Wednesday, November 21, 2012

Memories of GameStop: A Future Without First Sale

[NOTE: At the bottom is an important primer for understanding how copyrights work. Please read it if you have had no exposure to copyright discussions prior.]

GameStop has successfully become the go-to used game vendor in most of America, but many other shops still thrive by focusing on collector markets and older generation systems. One of my personal favorites, Games4Less in Tallahassee, Fl, has more cartridges and hard to find systems than I can throw my money at. But what these stores represent may soon become a memory of years past when we owned our video games. An important Supreme Court case was heard on October 29, 2012, that goes to the heart of the first sale doctrine in copyright. The case, Kirtsaeng v. John Wiley & Sons, Inc., involves a man who purchased grey market text books in Asia and then resold them on eBay in America. The issue being decided is what happens when the prohibition on gray market goods conflicts with the doctrine of first sale.

Gray market goods are those goods manufactured and licensed for a market where the price is low, and the goods are then transported to a different market where the price is much higher. People who make money off of these goods do so by selling them at a price that undercuts the goods originally meant for the higher market. Such practices have generally been prohibited under Section 602(a)(1) of the Copyright Act. Often times when you see an item on eBay, Craigslist, or even your local flea market that is half of its normal cost, chances are it is a gray market good. But what happens when that good was originally purchased from the copyright holder?

The first sale doctrine is one of the most important aspects of American Copyright Law. Content owners are able to license and control the use or purchase of their product rather extensively, but under the first sale doctrine most of that control goes away after you purchase it. Once you buy a CD from your local store, you can do what you want with it. You can sell it, burn a back up copy, throw it away, let a friend borrow it; you can do all of those things without permission from the copyright owner. This means that if you buy a copy of Assassin's Creed III and finish it the week of release, you can then take it to GameStop or any other used game shop and sell it to them for credit. But this might change with Kirtsaeng v. John Wiley.

The Supreme Court has to decide which of these two statutory mandates wins out in a direct conflict; the content owner's protection or the consumer's right of ownership. Neither argument lacks merit, but the conceptual shift in copyright law that is on the horizon cannot be overstated. A ruling on the side of protecting content owners will have far reaching implications. If first sale doesn't win, then how much control do copyright holders have? A finding that copyright holders can prevent resale through licensing is completely plausible in this context. This would mean that GameStop, Games4Less, and many other shops like them will either change dramatically or become a memory. And with continued control by copyright owners, will we ever own our copyrighted material the way we have come to know? These changes seem unlikely to us now, but a slow shift could piggy back on this decision. In twenty years we may be telling children of how we used to actually own our copies of video games and movies.

The changes could be just as dramatic in the alternate outcome. With the first sale doctrine winning out over gray market prohibitions, copyright holders will be forced to find new business practices to prevent such losses in the future. Regional licensing and market price control becomes much harder in a globalized market, and copyright holders may be forced to make drastic changes if they can't prevent gray market goods due to the first sale doctrine. For the interactive media industry, this could mean more region locking and DRM focused on circumventing gray market transactions.

This case is an important one to watch because its outcome will greatly affect industries that deal in copyrighted material. Whether your a consumer or a creator, the market in which we interact is about to change.

Copyright Primer

It is important to note in any copyright discussion the basic distinction between the expression and the medium. Copyright protection protects only one thing, the (typically) physical expression of an idea. A common example is a music CD, let's say by Johnny Cash. Johnny Cash owns the copyright in the music on the CD. He gets final say on what happens with it, how it is distributed, how much it gets sold for, etc. The music as recorded is his expression of his musical ideas. The CD though, the actual medium onto which Johnny Cash expressed his idea, is not copyrighted and belongs to the purchaser. This is typically where first sale becomes involved. I can't make copies of the CD to give away because that infringes Johnny Cash's rights in the material on the disc; however Johnny Cash can't tell me what to otherwise do with the disc itself because I own it and his copyright protection doesn't extend to the physical medium. So I can destroy the disc, sell it to a used shop, use it as a coaster, etc.

A mediocre video game analogy is the Pokemon system in which a Poke Ball houses a Pokemon. Think of the copyrighted material as the Pokemon and the medium as the Poke Ball. Consumers can do whatever they want with the Poke Ball, but the Pokemon inside it is copyrighted material. So as long as you don't mess with the Pokemon inside, you can sell, use, give away, do whatever you want with the Poke Ball without permission from the copyright holder (Professor Oak). Generally, it's only when you decide to clone the Pokemon inside that you run into trouble with copyright law.

Wednesday, November 7, 2012

The New Tristram Conundrum

Whether you enjoy it or hate it, Diablo III is an important game. I myself have lost an almost shame inducing amount of time playing it and have enjoyed it thoroughly. The importance of this game though is one mechanic that could have a major impact on the interactive media industry, the Real Money Auction House (RMAH). For those who are unfamiliar, the RMAH serves as a place where players can place the in-game items they find for sale; either for in-game gold or real world currency. For games with large player bases and involved communities, these types of transactions are nothing new. However, Blizzard's involvement is what makes this move so important.

Historically, if a player wanted to sell an item for real money they would have to frequent websites hosted by third parties. Publishers explicitly prohibited the sale of in-game items through such websites but could do little to stop them. The exact reasons and justifications are unknown, but Blizzard attempted cut out the third party websites and control the market themselves with Diablo III. From a business standpoint, it makes sense. There is currently a $1 transaction fee taken by Blizzard for every completed transaction that occurs on the RMAH. While transaction statistics aren't available, this could easily provide for a steady stream of ancillary income from the game. [Thanks to Reddit user gakpad for pointing out my original error].

So what could be the problem? Well, at a certain point when money is changing hands a consumer begins to wonder what he/she is actually getting. In law school, every student quickly learns that owning property is similar to a bundle of sticks, with each stick representing one of the rights you have. You get the right to use, the right to exclude others from using, the right to convey, and the occasional right to destroy. You hold the bundle, and use whichever stick you want when you want. But what about virtual commodities and in-game items? Publishers like Blizzard claim that consumers are merely purchasing a license to the game and like any copyright license it is revocable. In-games items are only an extension of that license and often times the End User License Agreement and Terms of Use make this explicit. But that doesn't mean the legal discussion is over; in fact it hasn't started yet.

Back in 2006, a case came rather close to a judicial ruling on the rights consumers hold in their in-game items. The case was Bragg v. Linden Research, Inc. and involved virtual land purchased in Second Life. The reason this case was important is because most EULA's contain a mandatory binding arbitration clause which prevents a judge from hearing any arguments or deciding on the legal substance of the dispute. Before it was settled, the judge in Bragg threw out the arbitration clause and was ready to let the case proceed. Unfortunately, the parties settled before the case was argued. As of now, there is no binding case law determining what rights consumers hold for their in-game items. I can literally research whether sneezing on a person is considered a battery for civil or criminal claims and find adequate case law, but if you ask me what rights you have to your Trifecta Gloves for your Demon Hunter in Diablo III, I've got nothing.

But with Blizzard in control of the market through the RMAH, there is no middle man. The third party websites previously served as a buffer between the publisher and players. If any transaction went sour or if an item lost value due to in-game changes, there was no liability on the publisher because they weren't involved in the transaction side of the business. The RMAH changes that and could lead to a judicial determination of the rights consumers have in the in-game items. It only takes one angry consumer and one legitimate screw up from the publisher for a case to begin, and if you read the Diablo III forums there would appear to be an excess of at least the former.

Law school taught me to have more fun in discussing the questions than the answers. This question of property rights would force the courts and the industry to deal with some very tough questions. If I do have a property right in the items I acquire, does that mean there has been a taking of my property when Blizzard alters values and mechanics through patches? If I don't have any rights in my items, then can Blizzard legally wipe my account and my items without cause? Whether you take a Lockean labor theory or a strict copyright license approach, any hardline approach would likely change the industry. The conundrum is whether answering the question will be worse than not knowing.