Focus on Gaming: Q&A with Susan Abramovitch

Susan H. Abramovitch is a partner in Gowlings’ Toronto office, practising exclusively in entertainment law. Susan’s practice covers all aspects of music industry transactions, as well as film, television, live theatre, multimedia, videogaming and book publishing. IPilogue Editor Stuart Freen sat down with her earlier this week to talk about the video gaming industry and the legal issues and challenges surrounding it.

IP Osgoode: When did you start working with clients in the gaming industry?

Susan Abramovitch: That probably started about 5 or 6 years ago. Traditionally entertainment lawyers work within their silos of the various entertainment industries, i.e. Music, TV, film, book publishing visual arts. My silo since ’95 when I first started working as an entertainment lawyer was music. It was an interesting time to start because that was the beginning of the technological revolution and I experienced the ups and downs of the music industry.

It probably was around 2004-2005, at the end of that decade of upheaval in the music industry, that I woke up with an epiphany that all entertainment media was converging on one product and that that product was going to be a video game. Which, of course, sounds more trite than it did six years ago. I knew that consumers wouldn’t be happy just listening to music, just watching tv, or just watching a movie. There would have to be some multi-media element to it. And, of course, if you want to be cynical about it, you’d notice that [the switch] also coincided with the nadir in the music industry. But once I realized it, I was like: OK, I can no longer just be a music lawyer. I have to know about all entertainment industries from a legal perspective, and most importantly the video game industry which I thought would be the place where it all converged.

IPO: Games do kind of occupy a weird space in the IP rights spectrum because they incorporate music, cinematic elements, and of course the underlying game itself. How do people protect their games as intellectual property? How do you see the different rights interacting with one another?

SA: What’s interesting about video games is that there are rights on many levels. So in fact, while it sounds like it may make it harder to protect, in some ways it makes it easier to protect just because there are different levels to protect on. You might be able to get protection on one angle and not another, but the one angle helps you stop whatever behaviour it is you want to stop.

By comparison to the music industry, if you’re a musician and you don’t want someone to use your music in an ad, but the record company owns your master and you don’t have an approval right over how they use it, that might not be so bad if you still control the underlying song that you may have written. You can stop something from happening by controlling rights in the musical composition even if you don’t control the recording. And that’s just two rights in one.

In video games, you have tens of rights in one. As you said, there may be rights in the music, there may be rights in the trademarks for some the images and characters in it, or in the logos and so-on that may be important in the game. There’s copyright in how things look, but there’s also copyright in the underlying code. In video games you potentially have at least two levels of intellectual property: one is the code that creates the game, which is more software-like, and number two is the imagery that you’re producing. And, of course, once you get into virtual property you may even have a third level of intellectual property right.

IPO: In terms of the video game industry in Canada, there’s no question that there’s a lot of talented developers. Several large game publishers like Electronic Arts and Ubisoft have large well-respected development studios in Canada, and the gaming industry in Canada is growing at a phenomenal rate. However, there don’t seem to be a lot of big home-grown publishers making Canadian games from the ground up. Why do you think this is, and is it a problem?

SA: To answer the first question, it’s all about capitalization. The industry developed around two or three very large international companies, Ubisoft and Electronic Arts in particular. They developed and grew into massive companies before [Canadian publishers] could begin to start. As soon as you have players in the market who are that huge and that well-capitalized, it makes it very difficult to compete. So, even the Canadians who are trying to publish their own works and build games from the ground up rather than as hired guns, they don’t have the capitalization to build the games that can compete on that level. Or, if they do and they have a great idea and they start building and become somewhat successful, those bigger companies immediately come in and make them offers they can’t refuse. It’s not that we don’t have successful entrepreneurs or successful game companies, it’s just that once they become a success they get bought out pretty easily by these monster companies. I have nothing against them, but they’re just huge!  Canadian companies just don’t have the capital to create the games that compete on that level, so we need other companies to come in and give us that capital.

IPO: Right, so with other types of media like music, film and literature, the government is subsidizing them in various ways and there’s a push to have Canadian content. You don’t see that so much with games, perhaps because people don’t put games on the same level as those other art forms. Still, the result is a lack of Canadian ideas getting fully developed into games.

SA: In the film and TV world in Canada there are sort of two tiers of tax credits. There’s a lower level where the Canadian companies are being service providers to foreign companies, and there’s a higher level one where companies are actually creating content for themselves, at least on the face of it. In the game world there’s just one very generous tax credit for doing anything, whether it’s being a service provider to others or doing it yourself. And I think that’s been really good for helping to develop the industry, and frankly stem a little bit of the brain drain out of Canada from all of the great talented students that come out of the programs in Canada. I think it’s been really successful, and we do have a thriving game service economy here. But, the fact that the tax credits don’t distinguish or incentivize the retention of the content at home makes it difficult to create a home grown publishing industry. But really, the dollars are so big, that to be able to capitalize games that will compete on that level… well, I’m not sure we’ll be able to get that from the government.

IPO: Is Canada doing enough to develop and retain game developers just graduating from university? How about attracting talent from abroad, from places like Britain and the United States? Is Canada on the bad end of a “brain drain”?

SA: I actually think the brain drain is nothing like it is in other industries and professions. I mean, I was a brain drain! I went to work in New York right after I got out of law school. The temptation of going to the States and Europe because there are better opportunities and higher wages is always there regardless, frankly, of the economy or the particular industry. I actually think that in the case of the video gaming industry, at least because we have a thriving development space (if not publishing space), and because Ubisoft and EA have invested heavily thanks to the tax credit, [Canada is] actually a really good place to work. There are certainly always people who leave but there are lots of people who come in. My answer to your question is that as far as the brain drain [is concerned] we are doing better in the video gaming industry than in a lot of other industries.

IPO: That’s good news for the video gaming industry.

SA: Yeah, it’s good news in a backhanded way [laughs]. We’re not doing so badly. It’s not that we’re doing it well – we’re just not doing as badly as other areas.

IPO: The gaming industry has always been fairly reliant on technological protection measures for protecting its intellectual property. Virtually all the consoles employ TPMs (technical protection measures) to prevent unauthorized copying. Nevertheless, a huge mod chip business has sprung up and copyright infringement remains a big problem. Do you think that the legal protections for TPMs in Bill C-32 are a step in the right direction?

SA: Yes, definitely. In fact I think they could go further, frankly. I think that TPMs are essential to the video game industry and other entertainment content industries in order to do two things: Number one, to protect against piracy and bypassing protections that are intended to protect copyright. Even more important than that, is the fact that TPMs are essential for giving different offerings to the marketplace.

I am a big fan of digital delivery models because they service different needs for different customers. I have two young children and they are very keen on their games. They sometimes play some games over and over and over, which makes it worth it to own that game. Other times the games are fads that they play the way they do their social network sites. The only way to offer me different products, of the same game even, at different price points is to use TPMs.

If the bypassing of those TPMs is not protected by copyright law then no video game company is going to want to sell anything less than “here is the full shebang, you get to own it.” Otherwise they would be selling something less that can be bypassed and turned into [full ownership]. Publishers would have to sell every product at the same price point. If we want a multiplicity of options in the market place we have to be able to use TPMs and, as a prosecutor go after people who try to bypass the TPMs.

IPO: With the access-control types of TPMs you mentioned, do you see them as being intrinsically linked to copyright and the Copyright Act? What’s wrong with protecting them with contracts and license agreements instead?

SA: Well, you only have contracts with the people you do contracts with. I don’t have a contract with a guy who modifies a unit to be able to play a pirated work. Sure, I love protecting things by contract, but it only works if you have terms of use or you need to direct a contract with someone. But, if you’re talking to somebody out there who has never agreed to any terms of use then a contract doesn’t work.

IPO: Games like Second Life and World of Warcraft have spawned “virtual economies” where players basically develop property in the game to sell for real money in the real world. For example, a Warcraft player might spend a lot of time acquiring some rare in-game item only to sell the item to another player who doesn’t want to put in the time. This has raised some interesting property issues around who actually owns these virtual commodities, the players or the publishers. In your opinion, do players have any true proprietary interest in their virtual property, or are they entirely at the mercy of the publishers who might frown on this kind of behaviour?

SA: My “opinion” aside, the [legal] answer is pretty straight: No, the players have no rights by virtue of the games’ terms of use. There are a very few exceptions, Second Life being one of them in certain circumstances. The players have no rights. Any virtual property created or acquired by them can be confiscated or expropriated without any liability by the game publisher. So, that’s the answer in life and in fact.

The “in my opinion” part really just relates to whether I think that should be the way it is. The answer to that is that is yes, I actually do think users should have rights in the things they create. While I concede that game publishers need to limit liability in the event that stuff goes wrong or something gets lost because of a system shutdown or it gets stolen by a third party, I also think that when somebody spends a lot of time and pays a lot of subscription fees to acquire a sword or whatever it is that they can sell on the open marketplace there really should be some of notion of rights for the players in that property. The players pay for the virtual property, whether through their time, money or both.

IPO: You see with Second Life that they were even marketing the quasi-property system as a digital economy where players can sell things online for real money.

SA: Yeah, absolutely. And there was the person who made $100,000 on Second Life by selling stuff and earning Linden Dollars and trading them on the open marketplace. I mean, there’s definitely economies there that are not just virtual but are real, that are translatable into real economies. As soon as that happens you need to have some rules in place, and I don’t believe that it should be left to the game publishers to set the rules. They are the dictators in those worlds. It is not a democracy in the virtual world, it’s a dictatorship that is run by the publisher. Again, I do believe that these virtual worlds are being created for commercial reasons by publishers who have legitimate reasons for limiting their liability in most circumstances. But, that’s different than taking away something of value without good reason.

IPO: That’s interesting. One would imagine that moving into the future there will be more virtual economies springing up. How can you go about regulating these economies? Is it too far off to tell?

SA: Well, that’s very difficult. Do we really need the government regulating in this private sphere? That’s a difficult one. And I think that governments have a lot of more important priorities, to be fair. I think it might be the pressure of the marketplace – I mean, that would be ideal. Hopefully some innovative game publishers, like Second Life who has taken some steps in that direction, start offering games that are more progressive on that front for users, and users will flock to those games that do that. That would be the ideal.

IPO: Games are now collecting much more personal data about users than ever before. This ranges from the collection of innocuous account data, to things like addresses and even financial information. At the same time, games are incorporating more and more social networking functions, presenting issues [including] cyber-bullying and scamming. Complicating this is the fact that a lot of gamers are still kids and teenagers and might not necessarily understand the risks associated with online interaction. From what you’ve seen, are developers taking these privacy issues seriously?

SA: There are definitely efforts that are being made in that direction, public, private and government. Again, as a mother of young children who play on the internet almost exclusively as their entertainment of choice, I never think there’s enough protection and there’s always dangers that lurk. But I do think that we’re in learning stage of all of this, and I’m not sure that people are actively ignoring this and saying “it’s a problem for the parent or the household to oversee.” I think that people are genuinely concerned about this at all of those levels, but we may not completely understand what the risks are yet or how to control them.

On the public level, the public is constantly identifying and addressing potential games associated with playing interactive video games. There’s lots of public service websites that are popping up like getgamesmart.com, for parents and kids to be advised of the dangers and best practices. The government is taking the issue of cyber-bullying very seriously. There have been, unfortunately, several recent high-profile media reports about cyber-bullying and the very, very devastating consequences that ensue. We definitely don’t need any more of those stories, but of course they do get the discussion going. The theme of this year’s national school safety week, which was just last week, was cyber-bullying. And you know, schools have implemented policies to extend bullying beyond the classroom to address these new forms of intimidation and harassment. Again, I don’t think we fully understand it, but definitely there is the knowledge and the awareness that bullying goes beyond the old-fashioned in the schoolyard bullying.

Game developers and publishers have also implemented measures to address privacy concerns. For example, Xbox Live has family settings that parents can set to control online access, friend lists, profile information and all of that stuff. Again, there have been some efforts made. Are they enough? No, they will never be enough as long as there’s bad stuff happening.

IPO: Back to digital distribution. When you cut out the need to have a physical product in stores and on shelves, it seems like it would reduce the need for a big distributor to print CDs and ship them out across the country. Do you think that the industry will shift towards smaller publishers who distribute their games electronically, or will there always be a need for the large publishers to act as money-men[/women] and finance and market games?

SA: As much as I encourage digital distribution, I don’t think the era of the mega-publisher is going anywhere. It’s not just about pressing and distribution. It is very much about capitalizing the games, which really at this point the big publishers are in the best place to do. It’s about having the marketing expertise and paying for the marketing.

As long as illegal downloads can be controlled, the fact that delivery is being moved from physical in-stores to digital in my mind does not impact the role of the big publisher at all. Their money and expertise is needed in picking the right games and acquiring the IP, whether that’s original IP or established properties. Having the money and the expertise to acquire and market games is very important.