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.”]
Florida’s Game Promotion Statute §849.094 has been modified, substantially reducing requirements for advertising games of chance in Florida—full rules are no longer required by Florida law in print advertising. Where previously a full set of full set of official rules for games of chance needed to be included in print advertisements in Florida, now advertising need only include “material terms” of the rules and regulations if the advertising includes a website address, toll-free telephone number or a mailing address where the full rules and regulations may be obtained.
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.
According to Technology Partners International as reported in CIO magazine, Europe has now overtaken the United States in major outsourcing deals (i.e., deals valued in excess of about $50mm). In 2004, out of $76 billion in contract value, Europe garnered 49 percent beating the United States and Asia. One of the most important statistics behind those numbers is the fact that more and more outsourcing companies are becoming major players and the competition is heating up. The article lists the big-six outsourcing companies (you’ll have to call me to find out who they said they are) and notes that in 2003 these companies accounted for about 70 percent of the outsourcing contracts, but in 2004 their share dropped to just over 40 percent—a big drop in one year. What that means is that if 26 providers shared the 100 best deals in 2003, 36 shared them in 2004, and only time will tell if the outsourcing market is saturated or if more providers will jump to the front lines in 2005. One trend we are seeing is the segmentation of outsourcing arrangements by sophisticated end-user customers. Not just seeking competitive bidding among providers as in days past, these customers are actually segmenting their outsourcing requirements by function, business activity and operational needs, and seeking niche-based outsourcing providers who are best in the class in those areas.
It seems that the tempting idea of putting all one outsourcing eggs in one basket in order to make it “easier” to manage the relationship has not proved to be very smart after all. It appears that retaining the expertise necessary to manage outsourcing relationships in-house and being sure you have the right outsourcing provider with the right contractual relationship for each function or activity is the wiser course. Speaking of contractual relationships—Rimon has a team of international lawyers experienced in outsourcing. You might want to call us if your thoughts turn to outsourcing; we can and are happy to help. You might also go get a copy of the new book, Outsourcing Agreements Line by Line, written by me and published by Aspatore Publishing—it’s available online (an unabashed plug for both the book and our ability to assist with your legal needs).
Most of you have read about the security issues that have confronted LexisNexis and ChoicePoint, and each day we learn more news about more systems and databases that have been or may have been compromised. Here’s a secret, “Google hacking” is easier. It’s a term used to describe the simple act of using publicly available search engines (no, not only Google) to find information that criminals and wrong-doers can use.
Several months ago, The Wall Street Journal reported that some security experts held a contest to demonstrate how good Google hacking can be—they limited contestants to using only Google’s search engine and in less than one hour they unearthed enough information to perpetrate financial fraud on about 25 million people—including useful combinations of names, birth dates, credit card and social security numbers. In one such experiment, a team of contestants found a directory of more than 70 million social security numbers—all belonging to individuals who are no longer alive.
OK. You’ve all been reading about the recent security breaches which are exposing sensitive financial and other non-public personally identifiable information to potential disclosure—in some cases actual release and compromise of that information. Well it turns out that in one area—the retailer cases involving Polo (Ralph Lauren), DSW (Shoe Warehouse) and others—are all being traced back to software that merchants use to process credit, charge and debit transactions. The problem, it seems, stems from the fact that the hidden coding that resides on the magnetic strip of our plastic money and that is supposed to authenticate and provide a degree of transactional security in processing payment is being retained by the merchants’ systems, rather than being immediately deleted and cleansed from these systems once the transaction is approved and complete. Hackers, learning of this vulnerability, were quick to attempt to break into these merchant systems and “steal” the codes, in many cases enabling them to create counterfeit plastic and compromise personal information of the cardholder in the process. In one case, BJ’s Wholesale Club is being sued by banks and credit unions because hackers made off with customer’s credit card numbers, and BJ’s has decided to sue IBM, whose software allegedly stored the numbers in computer logs. In legal papers filed in response to the suit, IBM not only claims there is no proof the stolen card numbers came from BJ’s systems, but it also claims that its contract with BJ’s disclaims liability for damages because of security breaches. OK, all of you go check your software contracts. Now.
In February, in the Circuit Court in Miller County, Arkansas, some plaintiffs—led by Lane’s Gifts, an Arkansas retailer—sued Google, Yahoo!, Time Warner, Disney, and Ask Jeeves, among other Internet companies, alleging that these companies knowingly overcharged for the advertising they sold and that they conspired with each other in doing so! The plaintiffs now want the suit certified as a class action which relates to the growing problem of “click fraud” a practice our very own litigator and legal guru Peter Raymond knows and has spoken about. Clicking ads or even automating the click-throughs—in some cases by competitors—can illegally run up the advertising charges, and analysts estimate these can increase by more than 15 percent because of such fraud.
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.
On April 28, 2005, New York’s Attorney General sued Intermix Media—a major Internet marketer based in Los Angeles, claiming “spyware” and “adware” were secretly installed, which, among other things, can redirect browsers to unwanted websites, can add toolbar functions and icons, and distribute ads that pop up on your monitor. The suit alleges violation of New York State General Business Law provisions against false advertising and deceptive business practices, and also alleges trespass under New York common law. Intermix’ software would download, install and then direct advertising to computers based on user activity—often without notice and without an uninstall application—when a user visited a website, played a game or downloaded a screen saver. The Attorney General’s office claims that the lengthy licensing agreement purporting to seek permission, even when used, is misleading or inaccurate.
As we mentioned in last month’s issue, sweepstakes, contests and promotions are primarily regulated by state law, although federal statutes and regulations must be considered. Jurisdiction and eligibility across borders, language, currency restrictions, licensing and export of technology, liability, billing and payment, whether a deposit to play might be construed an account for banking purposes, or whether gathering non-public, personally identifiable information about contestants may have privacy implications, are just a few of the issues that transcend the “gaming” aspects of any legal analysis.
On the U.S. federal level, although the FTC can take regulatory action and sue advertisers for deceptive or unfair acts and practices, it relies heavily on the states to regulate the industry. The FTC has, however, promulgated rules that do have significant impact on promotions. For example, the Children’s Online Privacy Protection Act (“COPPA”) was enacted to protect children from marketers who collect or use personal information obtained online from under-age children without parental permission, and authorized the FTC to develop a rule that requires “verifiable parental consent.” Because contests are extremely popular for Internet marketing, online advertisers must be cognizant of COPPA if a portion of their online traffic is, or is likely to be, children under the age of 13.
To illustrate the maze of legal and regulatory issues, let’s use an example: Joe’s Airline, Widget and Screen Door Company wants to conduct a contest on the Internet in which participants are charged $2 to play successive rounds of chess, with prizes at various levels and a grand prize of a million dollars. Our promotion is really a unilateral offer to enter into a contract, subject to terms and conditions (e.g., rules) agreed upon through some manifestation of acceptance. Participants accept the offer by performing a required act—registering, paying, selecting an “I ACCEPT” link—and a binding contract is formed. Point number 1: if Joe fails to adequately disclose the rules upon which the offer is made, the promotion could be construed as an illegal lottery, rather than a contest. Point number 2: Joe better get the rules right and disclose them properly because there are cases which indicate once a participant enters (“accepts”), Joe cannot change the rules (i.e., unilaterally amend the contract). Something to think about: Could each chess game be viewed as a new contest, permitting amendments prospectively?
In general, to qualify as a contest, skill, and not chance, must determine the outcome, and chance may not determine the winner or prize amount. Most, but not all, state laws distinguish games of skill from games of chance, although states do not use a uniform standard to differentiate between the two. While some states prohibit requiring consideration to engage in a promotion where a prize is awarded, most states do not prohibit the payment of money if the promotion is a bona fide contest of skill. What constitutes skill? Good question. The decision is often a question of fact, and when the Internet is involved, evidence can be complex and technology-based, straining judges and juries. Two criminal courts in New York judging the legality of a shell game and a card game reached opposite conclusions.
A number of states have disclosure statutes which apply. Some (e.g., California) arguably apply to skill-based contests, while others do not. Many prize notification statutes were not intended to apply to skill contests, but are worded broadly to include any promotion requiring an entry fee or a purchase. Joe should also be aware that some state gambling laws do not limit their application to games of chance, but focus on whether players are asked to risk or wager something of value. In those states, a skill-based contest that involves betting or offers prizes dependent on the number of entries or the amount of entry fees should be reviewed carefully against state gambling laws. Remember the three elements that constitute an illegal lottery? A prize, consideration and chance. By including an equal and alternate means of entry in which there is “no purchase necessary” to enter or win, and by avoiding a payment (i.e., consideration), Joe can introduce the element of chance in the determination of the winner and not be in violation of federal or state law.