patent – Page 7 – Patent Arcade

Jul

Timegate Studios, Inc. v. Southpeak Interactive, L.L.C

Timegate Studios,
Inc. v. Southpeak Interactive, L.L.C

713 F.3d 797 United States Court of Appeals, Fifth Circuit

Filed April 9, 2013.

Although not
an intellectual property matter, Timegate
provides some valuable insights and lessons for game developers and
publishers regarding the drafting of development agreements. In June 2007, Timegate
Studios, Inc. (“Timegate”) entered into a video game publishing
agreement with Gamecock Media Group (“Gamecock”) who was later acquired
by Southpeak Interactive (“Southpeak”). The terms of the agreement stated that
Timegate would develop a “high quality” military-style shoot entitled
“Section 8” which would then be published by Gamecock. The agreement specified that in return for
designing the game, Gamecock would, “provide most of the investment
funding for the game’s development. . . . [as well as] manufacturing,
marketing, distributing and selling the game after its development.” While
Timegate remain the exclusive owner of the game’s intellectual property,
Gamecock was granted exclusive, world-wide rights to produce and sell the
game. These exclusive rights were to
last for a period of eight years from the initial release or for five years
after any sequel or downloadable content, whichever was later.

In September
2009, the game was released and Southpeak had acquired Gamecock and its rights
and duties as publisher under the 2007 agreement. The relationship between the parties began to
deteriorate, shortly thereafter, due to sales not reaching expectations. Timegate filed suit against Gamecock in
December 2009 alleging violations of the publishing agreement; Timegate also alleged that Southpeak misreported sales figures in order to withhold Timegate’s shares of the revenue. Southpeak, on the other hand, maintains that Timegate terminated the agreement in order to be released from the contract due to the game being unprofitable. Southpeak further alleges that Timegate published a Playstation 3 version of the game as well as a sequel without providing Southpeak with any revenue derived from those games even though the agreement called for sharing of revenue. Gamecock moved the
court to stay the trial due to an arbitration clause in the 2007
agreement. At arbitration, the
arbitrator found in favor of Gamecock and awarded $7.5 million, the loss
sustained by Gamecock to date, plus attorney’s fees, and a perpetual license in
the “Section 8” property.
Specifically, the arbitrator found that Timegate had made fraudulent
misrepresentations and breached the contract due to Timegate not spending the
$7.5 million in development that was stated in the agreement. What Timegate did spend was only $6.76
million, pocketing the remaining money for itself, and Timegate also failed to
invest $2.5 million of its own money into the game which was specified in the
agreement. The arbitration award was
later vacated by the district court causing Gamecock to appeal to the Fifth
Circuit.

The Fifth
Circuit reversed the district court’s decision and ordered the arbitration
award to be reinstated. While noting
that the arbitration clause was “quite broad”, there were no
limitations on the award that could be granted.
Furthermore, the granting of the license “furthered the general
aims of the Development Agreement;” because “Timegate committed an
extraordinary breach of the Agreement, and an equally extraordinary realignment
of the parties’ original rights is necessary to preserve the essence of the
Agreement.

This case
should be noted for game developers, as well as publishers, because it shows
the drastic consequences that can result from an overly broad arbitration
clause. The overly broad arbitration
clause may have been convenient during the drafting phase, but had it not been
present, it is possible that Southpeak would not have received such a large award
in damages or the perpetual license in the “Section 8” property. This further emphasizes the importance of
hiring an attorney with a strong background in drafting complex development
agreements; otherwise, a developer or publisher is potentially opening itself
up to significant consequences when acting as their own contract counsel.

Jun

Case Update: Motvia v. Nintendo

Motiva v. Nintendo

US District Court for the Western District of Washington
(originally Eastern District of Texas)

Case No.: 10-cv-349; filed March 2, 2010 (originally filed
November 10, 2008)

Motiva
originally filed suit against Nintendo for infringing its patent number
7,292,151, which is for a “Human Movement Measurement System”. Aside from the discovery issues pointed out
in a previous update,
the case has not moved forward. The case
is currently stayed until findings are delivered by an investigation being
conducted by the International Trade Commission.

Jun

Case Update: Electronic Arts, Inc. v. Zynga, Inc.

Case Update: Electronic
Arts, Inc. v. Zynga, Inc.

U.S. District Court for the
Northern District of California.

Case No.3:2012cv04099. Filed On
August 3, 2012

The suit filed last year by EA for copyright infringement—as
well as Zynga’s counterclaims—has been dismissed following an out-of-court
settlement in February 2013. Zynga
released a statement saying, “EA and Zynga have resolved their respective
claims and have reached a settlement of their litigation in the Northern
District of California.” All claims
were dismissed with prejudice. Gamasutra
claims it has a source familiar with the matter than informed them that,
“Zynga is ‘pleased’ with the nature of the settlement.”We’re closing the books on this one.

(Source: Gamasutra)

Jun

California Judge Increases Settlement Amounts Available to Class Members in EA Football Game Class Action Suit

An order was issued by a district court judge in the
Northern District of California on May 30, 2013, dismissing the case with prejudice after the
parties came to an outside settlement.
Pecover and Owens v. Electronic Arts, Inc. was a class action suit
initially filed claiming that EA had a monopoly on all football games due to
its exclusive licenses with the NFL, NCAA, and Arena Football League (AFL). The court’s modification of the settlement’s
Plan of Allocation granted the lead class members $5,000, their attorneys
received fees in the amount of $7.29 million, as well as a $2 million dollar
reimbursement for costs. Furthermore,
the order granted class members who filed a valid claim form no later than May
15, 2013, the right to up to $162.96.
The settlement also stipulated that EA is unable to renew its NCAA and
Collegiate Licensing Co. football licenses for a period of five years after
their expiration in 2014. EA is also
barred from obtaining exclusive AFL licenses for a period of five years from
the date of the order. However, EA’s
exclusive license with the NFL—the basis of its massively successful Madden NFL series—was not affected.

A full copy of the order is available online.

Jun

Case Update: Home Gambling Network, Inc. v. Piche, et. al.

Home
Gambling Network, Inc. v. Piche, et. al.

United States District Court for the
District of Nevada

Case No. 2:05-CV-0610-DAE-VCF, Filed May
16, 2005

This 2005 case is still pending in the Nevada District Court; it’s
scheduled for a hearing on Defendant’s Motion for Summary Judgment on July 24,
2013.

Defendants’ filed the motion to have the case dismissed on the merits on
February 27, 2013. This motion was filed
after Defendants produced database server information to Plaintiffs regarding their
online gambling business—Plaintiffs claim this information is necessary to
determine wagers made and the IP addresses for their clients to determine if
any were located in the United States.
Defendants had already moved for summary judgment, but were denied by a
magistrate judge until this information was produced. After satisfying the magistrate judge’s
order, Defendants filed this new motion for summary judgment.

In response to Defendants’ motion, Plaintiffs filed a Motion to Defer
or Deny Defendants’ Motion for Summary Judgment and to Allow Time to Complete
Discovery as well as a Preliminary Response to Defendants’ Summary Judgment
Motion on April 12, 2013. Plaintiffs
claim two bases for the denial of the motion for summary judgment: 1) they have
not had the opportunity to properly perform substantial discovery which has
prevented a proper response to Defendants’ Motion for Summary Judgment and 2)
based on the incomplete discovery records received, Plaintiff alleges that
there are an estimated 34,000 records of U.S.-based players which lends itself
to the possibility that the method patent was infringed. Although this case was initially filed in May
of 2005, little to no discovery has been completed due to the court’s denial of
early discovery requests and Defendants’ alleged reticence in providing
requested discovery materials.
Plaintiffs therefore allege that they have not had the opportunity to
make a proper inquiry to defend against Defendants’ Motion for Summary
Judgment. They go on to assert that,
even without complete data, there is compelling evidence to show that patent
infringement was taking place in the United States barring an award of summary
judgment.

On May 17, 2013, Defendants filed a Reply to Plaintiffs’ Response. They contend that they have produced the
discovery materials ordered by the court and should therefore be allowed to
move for dismissal. Defendants go
further stating that, even if they have not properly produced the server data
in question, as a matter of law Plaintiffs’ case should be dismissed. Defendants argue that in order to successfully
make an infringement claim on a method patent, all steps must have taken place
in the United States. Since Plaintiff
concedes that Defendants’ servers are located in Costa Rica, Defendants’ argue
that not all steps of infringement have taken place in the United States. Therefore, the Plaintiffs’ claim is invalid
and should be dismissed.

We will continue to monitor this case and provide any updates as they
become available.

Jun

Digital Reg of Texas, LLC v. Adobe Systems Incorporated et al.

Digital Reg of Texas, LLC v. Adobe Systems Incorporated et al.

U.S. District Court, Northern District of California

Case No. 3:12-cv-01971-NC, Filed April 20, 2012

This case is still ongoing and has since been transferred from the Eastern District of Texas to the Northern District of California as of April 20, 2012. Digital Reg’s claims against AVG Technologies regarding U.S. Patent No. 6,389,541 have been dismissed with prejudice as have AVG’s counterclaims. Valve Corporation has also had all claims of infringement and counterclaims dismissed with prejudice as of May 23, 2013.

The most recent developments in the case regard discovery disputes between Digital Reg and Adobe as well as EA. Digital Reg is seeking royalties for the infringed patents, and requests EA’s financial information regarding their Origin platform for distributing online games. EA maintains that Origin is a free-to-use platform, and since EA’s computer games are not allegedly infringing, the financial information regarding Origin would have only marginal relevance.

The case has also been docketed for trial beginning on January 13, 2014, with jury selection to take place on January 6, 2014. We will continue to monitor this case and provide updates regarding any major developments.

May

CLS Bank v. Alice Corp.: How will it affect video game patents?

CLS Bank v. Alice Corp. was a deeply fractured en banc decision of the Federal Circuit, in which they couldn’t agree on anything. Seriously. The per curiam decision of the court was one paragraph affirming the lower court’s decision finding the claims ineligible subject matter, but they couldn’t agree on why. There were many concurring, concurring in part, dissenting, and dissenting in par opinions, each expressing a different view as to the role that 35 USC 101 should play in patent subject matter eligibility and invalidity analyses. But none of the opinions garnered a majority of the court (5 of 10 was the max that signed on to any single opinion).

So how will all of this affect video game patents?

The answer, at least for now, is not at all. For now. The USPTO has stated, in response to the CLS Bank decision, that “[a]t present, there is no change in examination procedure for evaluating subject matter eligibility.” The USPTO plans on giving the opinion further study to determine whether any further prosecution guidance is warranted.

Most people (including this author) expect the Supreme Court to take this case and piece back together the fractured jurisprudence regarding 35 USC 101. We’ll have to wait and see…

Mar

Banner & Witcoff secures win for Wargaming.net

Banner & Witcoff Wins Video Game Lawsuit for World of Tanks® Developer Wargaming.net

March 25, 2013 – Banner & Witcoff, Ltd. is pleased to announce that on March 22, 2013 the United States Federal District Court for the Northern District of Illinois entered final judgment in favor of firm client Wargaming.net LLP, the developer of the massive multiplayer online game (MMOG) World of Tanks®, against the proprietors of the web site worldoftankshop.com. In view of the willful nature of the defendants’ conduct, the court—in addition to granting a permanent injunction and seizing the domain name for transfer to Wargaming.net—awarded damages in the amount of the defendants’ profits plus a penalty in the amount of triple the defendants’ profits. The court also awarded Wargaming.net its attorney’s fees and costs.

The technology at issue in the case was the online game World of Tanks®, a military simulation game featuring mid-20th century era fighting vehicles. World of Tanks® quickly rose to become one of the most popular, massive multiplayer online games of all time, amassing over 18 million users by 2012 and earning a Guinness World Record for Most Players Online Simultaneously on One MMO Server. The defendants operated the web site worldoftankshop.com, through which they attempted to sell in-game gold and also offered “leveling” services (where a user would pay the defendants to play on the user’s behalf in order to increase the user’s attributes in the game). However, the gold the defendants sold was fraudulently obtained and often never delivered. Wargaming stepped in to put an end to the defendants’ charade and filed this lawsuit on June 4, 2012.Nick Katselapov, Chief Business Development Officer of Wargaming.net, stated: “When we learned of worldoftankshop.com defrauding our users of real money, we immediately took action to shut them down. By taking on this lawsuit we have continued to demonstrate that we will stand up for what is right, without compromise, and spend whatever time, money, and effort is needed in order to protect our community.” Mr. Katselapov concluded, “As a result of this case, and in view of the court awarding quadruple damages, we hope that others think twice before illegally interfering with our games.”

Wargaming.net was represented by Banner & Witcoff, Ltd. DC-based attorney Ross A. Dannenberg and Chicago-based attorneys Timothy C. Meece and V. Bryan Medlock, Jr. Mr. Dannenberg is also the author of The American Bar Association’s Legal Guide to Video Game Development (ABA Publishing, 2011). The case was Wargaming.net LLP v. Worldoftankshop.com et al., March 22, 2013, docket no. 1:12-cv-04312-EEC, in the United States District Court for the Northern District of Illinois.

Please direct all media inquiries to Amanda Robert at (312) 463-5465 or arobert@bannerwitcoff.com.

Jun

New Case: Impulse Technology Ltd. v. Nintendo of America, Inc. et al

Impulse Technology Ltd. v. Nintendo of America, Inc. et al.

U.S. District Court for the Northern District of Ohio

Case No. 1:11-cv-02519

On November 11, 2011, Impulse Technology Ltd filed a complaint against Nintendo, EA, Ubisoft, THQ, Konami, Majesco, and Namco Bandai, alleging that they infringed upon its patent for an “interactive system measuring physiological exertion.” According to the complaint, each of the defendants has already received a letter giving notice of the patent and is allegedly willfully, deliberately, and intentionally infringing upon its rights. Thus, Impulse alleged that each should be held liable for direct infringement, contributory infringement, and inducing of infringement. In its complaint, Impulse claims that several of Nintendo’s Wii products, including the Wii console,Wii Remote, the Wii Balance Board, and the Wii Fit Plus, include the patented technology. Impulse also identified several games made by the defendants that “incorporated technology for measuring physiological exertion for use with the Wii.” The accused games include titles such as EA Sports Active Personal Trainer, Gold’s Gym Dance Workout, The Biggest Loser, Dance Dance Revolution Hottest Party 3, Zumba Fitness 2, and ExerBeat. Impulse argued a system covered by at least one claim of the patent is created when one of the accused games is played on a Wii and displayed on a monitor. As a remedy, Impulse requested a permanent injunction and other damages.

We will continue to follow this case and post updates as they become available to us.

May

Microsoft Settles Infringement Suit Over Video Game Controller

Microsoft Corporation v Datel Design and Development Inc., et al

U.S. District Court, Western District of Washington
Case No. 2:2010cv02065, Filed On December 23, 2010

During December of 2011, a settlement was reached in an
antitrust and patent infringement dispute between Microsoft and Datel Design
and Development Ltd that began in 2009. To
summarize the details of this battle covered partially in a previous post, Microsoft
implemented an update to its Xbox 360 system that prevented Datel’s memory
cards from working with the console.
Datel sued Microsoft in 2009, claiming that Microsoft’s actions were
anticompetitive and in violation of federal antitrust law. In 2010, Microsoft initiated a lawsuit of its
own against Datel, claiming that Datel’s Turbofire and WildFire Xbox 360
controllers infringed its patent that covers the communication between a gaming
console and a wireless accessory (U.S. Patent No. 7,787,411). Datel agreed to stop manufacturing and
importing the offending devices, however Microsoft still sought compensatory damages
from past infringement despite dropping the infringement case. Finally, in December of 2011, Microsoft and
Datel reached a confidential settlement agreement out of court, ending the 2
year antitrust and infringement litigation.

Aug

Physical Game Patent Dispute

Hidden Image Technology Solutions v. Thomas L. Barnhart

U.S. District Court, Northern District of Georgia

Case No. 11-cv-02415, Filed July 22, 2011

Hidden Image Technology Solutions, a Georgia company, has sued Thomas Barnhart asserting that he falsely promotes himself as the sole inventor of several patents, and has profited from this false promotion. The lawsuit seeks to remove Barnhart as an inventor of those patents, and to instate his co-inventor, Joel Brooks, as the sole inventor of the patents. The patents in question are:

6,296,900: “Method of making hidden image game piece.” Granted 10/2/2001.

5,984,367: “Hidden image game piece.” Granted 11/16/1999.

7,747,472: “Hidden image game piece.” Granted 6/29/2010.

6,629,888: “Hidden image game piece.” Granted 10/7/2003.These are physical game patents, consisting of printed pieces, that when held against pre-programmed colors on a television or computer screen, reveal hidden messages. The first use of this patent by Brooks, in the early 1990s, was for a hidden printed message distributed in newspapers, called the “Red Reveal Game Piece.” When held against a red part of the screen set to appear during a Dallas Cowboys football game, the game piece would reveal a hidden message or advertisement. The idea garnered interest from television outlets like MSNBC, and Brooks also worked to adjust the invention to the growing opportunity of the internet. Brooks developed a WebDecoder® based on the patents above, and shared his idea for marketing it with Barnhart. According to Hidden Image’s complaint, Barnhart cajoled himself into the position of co-inventor of these patents by convincing Brooks that this was necessary for Brooks’ own “protection.” In reality, according to Hidden Image, Barnhart was not an inventor of the patents, and Brooks was the true sole inventor.

The complaint alleges that Barnhart not only forced his way into the co-inventor position on three of the patents, but without Brooks’ knowing, he had himself listed as the sole inventor of the ‘888 patent. Barnhart also attempted to license these patents giving Brooks only 10% of the royalties. Brooks in 2003 licensed his rights, title and interest in these patents to a subsidiary of Hidden Images. Hidden Images now seeks to have Barnhart’s name stricken from the records of the USPTO, and to instate Brooks as the sole inventor of all four patents. Hidden Images also seeks an injunction barring Barnhart from using the patents, and to recover damages, profits, and attorney’s fees.

Because this is a physical game patent, we won’t follow this one further. You can learn more about the case filings at PriorSmart.

Aug

Facebook Patent Fights Continue

In a previous post we reported on the internet buzz surrounding the issuance to Facebook of U.S. Patent No. 7,669,123, entitled “Dynamically Providing a News Feed About a User of a Social Network.” Many users were outraged that the patent system would allow businesses to register such patents. You can read our analysis here.

Facebook has certainly continued to legally enforce its patents, and last November it filed suit against Phoenix Media, a Boston-based alternative newspaper publisher, for infringing one of its database search patents. The patent-in-suit is U.S. Patent Number 6,199,157, which covers a system for configuring an item such as a machine that can have a multitude of optional components. Facebook claimed that Phoenix Media infringed the patent by operating websites that allowed users to search for information by filtering data according to multiple criteria.

Last Friday, July 29th, 2011, Phoenix Media asked a Massachusetts federal court for summary judgment in the case, arguing that the ‘157 patent is invalid. According to Phoenix, the technology claimed by the patent was widely in use when the patent application was filed in 1998. According to Phoenix’s motion, “…at least in the area of database searching (the field at issue in this case), such methods are anything but novel. The prior art shows they were known and in use long before the application.” Phoenix cites several articles that described similar systems before the application for the Facebook patent was filed, including one from 1996 discussing features of then-popular search engines AltaVista and Lycos Inc.

Since this isn’t strictly a video game patent case, we won’t follow it further, but if you’d like to learn more, visit Law360.

Aug

Case Analysis: Pyramid Holdings v. Giant Interactive

Pyramid Holdings, Inc. v. Giant Interactive Group, Inc.

S.D.N.Y., filed Nov. 26, 2007

Case No. 07-CV-10588

I. Nature of the Case

This case is a federal securities class action on behalf of a group of Americans who purchased American Depositary Shares (“ADSs”) from Giant Interactive after the company’s initial public offering (“IPO”) on or about November 1, 2007 through November 19 2007. The group alleges violations of Sections 11 and 12(a)(2) of the Securities Act of 1933.

Giant Interactive is a developer who operates online games in the People’s Republic of China. The company’s most popular games are MMOs. It offers three successful MMO games: 1. Zheng Tu Online (“ZT Online”), a free-to-play RPG set in ancient China where players develop skills, use magical weapons, and team up with other players to fight monsters and players from other kingdoms; 2. ZT Online PTP, where players assume one of five different roles in 10 different kingdoms. PTP requires players to purchase physical or virtual prepaid game cards on an official website or Internet cafes; and 3. Giant Online, where players may assume one of 14 different roles spanning numerous regions. In this game, a player guides his or her character to develop skills and is encouraged to cooperate with other players to fight against players from other regions.

Two of the metrics that Giant Interactive reported for its games were the number of average concurrent users (“ACU”) and peak concurrent users (“PCU”). The rules of Giant Interactive’s games are material to investors because they impact the game play and the company’s ACU and PCU figures. The case here concerns a failure of Giant Interact to disclose a significant rule change to ZT Online (its most popular game).

On September 30, 2007, Giant Interactive completed its third fiscal quarter. A month and a half later (but before the company was required to publicly announce its third quarter earnings), Giant Interactive completed the IPO where the company sold 57 million ADSs, raising more than $886 million. The company announced that the underwriters had exercised their over-allotment option and purchased and sold an additional 8.6 million ADSs at $15.50 per share for an additional $133 million. Its total sales equaled $1.2 billion.

The Registration Statement, which incorporated a Prospectus, was issued in connection with the IPO, but, according to the complaint, contained inaccurate statements of material fact, and misrepresented or omitted the significant rule change to ZT Online that had resulted in declining ACU and PCU figures in the third quarter as opposed to the second quarter of 2007.

The Plaintiffs brought this class action seeking damages and recovery for the investment they had made as a result of Giant Interactive’s concealment of its declining figures because of the rule change. The Plaintiffs, as a class, presented the following questions of law and fact:

1. Whether the federal securities laws were violated by Defendants’ acts

1. Whether the Prospectus and Registration Statement issued by Defendants to the investing public in connection with the Offering omitted and/or misrepresented material facts about Giant Interactive and its business

1. Whether Defendants’ statements issued during the Class Period were materially false and misleading; and

The extent of injuries sustained by members of the Class and the appropriate measure of damages

II. Substantive Allegations

In the Registration Statement and Prospectus filed by Giant Interactive on October 31, 2007, Giant Interactive reported its ACU and PCU figures as increasing when, in fact, they were in the decline. The decline in ACU and PCU was attributable to a significant rule change implemented by Giant Interactive. The rule change discouraged “gold farming activities” in ZT Online. Gold Farming occurs when a MMO player attempts to acquire (‘farm’) items of value within a game, usually by performing some task for an indeterminable amount of time (e.g., killing an important creature). Generally, gold farming is conducted by companies that hire people to play these online games so they can generate online currency which they can then sell to third-party websites for real cash to actual players who will then use the gold coins in the game.

The Plaintiffs alleged that the Registration Statement for the third quarter did not explain or describe the gold farming rule change, did not highlight the negative trend in ACU and PCU, and did not disclose that the negative impact the rule change was having at the time of the IPO. They also claim that the Registration Statement was materially misleading because it omitted the significant effect gold farming activities had on Giant’s previous statistics despite the company’s knowledge of the pervasiveness of the activity.

While the Registration Statement did describe the gold coin currency system in ZT Online and alluded to the company’s efforts to “restrict” the ability of players to sell their gold coins, it failed to disclose that the company had changed the rules to restrict gold farming. In the Risk Factors-Risk Relating to Our Business and Industry-section of the Registration Statement the company described the negative effects of a rule change, but not the rule change relating to gold farming. The excerpted part read:

“To discourage this behavior, which we believe is inconsistent with the basic principles of our gameplaying environment, in May 2007 we changed the rules governing one of our popular promotions that enable a player to purchase virtual “insurance policies” for his or her character that would pay out virtual gold coins valued at up to five times the purchase price of the insurance policy once his or her character reached a predetermined experience level. Some players would use gold coins earned from these pay-outs to obtain virtual products, and then sell these virtual products to other players using auction websites. We changed the rule so that related pay-outs consist primarily of gold coin vouchers, which can only purchase virtual products that are non-transferable. We believe that this change was the main reason for the subsequent decrease in our monthly average concurrent users, which fell by 14.9% from 553,784 in May 2007 to 471,428 in June 2007.”

The Plaintiffs claim that under SEC rules, the Registration Statement was required to disclose that the company had materially changed the rules in ZT Online and that the rule change impacted the company’s continuing operations.

On November 19, 2007, Giant Interactive issued a press release announcing its financial results for the third quarter of 2007. The next day, in a Form 6-K, the company attributed the decrease in ACU and PCU to the June 2007 “gold farming rule.” That same day, Giant Interactive held a conference call with analysts and investors in which it attributed the decline in the third quarter to the rule change. Following the conference call, the price of Giant Interactive ADSs dropped from $14.88 to $11.10.

III. Count I—Violations of Section 11 of the Securities Act

The Plaintiffs alleged the following:

- The Registration Statement for the IPO was inaccurate and misleading, contained untrue statements of material facts, and omitted necessary and material facts

- Giant Interactive was responsible for the contents and dissemination of the Statement and the Prospectus and, as a result, were strictly liable for the misstatements and omissions

None of the Defendants made a reasonable investigation or possessed reasonable grounds for the belief that the statements in the Registration Statement were true or were not misleading

IV. Count II—Violations of Section 12(a)(2) of the Securities Act

The Plaintiffs, pursuant to Section 12(a)(2) of the Securities Act, 15 U.S.C. §771 claimed:

- The Registration Statement contained a Prospectus which was used to induce investors to purchase Giant Interactive’s ADSs

- That Giant Interactive solicited purchases for their personal financial gain through the preparation and dissemination of the Prospectus

- The Prospectus contained untrue statements of material fact and omitted facts necessary to make the statements not misleading

- That Defendants were obligated to make a reasonable and diligent investigation of the statements contained in the Prospectus to ensure that such statements were true

None of the Defendants made a reasonable investigation or possessed reasonable grounds for the belief that the statements contained in the Prospectus were accurate and complete

V. Prayer for Relief

The Plaintiffs sought the following judgment:

1. Awarding Plaintiffs damages together with interest (for purchase of the ADSs)

1. Awarding Plaintiffs their costs and expenses of litigation

Awarding Plaintiffs further relief as may be just and proper under the circumstances

The Plaintiffs also asked for a jury trial. We will continue to track the case as it progresses.

If you are interested in learning more about the ZT Online, there is an interesting article written for the website DanWei that described the underpinnings of the game and the real-life gambling involved when playing. Also, an article on PlayNoEvil delves deeper into the way ZT Online differs from the normal MMO genre. It, too, was a fascinating read.

Jul

New Case: Microsoft Sued Over Kinect and Motion Tracking Patent

Impulse Technology Ltd. v. Microsoft Corporation et al

U.S. District Court, District of Delaware

Case No. 11-cv-00586, Filed July 1, 2011

Impulse Technology, an Ohio-based company, sued Microsoft Corp in Delaware yesterday, alleging that the Xbox Kinect game console infringed on seven of Impulse’s patents for technology that tracks users’ movements and lets them play video games without a controller. The patents in suit are U.S. Patent Nos. 6,308,565; 6,430,997; 6,765,726; 6,876,496; 7,359,121; and 7,791,808 describing a “System and method for tracking and assessing movement skills in multidimensional space,” and U.S. Patent No. 6,749,432 covering an “Education system challenging a subject’s physiologic and kinesthetic systems to synergistically enhance cognitive function.”

The complaint alleges that Impulse informed Microsoft of their patents before the suit, and told them that these patents covered a “wide variety of games where the movement of a player is tracked in three dimensions … and certain exercise games where the motion of the player is tracked to effect movement of a virtual avatar, and the exertion of the user is monitored, including where the tracking of the player is done by use of a camera.” The suit claims that Microsoft is willfully infringing these patents, and alleges direct, inducing, and contributory infringement.

In addition to Microsoft, a slew of other companies who make games for Xbox were named as defendants. Eight video game makers, including EA, Sega, and Konami, stand accused of making exercise games, sports games and other games designed for the Kinect system that violate Impulse’s technology. Impulse alleges that like Microsoft, these companies are guilty of making, selling and importing into the U.S., games that infringe several of their patents.
Impulse is seeking a permanent injunction, damages, treble damages, interest, attorneys’ fees and costs. According to Law360, a representative for Microsoft said the company is reviewing the complaint and had no comment.

Jul

Achates v. Symantec

Achates Reference Publishing, Inc. v. Symantec Corporation et al.
U.S. District Court for the Eastern District of Texas
Case No. 11-cv-00294, Filed June 20, 2011

Achates Publishing, a Texas enterprise, has sued a slew of companies, including Symantec, Electronic Arts, and Valve LLC, alleging patent infringement. The patents in question are U.S. Patent Numbers 5,982,889, titled “Method and Apparatus for Distributing Information Products,” and 6,173,403, a continuation-in-part of the ‘889 patent, titled same. The patents describe methods for authenticating and activating software in a way that distributes “information products without many of the costs and restrictions associated with techniques in the prior art.”

Especially relevant to video games are the claims that EA’s Sims games and Valve’s Left4Dead and HalfLife games infringe these patents. Achates alleges that “defendants have infringed the ‘889 patent and the ‘403 patent by making, using, selling, and offering for sale software that uses the product activation technology described and claimed in the ‘889 and ‘403 patents, without authority of Achates.”

This is the third time in four years that Achates has brought suit to defend these patents. The first suit, in November 2007, was brought against Microsoft, and was dismissed in December 2008, at request of the parties. The second suit was filed in November 2009 against nine software companies, including McAfee and Intuit. Those cases were all dismissed by August 2010, again by request of the parties, after they reached an undisclosed agreement.

In this latest suit, Achates is seeking a determination of infringement, treble (triple) damages for willful infringement, attorneys’ fees and a permanent injunction. This case isn’t exactly focused on video games, so our updates may be minimal.

For more on this case, visit Law360.

Jul

Case Update: Keller v. Electronic Arts, Inc.

Keller et al. v. Electronic Arts, Inc. et al.

U.S. District Court, Northern District of California

Case No. 09-cv-1967

Case Update:

When last we checked in on this case (02/08/2010), plaintiffs had survived motions to dismiss the case from both EA and the NCAA. On May 2, 2011, Judge Wilken dismissed claims that EA, along with the NCAA, conspired to avoid paying student basketball and football players for the use and sale of their likenesses in popular NCAA-themed video games. However, plaintiffs were given two weeks to amend their anti-trust allegations, and the court refused to throw out any right-of-publicity claims.

The publicity claims accuse EA of using the players’ images without their permission, and the NCAA of turning a blind eye to EA’s actions in order to reap substantially higher royalty rates, given the greater popularity of games showing players that look like the real student-athletes. These claims are now set to move forward into discovery.

For more details on developments on both the antitrust and rights of publicity fronts, see Law360.

Original Post:

On Monday, February 8, 2010, the U.S. District for the Northern District of California ruled on a motion to dismiss filed by Electronic Arts (“EA”), the National Collegiate Athletics Association (“NCAA”), and the Collegiate Licensing Company (“CLC”) in Keller v. Electronic Arts, Inc., Case No. 09-cv-01967-CW.

While the court granted the defendants’ motion to dismiss as to some of Keller’s claims, the court denied the motion to dismiss as to some of Keller’s claims against EA.

Keller, a former starting quarterback for the Arizona State University (“ASU”), filed this lawsuit last May against EA and the other defendants, alleging that EA used his likeness without his consent and that the NCAA enabled this use. Among the various claims that Keller asserted against the defendants is a claim against EA for alleged violations of California’s statutory and common law rights of publicity.

In this round of motions, EA argued that Keller’s claims were barred by the First Amendment and other possible defenses under California law.

As to EA’s First Amendment argument, the court stated that “[a] defendant may raise an affirmative defense that the challenged work is protected by the First Amendment inasmuch as it contains significant transformative elements or that the value of the work does not derive primarily from the celebrity’s fame. . . . The defense poses what is essentially a balancing test between the First Amendment and the right of publicity.” Slip. Op. at 6-7 (internal quotes and citations omitted).

With this standard in mind, the court determined that “EA’s depiction of [Keller] in ‘NCAA Football’ is not sufficiently transformative to bar his California right of publicity claims as a matter of law.” Slip. Op. at 9. In arriving at this conclusion, the court noted that the quarterback for ASU in the game shares many of Keller’s characteristics, as the in-game ASU quarterback wears Keller’s jersey number, has the same height and weight, and is purportedly from the same home state. Id.

In addition, in ruling that EA was not entitled to the “public interest” and “public affairs” defenses, which EA asserted under California law, the court noted that EA’s game goes beyond mere reporting of “just the players’ names and statistics; it offers a depiction of the student athletes’ physical characteristics and, as noted, enables consumers to control the virtual players on a simulated football field.” Slip Op. at 13; see id. at 13-15.

We will continue to follow this case.

Jul

Nintendo Faces Suit over 3DS

Tomita Technologies USA LLC v. Nintendo Co.
U.S. District Court, Southern District of New York
Case No. 11-cv-04256, Filed June 22, 2011

A technology company based in Japan and the U.S. brought suit against Nintendo for allegedly infringing on their stereoscopic (3-D) patent with its new 3-D gaming system. According to the complaint, Tomita Technologies was founded by a former Sony engineer, who after retiring from Sony after 30 years, went on to research and invent nearly 70 patents, and over 100 patent applications, since 2002. Among these inventions is U.S. Patent No. 7,417,664 (the ‘664 patent) titled “Stereoscopic Image Picking Up and Display System Based Upon Optical Axes Cross-Point Information.” According to the complaint, the ‘664 patent deals with “technology relating to displaying stereoscopic images on-screen for viewing with the naked eye, i.e., without utilizing glasses or other devices.”

Tomita alleges that Nintendo’s 3DS system, which launched in the U.S. in March, infringes on the ‘664 patent. The 3DS system allows for gameplay featuring real 3-D graphics, with no need for special glasses. According to the Sony website, as cited in the complaint, 3DS achieves this by using two outer cameras to see the world in 3-D, mimicking the human eye. Tomita alleges that Nintendo is willfully infringing on its ‘664 patent in order to make 3DS possible. The complaint does not detail how 3DS, a hand-held gaming system, infringes the patent.

According to the complaint, Tomita applied for the patent in 2003 and the U.S. Patent and Trademark Office issued it in August 2008. This is not the first time Nintendo’s DS series of hand-held systems has attracted attention from other patent litigants. Law360 reports that, in late May, Japan-based Milestone Co. sued the company over the camera lens system its DSi system. And, in February, a Texas patent-holding company accused Nintendo of infringing a patent on motion-sensitive video game controllers.

Jul

A Mark Against Activision?

Patent Compliance Group, Inc. v. Activision Publishing, Inc.
U.S. District Court, Northern District of Texas
Case No. 10-cv-00288, Filed February 12, 2010

Original Post:

On June 1, 2010, PCG filed a notice for dismissal of the case under FRCP 41(a)(1). Rule 41 allows a plaintiff to dismiss an action without a court order by filing a notice of dismissal before the opposing party serves either an answer or a motion for summary judgment. In this case Activision had not responded to PCG’s suit with any court filings before PCG filed the voluntary dismissal. Based on the amount of time between the lawsuit being filed and dismissed, the parties likely started settlement discussions immediately after the case was filed, and PCG kept agreeing to delay the deadline for Activision to file its Answer to the Complaint in view of ongoing settlement discussions.

Case Update:

The immense popularity of musical video games such as Guitar Hero, Band Hero and DJ Hero appears to have generated some unwanted attention for Activision Publishing, Inc. (“Activision”). In particular, on February 12, 2010, Patent Compliance Group, Inc. (“PCG”) filed a qui tam action against Activision, alleging that Activision has falsely marked many of its video games including Guitar Hero 5, Band Hero, DJ Hero and Guitar Hero Smash Hits (collectively “Activision video game products”) as patented or patent pending. Specifically, PCG alleges that Activision has violated 35 U.S.C. 292(a), which states, in relevant part, that:

Whoever marks upon, or affixes to, or uses in advertising in connection with any unpatented article the word “patent” or any word or number importing the same is patented, for the purpose of deceiving the public; or Whoever marks upon, or affixes to, or uses in advertising in connection with any article the words “patent applied for,” “patent pending,” or any word importing that an application for patent has been made, when no application for patent has been made, or if made, is not pending, for the purpose of deceiving the public – Shall be fined not more than $500 for every such offense.

PCG’s complaint makes the following specific assertions of false patent marking:

- Activision’s Guitar Hero 5, DJ Hero, Band Hero and Guitar Hero Smash Hits video games are falsely marked with U.S. Patent No. 5,739,457 (“‘457 Patent”).

- Guitar Hero 5, DJ Hero, Band Hero and Guitar Hero Smash Hits video games are falsely marked with U.S. Patent No. 6,018,121 (“‘121 Patent”).

- Guitar Hero 5, Band Hero and Guitar Hero Smash Hits video games are falsely marked with U.S. Patent No. 6,252,153 (“‘153 Patent”).

- Guitar Hero 5, Band Hero and Guitar Hero Smash Hits video games are falsely marked with U.S. Patent No. 6,268,557 (“‘557 Patent”).

- Guitar Hero 5, DJ Hero, Band Hero and Guitar Hero Smash Hits video games are falsely marked with U.S. Patent No. 6,369,313 (“‘313 Patent”).

- Guitar Hero 5, Band Hero and Guitar Hero Smash Hits video games are falsely marked with U.S. Patent No. 6,379,244 (“‘244 Patent”).

- Guitar Hero 5, DJ Hero, Band Hero and Guitar Hero Smash Hits video games are falsely marked with U.S. Patent No. 6,429,863 (“‘863 Patent”).

- Guitar Hero 5, Band Hero and Guitar Hero Smash Hits video games are falsely marked with U.S. Patent No. 6,758,753 (“‘753 Patent”).

- Guitar Hero 5, Band Hero and Guitar Hero Smash Hits video games are falsely marked with U.S. Patent No. 6,769,689 (“‘689 Patent”).

- Guitar Hero 5 and Guitar Hero Smash Hits video games are falsely marked with U.S. Design Patent No. D441,403 (“‘403 Patent”).

Guitar Hero 5, DJ Hero, Band Hero and Guitar Hero Smash Hits video games are falsely marked as “patent pending” or “patent applied for.”

Essentially, PCG is claiming that the scopes of the patents with which Activision’s video game products are marked do not cover the methods or systems of the actual products. In addition, where Activision has marked products with “patent pending” or “patent applied for,” PCG’s position is that none of Activision’s patent application has a potential scope of protection which would cover any aspect of the specified video game products.

Success in a qui tam action of this nature will depend heavily on whether PCG is able to show that the scope(s) of one or more of the specified patents do not cover the specified products as well as whether Activision had an intent to deceive the public with those markings. Generally, a simple denial of intent to deceive is insufficient to escape liability under section 292. However, Activision may avoid liability if it is able to sufficiently prove that it had a reasonable belief that the articles were within the scope of the patents with which the product were marked.

If PCG prevails on one or more of its false marking claims, the assessed damages may be astronomical given the number of copies of Activision’s video game products that have been sold. Although in some cases, courts have attempted to reign in the potential for substantial sums of damages, the Federal Circuit recently held that damages for false markings are to be calculated on a per article basis. See Forest Group, Inc. v. Bon Tool Co., 2009 WL 5064353 at *4-5 (Fed. Cir., Dec. 28, 2009). However, a court may set the damages assessed to each article well below the $500 maximum in order to avoid what they might feel is an excessive penalty.

We will keep you posted.

This case is Patent Compliance Group, Inc. v. Activision Publishing, Inc., Case 3:10-cv-00288-B (N.D. Tex.).

Jun

Supreme Court Decisively Extends First Amendment Protections to Video Games

Brown et al. v. Entertainment Merchants Association et al.
United States Supreme Court
Case No. 08-1448

The Supreme Court ruled on Monday, June 27, 2011, that a California law regulating the sale or rental of violent video games to children was unconstitutional on First Amendment grounds. “No doubt a state possesses legitimate power to protect children from harm,” said Justice Antonin Scalia, who wrote the majority opinion, “But that does not include a free-floating power to restrict the ideas to which children may be exposed.” The California law bars the selling or renting of video games to people under 18 when the games involve killing, maiming, dismembering or sexually assaulting a human being. Retailers who violated the act would have been fined up to $1,000 for each infraction.

In ruling that the California law restricted free expression without valid justification, Justice Scalia was joined by four justices, while Chief Justice Roberts, and Justice Alito filed concurrences, and Justices Thomas and Breyer dissented. This is the first emphatic statement from the nation’s highest court that video games qualify for full First Amendment protections. The court noted that “Like the protected books, plays, and movies that preceded them, videogames communicate ideas—and even social messages…That suffices to confer First Amendment protection…Whatever the challenges of applying the Constitution to ever-advancing technology, the basic principles of freedom of speech and the press, like the First Amendment’s command, do not vary when a new and different medium for communication appears.”

In addition to confirming video games as free speech, the court drew a line between committing violence, and depicting violence. Citing last year’s 8-1 decision in U.S. v. Stevens, 559 U.S. (2010), striking down a federal law making it a crime to buy and sell depictions of animal cruelty like dog fighting videos, the court found the California statute to be an impermissible content-based restriction on speech, and that “there was no American tradition of forbidding the depiction of animal cruelty — though States have long had laws against committing it…. As in Stevens, California has tried to make violent-speech regulation look like obscenity regulation by appending a saving clause required for the latter. That does not suffice.”

The court also rejected California’s attempt to create a wholly new category of content-based regulation that is permissible only for speech directed at children. “That is unprecedented and mistaken… No doubt a State possesses legitimate power to protect children from harm… but that does not include a free-floating power to restrict the ideas to which children may be exposed. California’s argument would fare better if there were a longstanding tradition in this country of specially restricting children’s access to depictions of violence, but there is none.” Scalia then went on to cite Grimm’s Fairy tales as examples of gory material we already feed to children. Specifically he talked about the punishment for the evil stepmother in Snow White, who is made to dance in red-hot slippers till she fell dead on the floor. (This is definitely not in the Disney version!)

Justice Thomas’ dissent specifically disagreed with the majority on the point of regulating speech for minors. His dissent asserted the drafters of the First Amendment did not understand it to protect minors’ free speech rights—“The freedom of speech, as originally understood, does not include a right to speak to minors (or a right of minors to access speech) without going through the minors’ parents or guardians.” Justice Breyer also dissented, saying the statute survived First Amendment scrutiny. He relied on studies that he said showed violent video games were positively associated with aggressive behavior, arguing that the court should defer to legislatures, and expert opinions in such cases.

This is a landmark ruling, with implications for more than just violence in video games. As the court noted, this case is the latest in a series of attempts by the California legislature to regulate entertainment content. Industry experts predict that as gaming companies continue to expand their footprint and increasingly use digital distribution methods, including social networking games and mobile titles, legal action relating to privacy and security in games will increase. For more industry analysis, see Gamasutra.

Jun

News: Forterra Systems sues Avatar Factory

Forterra Systems, Inc. v. Avatar Factory
case 5:05-cv-04472-PVT, N.D. Cal

Case Update:
Following a confidential settlement by the parties, this case was dismissed with prejudice on January 17, 2008.

Original Post:
Forterra Systems, Inc. on November 3, 2005, filed a patent infringement lawsuit against the Avatar Factory for infringement of U.S. Patent No. 6,784,901, entitled “Method, System and Computer Program Product for the Delivery of a Chat Message in a 3D Multi-User Environment.” Claim 1 of the ‘901 patent reads as follows:

1. A system for delivering a message between a sender and a recipient in a three-dimensional multi-user environment, wherein said three-dimensional multi-user environment maintains respective digital representations of the sender and the recipient, comprising:
a sender interface; and
a recipient interface, including a recipient viewport;
wherein said recipient interface receives the message from said sender interface, maps the message to a texture to generate a textured message, and renders said textured message at locations along a path in the three-dimensional multi-user environment, whereby the recipient can visually ascertain at least portions of the path of the textured message through said recipient viewport.

The lawsuit was filed in the Northern District of California, and is docketed as case no. 5:05-cv-04472-PVT. We will add this case to our tracking list and update of any significant developments.

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