such, developers and publishers are plagued by the same copyright issues as other software vendors – specifically software piracy, or the unauthorized copying of software. In Canada, approximately 34% of gamers have acquired pirated games (which is double the rate in the U.S.), and game piracy is estimated to cost the U.S. and Canadian industries more than $3.5 billion each year (and that does not include any losses from online piracy). Furthermore, as most high end video games typically cost between $10 and $30 million to develop and revenue from successful titles are used to offset the unsuccessful ones, game piracy detracts from the revenues necessary for companies to recover the investments associated with video game production, harming the industry as a whole. Moreover, Canada has yet to implement the WIPO Copyright Treaty it negotiated and signed in 1997, and the absence of legal prohibitions on the circumvention of technical protection measures (“TPMs”) that protect copyrighted works, coupled with IP enforcement challenges, has limited the ability of developers and publishers to effectively fight game piracy in Canada.     

Recent developments in gaming technology and business models, however, may help to alleviate some of these problems. As games go online so that gamers can compete with others, vendors will have greater capacity to identify and ban users that are using an unauthorized copy of a game. Some companies are also experimenting with new, non-standard business models. For instance, in one model, called micro-transactions, instead of charging for the game, the game is provided for free and small fees are charged for character upgrades while the game is being played.

Mr. Kee also noted that patents provide some intellectual property protection for video games but they are predominantly used for protecting the hardware (consoles, controllers and accessories), and, to a lesser extent, middleware (game engines that may be licensed to other game developers). Patents have also been used to a limited extent to protect game mechanics such as the directional arrow in Crazy Taxi (see Sega of America, Inc. v. Fox Interactive, et al.) and Konomi’s Guitar Freaks, Drummania, and Pop’n Music  (see Konami v. Harmonix).

Trade-marks are also used extensively in the industry. Besides publishers and distributors registering their company names as trade-marks, vendors also register the word marks and logos of game titles they publish. Console manufacturers also use trade-mark law to protect their certification marks. This allows the console manufacturer to indicate to their customers what games are authentic and comply with their requirements.

Mr. Kee concluded his talk with a discussion of copyright, the main source of IP protection for the video game industry. Surprisingly, video games potentially fit under a number of the protected subject matters found within the Canadian Copyright Act. Both the source code and the compiled program are “computer programs” under the Act and are protected as literary works. But since the software displays audio and visual output in response to user commands, the display could also be separately protected as a cinematographic work and/or an artistic work and/or a compilation thereof. While there is no Canadian jurisprudence that considers whether a game’s audio-visual output is copyrightable, in the US, courts have determined that interactive game content may be protected as an audio-visual work if the display can be reproduced. While such a threshold raises the possibility that highly interactive games (such as massively multiplayer online (MMO) games) may not be audio-visual works, as the high degree of variability in these games may mean that specific audio and visual sequences can be difficult or impossible to reproduce, conventional wisdom and practice is that they are (in fact, many video games are registered with the US Copyright Office as both computer programs and audio-visual works).

Another challenge for the video game industry that has recently emerged is the proliferation of machinima – animated videos that are created by recording audio and visual output from a video game and editing it together to create a story (see Red v. Blue).

Generally, any machinima created without authorization is an infringement of the copyright in the underlying game, and the creator of the machinima is liable for this. In what appears to be an effort to clarify the scope of permissible uses for creators, some companies have crafted guidelines to provide guidance on what and how their game content may be incorporated into a user’s items (for instance Microsoft) However, different companies adopt different approaches to this issue, and it is incumbent upon creators to ensure they are not infringing copyright (or violating end user license agreements) when creating machinima.

Despite the innovative solutions (machinima licenses, MMOs, and new business models such as micro transactions) developed by the industry to address their intellectual property challenges, Mr. Kee concluded that further copyright reform is still needed in Canada. Legislation prohibiting the use and sale of circumvention devices (such as mod chips) and services will be an important first step to tackle Canada’s significant piracy problem and bring Canada in-line with international norms. From a long-term perspective, Mr. Kee’s presentation also highlighted the need for both business and law to keep pace with the dynamic gaming industry for the benefit of the companies and their customers.

Posted in Copyright, copyright reform, Digital Locks, events, Infringement, IP, Patents, Trademarks